TLDR: Every lottery is negative expected value, since fees are taken from the prize pool. This lottery is a protocol, which runs freely on a blockchain, and takes no fees from the prize pool, which makes it neutral expected value. To make this positive expected value, users are rewarded for participating in the lottery with revenue share. Revenue comes from yield on the money in the lottery pool. The frontend blocks US users to stay legally compliant. As a permission-less protocol, builders trust building on it since they can’t be de-platformed, and can even take on the risk to allow US users.
- How does this compare to existing lotteries?
- Why this is important and valuable
- Lottery Components
- Building on BLAST L2
- Hypotheses
- Implementation Details
- Archive
How does this compare to existing lotteries?
Why are existing lotteries inefficient? Because all of the following is taken from the prize pool
- Real world expenses like scratch cards or payments to brick and mortar locations
- Demand generation by running advertisements since many lottery competitors
- Business running the lottery needs a way to profit
Our lottery system - let’s call it lottery.tech for now - will be efficient by nature of blockchain:
- Lottery has no cost to run as it is a decentralized blockchain protocol
- No user acquisition cost and competitors. Rewards are provided for users who refer lottery entrants. Protocol is structured such that competitors will want to build on top of protocol, rather than compete.
- Team monetizes independently of the lottery pool via the frontend
Why this is important and valuable
People will always want to gamble and speculate. However, crypto is full of scams, casinos take a large margin, and lotteries/scratchers take even larger margins. Let’s return that margin to the user.
This is uniquely crypto native, has true product-market fit, and can be 10x better than non-crypto alternatives. Building as a protocol means others will contribute rather than compete, speculation is human nature, and positive expected value is infinitely better than rake.
Lottery Components
- Onchain lottery contract
- Drawing commences every 24h, users have a proportional chance based on contribution.
- No fees are taken from the prize pool, so users’ expected value is neutral, aka what they put in.
- Points program
- Users get points for participating in the lottery and referring other users.
- A leaderboard gamifies the experience.
- Points get a share of revenue from the yield generated from money in the prize pool, as well as potentially, blockchain-based incentives and governance. This makes participating in the lottery positive expected value.
- Trusted frontend
- Team makes money by monetizing the frontend with onramp fees and swap fees. Focus on being doxxed with a transparent business model, vs undoxxed shady competitors
- Others are encouraged to build competing frontends
Building on BLAST L2
- Quick primer on BLAST: Stablecoins automatically rebase to earn yield, gas fees from the protocol are returned to developers, and they are airdropping tokens to users and developers
- Thus, deposits into a lottery contract, before the lottery is drawn, earn yield. This can be the source of revenue for token holders.
- Gas fees allow developers to make money even if someone else’s frontend drives traffic.
- Lastly, there is a sizeable developer airdrop. Offering a share to token holders incentivizes product usage, which grows developer airdrop, a virtuous cycle.
Hypotheses
- Users use this because if you’re going to gamble, it’s the highest ROI way to do it
- Users will use us partially because there is an airdrop
- Positive EV is a strong selling point for users. Thus, it’s important to keep it positive, even if a small magnitude (+0.01%).
- Points let us tilt revenue share towards early adopters and referrals to build a network. If we rewarded purely based on yield, there isn’t enough incentive to get the network off the ground.
- Yield revenue share (0.014%/day at 5%/year) isn’t enough to motivate users. We expect some combo of Blast points share (developer airdrop share), gas fee share, and more gamification (leveling / NFT system) can get us there
- In the short term to win the hackathon, gamification and ease of user experience are more important than building composability or non-upgradability of protocol
- In the medium/long term, frontend builders/developers want to build on top of us because:
- Protocol is composable so it satiates 95% of use cases of raffling/gambling needs, with the ability to easily plug into liquidity, reduces time/resources needed for development or user acquisition
- Protocol is non-upgradeable so there are no deplatforming concerns