In PoolTogether V5, daily prize sizes are correlated with gas prices. With L2 efficiency reaching all time highs and gas prices reaching all time lows, this means that daily prizes have recently been worth a fraction of a dollar; hardly an exciting prize experience for most depositors. This may seem like an internal issue to the prize pool, but the easiest solution is in the hands of the depositors.

How? Let's look at how prizes work.

The Prize Algorithm

The prize pool is split into a number of prize tiers, where each tier has a different prize size and odds to win, varying from once every grand prize period to once every draw. The prizes with less odds to win are bigger and the prizes with greater odds are smaller.

There are also two "canary" tiers that receive far less liquidity than the normal tiers and are used as gas price indicators for the system. The first canary tier is expected to always be claimed and if it isn't, the prize pool will drop a tier in the next draw. Similarly, the second canary tier is even smaller and is not expected to be claimed. If it is, the prize pool will gain a tier in the following draw. In this way, the canary tiers will roughly track the gas price to claim a single prize and the system will automatically adjust prize sizes based on the liquidity coming in and the gas costs of the network.

In the current L2 deployments, the daily prizes are set to be about 50 times the size of the first canary tier prize (this means they are set to be over 50 times the gas value to claim a prize). Therefore, the smallest prizes will cost less than 2% of the prize size to claim! That's great right? ... right, guys?

Well... with claims currently costing less than a cent, this means daily prizes are often less than 50 cents on L2s. That's not the most exhilarating prize ride of your life.

So what can team we do?

At first glance, it may seem like this issue can only be solved by replacing the prize pool such that the canary tiers receive even less liquidity, thus raising the daily prize size; however, would that really solve the problem? L2 gas fluctuates and it's unlikely claim costs will ever remain stable enough for a canary adjustment to be a permanent fix. In addition, there are many different opinions for what a healthy daily prize looks like. So the question becomes: "how can we democratize the prize algorithm?"

The solution is in each of our hands. You, the depositor, actually hold more power over the tier adjustment than the prize pool itself and with the help of a prize hook, can cast your vote on what you think a reasonable daily prize is. Let's dive into democracy:

Voting on the Daily Prize Size

The premise is simple. Each depositor votes on the daily prize size they think is best and the prize pool will be powerless to defy the majority.

This is possible thanks to the power of prize hooks. Each depositor can set a prize hook on their deposit that executes some logic when they win a prize. Using this power they can redirect the prize, execute some extra code, or even prevent the claim from happening at all. Yeah, you heard that right; each depositor can control which wins are claimed, even the zero-value canary claims.

Using this power, depositors can vote with their prize hook by setting it to prevent certain canary claims if prizes are too small and allow them if they are too big, and there is no way for claim bots to get around it. These canary prizes have no value to the depositor either way, so there is no value lost by voting. If the majority of winners decide that $1 daily prizes should be the minimum, then the prize pool will be unable to exceed that limit.

Prize Algorithm, meet Democracy.

Like with most crypto democracies, the capital (and in this case, luck) behind your vote matters. The more you have deposited and the more wins you receive, the more your vote will count.

What if you're an outlier?

Now, let's consider two edge cases:

1. You want bigger prizes than everyone else

Let's say you want $100 daily prizes while everyone else wants $1 daily prizes. You've cast your vote, but since you're outnumbered, the prize pool will still have $1 prizes. What can you do?

One option is to set your prize hook to auto-compound any prizes worth less than $100 back into the prize pool to generate more chances to win the bigger prizes. By doing this, you will never receive a prize smaller than your minimum and you will have a greater chance to win that juicy grand prize compared to other depositors.

2. You want smaller prizes than everyone else

Let's say you want $0.10 daily prizes while everyone else wants $10 daily prizes. In this case, there's not much that can be done. You can cast your vote and try to lobby others on your side, but that's about it.

It wouldn't be a true democracy if there were no marginalized groups of people, right? (I kid, but you know it's real.)

Although this group of depositors may not be able to lower the daily prize size, they can still achieve the prize experience they want by working together. One way is to join together in a pod and split any winnings with all members of the group based on the relative time weighted average balances (TWAB) of the members.

Considering Voter Apathy

Democracies are hardly perfect systems and often struggle with voter apathy. Individual voters may feel that their voice does not matter and may not care about the act of voting. In terms of democratizing the prize algorithm, voter apathy can render the entire voting system useless if less than the majority of capital in the system has voted on a minimum prize size.

The effects of voter apathy are often seen in DAOs and onchain treasuries. Even PoolTogether's treasury governance had only a 21% participation rate on the last proposal as reported by tally.xyz. Some governance systems such as the Optimism Token House use retroactive incentives to award token holders who activate their voting power by delegating their votes to a more active participant.

Even though participants in the prize algorithm democracy only have to vote once, overcoming voter apathy is still likely to be an uphill battle. Some of the friction may be overcome by a proactive user experience (UX) that prompts depositors to vote when they make their first deposit in a prize vault, but this relies on the most popular user interfaces to add support for this new feature. Additionally, an incentivization strategy similar to the OP airdrops could be used to reward voters, but such a system would need to be carefully implemented to avoid manipulation.

Conclusion

Daily prize sizes can be voted on permissionlessly through the use of prize hooks to create a democratized prize algorithm. This voting system can be layered on top of the prize pools that are already deployed and can be built in to the deposit experience as an optional action. If the majority of prize capital votes to raise the minimum prize size, the prize pool will be forced to lower the number of tiers and meet their demands. The power is in your hands and now the question remains: will depositors vote to democratize the prize algorithm?

Interested in Prize Hooks?

• Learn more at dev.pooltogether.com

• Join the PoolTogether Community Discord or Warpcast

• Learn about extending the protocol on the Builders Portal

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See you by the pool! 🏊

Disclaimer: The PoolTogether protocol is non-custodial and autonomous. Please be sure to understand the risks of using decentralized finance software before using the protocol.