Detailed breakdown of how prizes are determined, funded, and distributed in KhipuVault Prize Pool.

Prize Calculation

Understand the math behind prizes: how they're funded, calculated, and distributed to winners.

Prize Funding Source

Prizes come from collective yields generated by all deposits:

Total Deposits: 2,000,000 MUSD
Average APY: 15%
Annual Yields: 300,000 MUSD
Weekly Yields: ~5,769 MUSD

Yield Distribution:

Weekly Yields: 5,769 MUSD
├─ 90% (5,192 MUSD) → Prize Pool
└─ 10% (577 MUSD) → Protocol Treasury

The 5,192 MUSD prize pool is distributed among winners every Friday.

No-Loss Guarantee

Prizes are funded ONLY from yields. Your principal deposit never funds prizes and is always withdrawable 1:1.

Prize Tier Structure

The weekly prize pool is split across three tiers:

Grand Prize (80%)

Prize Pool: 5,192 MUSD
Grand Prize: 5,192 × 80% = 4,153 MUSD

Winners: 1
Prize per winner: 4,153 MUSD

One lucky winner takes the largest share.

Runner-Up Prizes (15%)

Prize Pool: 5,192 MUSD
Runner-Up Pool: 5,192 × 15% = 778 MUSD

Winners: 5
Prize per winner: 778 ÷ 5 = 155 MUSD

Five winners share the runner-up pool equally.

Consolation Prizes (5%)

Prize Pool: 5,192 MUSD
Consolation Pool: 5,192 × 5% = 259 MUSD

Winners: 10
Prize per winner: 259 ÷ 10 = 25 MUSD

Ten winners receive smaller consolation prizes.

Complete Distribution Example

Weekly Yield: 5,769 MUSD
├─ Protocol Fee (10%): 577 MUSD
└─ Prize Pool (90%): 5,192 MUSD
    ├─ Grand Prize (80%): 4,153 MUSD → 1 winner
    ├─ Runner-Up (15%): 778 MUSD → 5 winners (~155 each)
    └─ Consolation (5%): 259 MUSD → 10 winners (~25 each)

Total Winners: 16
Total Distributed: 5,192 MUSD

Yield Calculation

Yields vary based on Mezo vault performance:

Weekly Yield Formula

Weekly Yield = (Total Deposits × APY) ÷ 52

Example:
Total Deposits: 2,000,000 MUSD
Current APY: 15%
Weekly Yield: (2,000,000 × 0.15) ÷ 52 = 5,769 MUSD

Yield Sources

Prize Pool aggregates yields from multiple Mezo strategies:

Strategy	Allocation	APY	Weekly Contribution
Mezo Native Staking	60%	13%	3,000 MUSD
Mezo LP Pools	30%	20%	2,307 MUSD
Mezo Money Markets	10%	11%	423 MUSD

Total Weekly Yield: ~5,730 MUSD (before fees)

Yield Variability

APYs fluctuate based on market conditions. Prize Pool uses a 7-day moving average to smooth volatility and ensure consistent prizes.

Prize Scaling with Deposits

As more people deposit, prizes grow proportionally:

Scenario A: Small Pool

Total Deposits: 500,000 MUSD
APY: 15%
Weekly Yield: 1,442 MUSD
Prize Pool (90%): 1,298 MUSD

Grand Prize: 1,038 MUSD
Runner-Up: 194 MUSD (5 winners, ~38 each)
Consolation: 64 MUSD (10 winners, ~6 each)

Scenario B: Medium Pool

Total Deposits: 2,000,000 MUSD
APY: 15%
Weekly Yield: 5,769 MUSD
Prize Pool (90%): 5,192 MUSD

Grand Prize: 4,153 MUSD
Runner-Up: 778 MUSD (5 winners, ~155 each)
Consolation: 259 MUSD (10 winners, ~25 each)

Scenario C: Large Pool

Total Deposits: 10,000,000 MUSD
APY: 15%
Weekly Yield: 28,846 MUSD
Prize Pool (90%): 25,961 MUSD

Grand Prize: 20,769 MUSD
Runner-Up: 3,894 MUSD (5 winners, ~778 each)
Consolation: 1,298 MUSD (10 winners, ~129 each)

Key Insight: Larger pools create bigger prizes but also more competition (lower individual odds).

Expected Value Analysis

Individual Expected Value

Your expected value per draw:

Expected Value = (Probability of Winning) × (Prize Amount)

Example Calculation:

Your Deposit: 1,000 MUSD
Total Deposits: 2,000,000 MUSD
Your Ticket Share: 0.05%

Grand Prize Expected Value:
= 0.05% × 4,153 MUSD
= 2.07 MUSD

Runner-Up Expected Value:
= (5 ÷ 1) × 0.05% × 155 MUSD
= 0.38 MUSD per prize × 5 prizes
= 1.90 MUSD total

Consolation Expected Value:
= (10 ÷ 1) × 0.05% × 25 MUSD
= 0.125 MUSD per prize × 10 prizes
= 1.25 MUSD total

Total Expected Value: 2.07 + 1.90 + 1.25 = 5.22 MUSD per week

Expected Value vs. Yield Opportunity Cost

Compare Prize Pool expected value to direct yields:

Deposit: 1,000 MUSD
APY: 15%
Weekly Direct Yield: 2.88 MUSD (guaranteed)

Prize Pool Expected Value: 5.22 MUSD (probabilistic)

Expected Value Premium: 5.22 - 2.88 = +2.34 MUSD (81% higher)

Expected Value ≠ Guaranteed Returns

Expected value is a statistical average. You might win 4,153 MUSD or win nothing. Over many draws, expected value averages out.

