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Since the second half of this year, in DeFi, the hottest topic in the cryptocurrency market, there have been endless discussions about DEX, liquidity mining, governance tokens, etc. With the recent upsurge in market sentiment, the scale of funds locked in the DeFi field has reached a record high of $14 billion, which is nearly 9 times higher than at the beginning of the year. However, there is a segmented application field in DeFi that seems to be rarely noticed by everyone, namely DeFi lottery. In this article, we understand the current situation and future of this field together.
Blockchainization of traditional lottery
The traditional lottery industry has a long history. “Six games will compete for the glory, and the gold plate will be sold for thousands of people” is the poet Li Bai’s description of the grand folk gambling in my country during the Tang Dynasty. In modern times, lottery tickets are subject to national policies, which usually refer to a type of voucher that the state is licensed to issue and sell in accordance with the law in order to raise social welfare funds and promote the development of social welfare undertakings. Natural persons voluntarily purchase them and obtain a chance to win prizes in accordance with specific rules.
Since the traditional lottery is based on a centralized operation, the issue of trust is the biggest concern of the public. All aspects of lottery, such as issuance, purchase, draw, cashing, and the use of raised funds, have the possibility of opacity and black-box operation, and the interests of lottery players cannot be guaranteed.
Blockchain and smart contract technology theoretically provide solutions for this. The decentralization and non-tampering characteristics of the blockchain, coupled with the de-trust and automatic execution of smart contracts, can well help the lottery system achieve information sharing, real-time supervision, process transparency, and credible results.
At this stage, “blockchain + lottery” has been launched by many institutions, including but not limited to:
On April 13, 2019, the world’s first blockchain lottery operated by MOBILELOTTO LTD was launched in Kampala, the capital of Uganda;
On June 6, 2020, the world’s first blockchain instant lottery product “Gold Rush Valley” game was officially released in Cambodia;
In October 2019, the Shenzhen Welfare Lottery Issuance Center stated that it plans to conduct a trial of “blockchain” technology for lottery purchases, launching lottery tickets printed with lottery personal information such as ID number or mobile phone number, so that lottery buyers have no worries about lottery purchase.
The native application of “DeFi+lottery” emerges
The above cases are mostly traditional lottery games combined with blockchain technology. In the cryptocurrency market, there are also a number of original cases undergoing interesting attempts, especially in combination with DeFi.
Pool Together is the prime representative of such projects. It was established in September 2019 and is based on Ethereum. It can be defined as a kind of “lossless lottery”, that is, even if the player fails to win a prize, they can receive a principal refund without having to suffer losses. Take Pool Together’s current DAI pool as an example. A reward cycle is one week, during which players deposit funds (DAI) into the smart contract prize pool together and get a corresponding number of lottery tickets (1DAI=1 lottery). During this week, PoolTogether will deposit funds on the loan agreement Compound to earn interest, which will form the bonus of a random winner during the weekend draw. But to be more precise, in the current V3 version of PoolTogether, in addition to capital interest, there is another component of the bonus: Loot Box bonus (the loot in the game), including the tokens of DeFi projects such as COMP and UNI. , Mainly from community contributions.
In the week that this article was written, the prize of the DAI pool amounted to approximately US$2,400, and 1,398,705 lottery tickets were issued, corresponding to the participation of 1,398,705 DAI funds. Participate in the lottery). Assuming that a player buys a 100 DAI lottery ticket, there is a 0.0071% probability of earning 2400 DAI, and a 99.99% probability of not winning (100 USD is returned). The mathematical expectation is 0.17 DAI. The corresponding opportunity cost is the interest (APY 3.34%) of putting it on a platform similar to Compound. The mathematical expectation is 0.06 DAI, which is lower than the lottery revenue.
According to data from Dune Analytics, the number of players in PoolTogether has shown a continuous upward trend, and has now reached nearly 13,000, an increase of 517% in the past year. There are currently about 960,000 DeFi users, which means that PoolTogether accounts for about 1.4%.
Source: Dune Analytics Graphics: Cointelegraph Chinese
As of October 9 this year, PoolTogether has issued a total of nearly 30,000 DAI in bonuses, and the platform has charged a very small 406 DAI as a handling fee. In the past two months, as the size of the prize pool increases, this number should increase significantly.
Source: Dune Analytics Graphics: Cointelegraph Chinese
Jack’s Pot is another application to practice DeFi lottery, and is also a member of the Wanchain ecosystem. It was inspired by PoolTogether. The difference is that the user’s participation funds are WAN tokens, and the rewards are obtained through staking to the PoS verification node on Wanchain, which can basically be understood as a currency-based lossless lottery. Generally speaking, staking funds often face a certain waiting time for redemption. For this reason, Jack’s Pot has set up a liquid capital pool to solve the needs of players’ funds withdrawing at any time.
The designs of PoolTogether and Jack’s Pot are the same. It can be said that they fully combine lottery and DeFi. On the one hand, they have brought lottery tickets to the stage of blockchain and avoided the artificial participation of traditional lotteries, low efficiency, and insufficient fairness and transparency through automated execution on the chain. On the other hand, they increase the elements of DeFi and take advantage of the interoperability between the protocols, making the Lego blocks of DeFi more stable and complete.
In summary, blockchain technology must have broad prospects in the lottery industry. In the future, with the empowerment of blockchain, the traditional lottery industry and the public welfare undertakings it helps should benefit. In the cryptocurrency market, native DeFi lottery projects will also become more influential as their popularity increases. On the other hand, the scale of DeFi lottery is still small and attention is low. The author still has two main reasons:
1) The size of the prize pool is still small, and the lottery prize is low. When the final bonus is not attractive enough, users often lack motivation to participate. Therefore, in order to increase the degree of incentives, for example, PoolTogether is considering issuing its own native tokens to encourage some form of liquidity mining to expand its lottery pool.
2) At this stage, DeFi-related operation costs are high, and security incidents occur frequently. After considering the benefits, costs and risks, users may still remain on the sidelines of the DeFi lottery. With the advancement of blockchain technology in the future, the problems in this area should be greatly improved.
Blockchain is often hailed as a trusted machine, and the lottery industry, which is in desperate need of trustlessness, is one of the best landing scenarios. How the two will be combined in the future, and what kind of decentralized financial innovation will be brought about, is worth seeing.