Part of the complete guide: Crypto lottery: the complete guide
How a no-loss lottery works
- 1You deposit tokens, often a stablecoin such as USDC, into a prize pool contract.
- 2The pool puts the combined deposits to work in a yield-earning protocol, such as a lending market.
- 3The interest earned is not paid to depositors. It goes into a prize pool instead.
- 4On a regular schedule, such as daily or weekly, the contract draws winners at random from among depositors, weighted by how much each person deposited and for how long.
- 5You can withdraw your deposit at any time. If you did not win, you lose only the interest you would have earned elsewhere.
Why it is called "no-loss"
In a traditional lottery, you pay for a ticket and the money is gone. In a no-loss lottery, your deposit is returned when you withdraw, so the "cost" is the opportunity cost of the yield. If the yield on your tokens would have been 4% a year, then a $1,000 deposit costs you about $40 a year in forgone interest, which is the price of your chances. This is how it differs from a lottery with a negative expected value by design: in aggregate, all the yield goes back out as prizes.
"No-loss" does not mean "no risk". The protection applies to the cost of the ticket, not to the safety of the underlying contracts and tokens.
PoolTogether, the best known example
PoolTogether is a prize savings protocol that has run on Ethereum and several other networks. Its design has changed across versions; the latest versions let anyone deposit and have prizes funded by yield from integrated lending protocols, with draws handled by smart contracts and on-chain randomness. Reviews describe it as non-custodial. As with any fast-moving protocol, details such as supported networks, prize tiers and fees change, so read its current documentation before depositing.
Odds and prizes
Because prizes come from yield, they are small relative to deposits. A pool with $10 million in deposits earning 4% generates about $400,000 a year in prizes, shared among all depositors. Your expected return equals your share of the pool times the prize pool, which is simply the yield on your deposit, paid in an uneven way. You do not gain an edge over a savings account: you take the same average interest in lottery form, with the thrill and the variance.
| Feature | Traditional lottery | No-loss lottery |
|---|---|---|
| What you pay | A ticket price, gone for good | A deposit you can withdraw |
| Where prizes come from | Other players' ticket money | Yield on all deposits |
| Average return | Below what you pay | About the yield you would have earned anyway |
| Main risks | Losing the ticket price | Contract bugs, yield-source failure, token depegs |
| Typical prize size | Small to enormous | Small to moderate |
Risks to understand
- Smart-contract risk. A bug in the pool contract or the yield protocol could lose deposits.
- Yield-source risk. If the lending platform is hacked or becomes insolvent, deposits may be lost.
- Token risk. A stablecoin can lose its peg.
- Gas fees. On busy networks, depositing and withdrawing small amounts can cost more than the prizes you expect.
- Legal and tax. The tax and legal status of prizes and of yield varies by country.
Who it suits
No-loss lotteries suit people who already hold stablecoins, are comfortable with DeFi and want a lottery element without paying for tickets. They are less suited to people who want a large jackpot, have small balances where fees dominate, or who are not comfortable managing smart-contract risk. They are one approach among several; see our comparison of crypto lottery types, and read about decentralized lotteries for how to judge claims.
Ready?
A weekly draw you can check yourself.
$5 tickets, a public random value, and every result published with the data to recompute it.
Frequently asked questions
Is a no-loss lottery really risk-free?
No. You do not pay for tickets, but your deposit is exposed to smart-contract, yield-source and token risks.
Can you lose money in PoolTogether?
The design aims to return deposits, but bugs, hacks and depegs in the underlying systems could cause losses. Read the current documentation and audits.
Where do the prizes come from?
From the interest earned on the pooled deposits.
Is a no-loss lottery better than a regular lottery?
It avoids the ticket price, but returns the same average as the yield. It is a different product with different risks.