Direct yields: Guaranteed but lower Prize Pool: Higher expected value but volatile

Prize Pool Reserve

To ensure prize stability during low-yield weeks:

Reserve Fund: 5% of weekly yields
Purpose: Buffer for yield volatility
Usage: Top up prizes if yields drop

Example:

Normal Week:
Weekly Yield: 5,769 MUSD
Reserve Contribution: 288 MUSD
Prize Pool: 4,904 MUSD

Low-Yield Week:
Weekly Yield: 2,000 MUSD
Reserve Withdrawal: 3,192 MUSD
Prize Pool: 5,192 MUSD (maintained)

Reserve Balance After: Previous balance - 3,192 MUSD

This ensures prizes stay consistent even during market downturns.

Winner Selection Process

Random Number Generation

Chainlink VRF provides verifiable randomness:

1. Draw scheduled for Friday 12:00 PM UTC
2. Request random number from Chainlink VRF
3. Receive provably random uint256
4. Use random number to select winning tickets

Ticket Selection Algorithm

// Simplified winner selection
function selectWinner(uint256 randomness, uint256 totalTickets) returns (address) {
  uint256 winningTicket = randomness % totalTickets;

  // Find user who owns this ticket number
  uint256 cumulativeTickets = 0;
  for (address user in allUsers) {
    uint256 userTickets = getTickets(user);
    if (winningTicket < cumulativeTickets + userTickets) {
      return user; // This user owns the winning ticket
    }
    cumulativeTickets += userTickets;
  }
}

Key Points:

Each ticket has equal probability
More tickets = proportionally better odds
Provably fair and verifiable on-chain

Multi-Tier Draw

1. Draw Grand Prize Winner
   - Use random number R1
   - Select winning ticket from total pool
   - Award 4,153 MUSD

2. Draw Runner-Up Winners (5x)
   - Use R2 = hash(R1 + 1)
   - Select winning ticket (exclude Grand Prize winner)
   - Repeat 5 times
   - Award 155 MUSD each

3. Draw Consolation Winners (10x)
   - Use R3 = hash(R2 + 1)
   - Select winning ticket (exclude previous winners)
   - Repeat 10 times
   - Award 25 MUSD each

Note: A single user can win multiple prizes in one draw (rare but possible).

Prize Calculation Edge Cases

Zero Yields Week

If weekly yields = 0 MUSD:
- No draw occurs
- Deposits remain safe
- Next week's draw proceeds normally

Partial Week

If Prize Pool launches mid-week:
- Yields prorated for days active
- Example: Launch Wednesday = 2 days of yields
- First draw might be smaller

Single Depositor

If only 1 person deposited:
- They win 100% probability
- Prize = yields from their own deposit
- Essentially earning direct yields as "prizes"

Historical Prize Data

Example of prize evolution:

Week	Total Deposits	Weekly Yield	Grand Prize	Winners
1	250,000 MUSD	721 MUSD	577 MUSD	16
10	1,000,000 MUSD	2,884 MUSD	2,307 MUSD	16
25	2,500,000 MUSD	7,211 MUSD	5,769 MUSD	16
52	5,000,000 MUSD	14,423 MUSD	11,538 MUSD	16

Trend: Prizes grow as more users deposit (network effect).

Prize Taxes and Fees

Tax Considerations

Prizes may be considered taxable income in your jurisdiction. Consult a tax professional for guidance.

KhipuVault does not withhold taxes. You're responsible for reporting winnings.

Protocol Fees:

10% of weekly yields → Protocol treasury
0% fee on deposits/withdrawals
0% fee on prize claims

Prize Calculation Transparency

All calculations are verifiable on-chain:

Contract: PrizePoolCalculator.sol
Function: calculatePrizes(uint256 weeklyYield) public view

Returns:
- Grand prize amount
- Runner-up prize amounts
- Consolation prize amounts
- Protocol fee

Anyone can independently verify prize calculations.

Comparing to Traditional Lotteries

Metric	Traditional Lottery	Prize Pool
Prize-to-Revenue Ratio	~50%	~90%
Odds Disclosure	Often unclear	Transparent on-chain
Expected Value	Negative	Positive (no loss)
Prize Source	Ticket sales	Collective yields
Principal Risk	100% lost	0% lost

Prize Pool offers vastly superior economics to traditional lotteries.

Next Steps

Claiming Prizes - What to do if you win
Odds & Strategies - Improve your expected value
FAQ - Common questions

See current prizes: View Prize Pool →

Prize Calculation

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