The Ethereum lottery perfectly explains how the big corporate sponsors of Facebook will benefit from Crypto
To understand how the first investors in Facebook’s new Libra blockchain will earn money over time, it is useful to dig into a new lottery that will be launched live through ethereum mainnet on Monday.
It’s a lossless lottery called PoolTogether and the tickets are already on sale. Its similarity with Libra is not a completely individual relationship, but the key idea of both is the same: earning interest with your own money is good, but it is also better to earn interest with other people’s money.
So first let’s explain this new ethereum game before returning to Libra.
In PoolTogether, each ticket is sold for 20 DAIs (the stability generated by the MakerDAO protocol, which aims to maintain a stable price of $ 1.00 each). Each group sells as many tickets as it can, and the entire DAI subscribes to the money market protocol based on ethereum, Compound. There, all the ticket money charges interest during the life in the pool and in the end, a ticket earns all the interests of the ticket price of all.
But everyone else also recovers the money they paid for their tickets, ergo, the losers do not.
“What excites me is that I think you can actually move the needle of economic health for many people,” PoolTogether creator Leighton Cusack told CoinDesk.
People are excited about lotteries. They are not excited about the savings accounts. This is a way to push them in the right direction.
The idea of putting the concept in ethereum was discussed for the first time in a popular publication on the MakerDAO subreddit at the end of March, and the project has been possible thanks in part to a donation of $ 25,000 from the MakerDAO company.
“We think it’s good for the ecosystem,” said Richard Brown, of MakerDAO, who leads the community development for the decentralized financial firm, on the project. “One of the things that interested me most about this is that it has the capacity to assume a behavior that was essentially a tax on the poor and allows it to become a tool for social good.”
In other words, many low-income people play despite the few possibilities of benefiting. Bankrate, the personal finance site, found that people are less likely to buy lottery tickets as household income increases. PoolTogether takes the appeal of games and combines it with the healthy behavior of delayed gratification.
The strategy is not unprecedented. Walmart has been running a mechanical game to encourage people to save money on their cash cards. People have blocked more than $ 2 billion since 2017.
Without risking losing money, people start saving money instead of spending everything they have. With the yields of a typical savings account currently at 0.9 percent, it is not even irrational for a new saver to participate in a program like this. The opportunity cost is quite low.
The focus of PoolTogether
At the beginning, there will only be one group on the site. It will be open for tickets for three days and then the winner will be announced after earning 15 days of interest, on July 11. PoolTogether will eliminate 10 percent of the interest earned by its business model, that is, it will be left to the company and the rest will go to the winner. Everything is defined in a smart contract recently audited by Quantstamp.
MakerDAO Brown believes that the model could become a frictionless way for large groups of people with available funds to support good causes.
For example, someone could create a decentralized autonomous organization in which all the interest in a group goes to a wallet controlled by a non-profit organization chosen by the winner (instead of their personal account). He called it a new kind of “primitive” for decentralized finance, saying:
“The friction is quite low, it’s quite low risk, it’s low stress, because no one is coming out to say this thing broke.”
Cusack, of PoolTogether, expects the project to start big enough. He wants the first winner to basically double his money from the winning 20 DAI ticket. That’s going to take a group of 100,000 DAI, said Cusack, which is a big goal, but they already have several commitments to prime the bomb with 1,000 DAI each.
So, what about Libra?
Libra is also designed for a few to capture the interest earned on the money hidden by many.
As CoinDesk previously reported, there are two tokens that make Libra work. Most of the attention has been focused on the Libra currency, stablecoin backed by a basket of bonds and still unnamed coins. However, to start that basket, Facebook came up with the idea of the “investment token Libra” (LIT).
Like PoolTogether, the main objective of LIT is to earn interest on other people’s deposits.
To understand why this is so powerful, think of a very simple example. Imagine a LIT sold for $ 10 million. Invested in a basket of boring and safe investments, Canaccord Genuity has projected that the reserve should earn around 0.25 percent. Then $ 25,000 in a year over $ 10 million. That is nothing, but it is a terrible performance for a technological investor.
But imagine that 100,000 people decided they wanted to use the Libra currency, and they all bought $ 100 for each one. Now that holder of the only LIT will earn $ 50,000 in a year, because the reserve doubled with other people’s money, but only the LIT earns the interest.
Now, this is a global project, so, obviously, Libra supporters want to involve more than 100,000 people. Even if you sell a billion dollars in LIT tokens, with companies like Visa, Uber and PayPal, there’s no way they’re not targeting many, many billions in the reserve. With each additional trillion, the returns are multiplied to the LIT holders.
Canaccord Genuity estimates that if the Libra currency obtains a market capitalization equal to that of bitcoin, $ 162 billion, each year $ 324 million will be returned to all the LIT holders, after subtracting the operating expenses of the Libra Association.
Let’s assume that no organization has more than one LIT and the Libra Association reaches its 100 founding partners as planned: that’s an annual return of $ 3.24 million on each partner’s investment of $ 10 million. It is also not a one-time return. They continue to do so as long as Libra’s currency continues to function.
Then, 10 years after it coincides with the bitcoin market limit, a LIT holder would have earned $ 32.4 million without losing any of its main ones, a profit greater than 300 percent. And that’s assuming that the reserve did not grow at all as the decade went by.
In PoolTogether, everyone is betting that they can earn interest from everyone else’s tickets. A crypto novice could buy a ticket for 20 DAIs and get all the interest earned from a whale that bought 1,000 tickets.
In the Libra protocol, it works the same way, except that the same whales always win.
It remains to be seen if Libra will reach that point or even if it will take off from the ground, but PoolTogether is now starting for anyone who wants an opportunity to steal a whale. The person who created the product that will house the first reserves, Robert Leshner of Compound, told CoinDesk that he will definitely buy some tickets in the first round.
Said Leshner said the following:
“We love seeing the world experiment with new products and new ideas built on Compound no matter what they do. I’m excited.”
Disclaimer: This press release is for informational purposes information does not constitute investment advice or an offer to invest. The views expressed in this article are those of the author and do not necessarily represent the views of infocoin, and should not be attributed to, Infocoin.