How Prize Pool Works

Understanding the mechanics behind the no-loss lottery: from deposits to prizes.

The No-Loss Principle

Prize Pool operates on a simple but powerful concept: your principal is never used to fund prizes.

Traditional Lottery

You pay $10 → Ticket purchased → Draw happens → You lose $10 (if no win)

Prize Pool (No-Loss)

You deposit 1,000 MUSD → Earn tickets → Draw happens → Withdraw 1,000 MUSD + prize (if win)

The key difference: deposits are held safely in smart contracts, only yields fund prizes.

The Lifecycle of Your Deposit

1. Deposit Phase

When you deposit MUSD into Prize Pool:

// Simplified flow
deposit(1000 MUSD) → {
  - MUSD sent to Prize Pool contract
  - User balance recorded: 1,000 MUSD
  - Funds deposited into Mezo yield vault
  - Lottery tickets assigned: ~1,000 tickets
  - User eligible for next draw
}

What happens to your MUSD:

• 100% deposited into Mezo's yield-generating vault
• Your balance is tracked on-chain
• You can withdraw anytime (no lock-up)

2. Yield Accumulation Phase

Every block (~5 seconds), all deposits earn yields:

Total Pool: 2,000,000 MUSD
APY: 15%
Daily Yield: ~821 MUSD
Weekly Yield: ~5,750 MUSD

Where yields go:

• ✅ 90% → Prize pool for distribution
• ✅ 10% → Protocol treasury (operational costs)

Your individual deposit contributes to the collective yield pool.

3. Ticket Allocation

Lottery tickets are dynamically calculated based on your deposit:

Your Tickets = Your Deposit Balance × Ticket Multiplier

Example:

• You deposit: 1,000 MUSD
• Ticket multiplier: 1.0 (1 MUSD = 1 ticket)
• Your tickets: 1,000

Important:

• Tickets update in real-time as balances change
• More deposit = more tickets = better odds
• Tickets are not transferable NFTs, just accounting

4. Draw Phase (Weekly)

Every Friday at 12:00 PM UTC, the draw executes:

1. Snapshot all balances → Total tickets calculated
2. Generate random number (Chainlink VRF)
3. Select winning tickets
4. Identify winners
5. Distribute prizes
6. Reset for next week

Randomness source: Chainlink VRF (Verifiable Random Function)

• Provably fair
• Cannot be manipulated
• Verified on-chain

5. Prize Distribution

Prizes are allocated from the weekly yield pool:

Weekly Yield Pool: 5,750 MUSD (90% of yields)

Prize Tiers:
- Grand Prize (80%): 4,600 MUSD → 1 winner
- Runner-Up (15%): 862 MUSD → 5 winners (~172 MUSD each)
- Consolation (5%): 287 MUSD → 10 winners (~28 MUSD each)

Winners are notified and prizes are claimable immediately.

6. Withdrawal Phase

You can withdraw anytime:

withdraw(amount) → {
  - Check user balance ≥ amount
  - Reduce ticket count proportionally
  - Withdraw MUSD from Mezo vault
  - Transfer to user wallet
  - Update balances on-chain
}

Withdrawal scenarios:

• No win: Get back exact deposit
• Won prize: Get deposit + unclaimed prizes
• Partial withdraw: Reduce tickets, stay in next draw

The Math Behind Tickets

Ticket Calculation

Tickets = Deposit Balance × Time-Weighted Average

Time-weighted average: Rewards longer deposits

Example:

• Deposit 1,000 MUSD on Monday
• By Friday draw: 1,000 tickets
• Deposit 1,000 MUSD on Thursday
• By Friday draw: ~285 tickets (2 days out of 7)

Odds Calculation

Your odds of winning are proportional to your ticket share:

Your Odds = Your Tickets ÷ Total Tickets

Example:
- Your tickets: 1,000
- Total tickets: 1,000,000
- Your odds: 0.1% (1 in 1,000)

For Grand Prize:

Probability = Your Tickets ÷ Total Tickets
Expected Value = Probability × Prize Amount

Example:

• Your tickets: 10,000
• Total tickets: 2,000,000
• Your odds: 0.5%
• Grand prize: 4,600 MUSD
• Expected value: 23 MUSD per draw

Smart Contract Architecture

Key Contracts

1. PrizePool.sol - Main entry point

   • Handles deposits/withdrawals
   • Tracks user balances
   • Manages ticket accounting

2. YieldVault.sol - Yield generation

   • Interfaces with Mezo vaults
   • Accumulates yields
   • Funds prize distribution

3. DrawManager.sol - Lottery execution

   • Schedules weekly draws
   • Interfaces with Chainlink VRF
   • Selects winners

4. PrizeDistributor.sol - Prize claims

   • Tracks winners
   • Handles prize claims
   • Prevents double-claiming

Security Features

Yield Sources

Prize Pool aggregates yields from multiple Mezo strategies:

Blended APY: ~15% (weighted average)

This diversification:

• Reduces risk exposure
• Stabilizes yields
• Ensures consistent prizes

Prize Pool Economics

Revenue Model

Weekly Yield: 5,750 MUSD

Distribution:
- 90% (5,175 MUSD) → Prize pool
- 10% (575 MUSD) → Protocol treasury

Prize pool allocation:
- 80% (4,140 MUSD) → Grand prize
- 15% (776 MUSD) → Runner-up prizes
- 5% (258 MUSD) → Consolation prizes

Growth Mechanics

Larger prize pools attract more deposits:

More Deposits → Higher Yields → Bigger Prizes → More Deposits → ...

This creates a virtuous cycle where everyone benefits from growth.

Comparison to PoolTogether

Prize Pool is inspired by PoolTogether V5:

We've adapted the core no-loss mechanics for Bitcoin DeFi on Mezo.

FAQ on Mechanics

Q: Can the protocol use my deposit for prizes?

A: No. Your deposit is segregated and can only be withdrawn by you. Prizes come exclusively from yields.

Q: What happens if yields are low one week?

A: Prizes will be smaller, but your deposit remains safe. If yields are zero, no draw occurs.

Q: Can I increase my tickets after depositing?

A: Yes, deposit more MUSD anytime to increase your ticket count.

Q: Do my tickets carry over week-to-week?

A: Yes, as long as you maintain your deposit, you participate in every draw.

Q: What if I withdraw during a week?

A: Your tickets are calculated based on time-weighted average, so partial week participation gives partial tickets.

Technical Deep Dive

For developers interested in implementation details:

// Simplified ticket calculation
function getTickets(address user) public view returns (uint256) {
  uint256 balance = balances[user];
  uint256 timeWeightedBalance = calculateTimeWeighted(user);
  return timeWeightedBalance; // 1:1 MUSD to tickets
}

// Prize distribution
function distributePrizes(uint256 randomness) internal {
  uint256 totalTickets = getTotalTickets();

  // Grand prize
  address grandWinner = selectWinner(randomness, totalTickets);
  prizes[grandWinner] += grandPrize;

  // Runner-up prizes
  for (uint i = 0; i < 5; i++) {
    randomness = uint256(keccak256(abi.encode(randomness, i)));
    address winner = selectWinner(randomness, totalTickets);
    prizes[winner] += runnerUpPrize;
  }

  // Consolation prizes
  // ... similar logic
}

See our GitHub repository for full source code.

Next Steps

Now that you understand the mechanics:

• Entering the Lottery - How to participate
• Prize Calculation - Prize math explained
• Odds & Strategies - Improve your chances

Questions? Check the FAQ or join our Discord.