The lottery business is older than we can imagine. There are recorded proof of keno slips and lotteries happening around 200 BC in ancient China. Throughout time, it has been used as a way to raise money by selling tickets and giving prizes to some randomly selected ticket holders. Lotteries have financed major projects such as the Great Wall or the reconstruction of post-World War I Belgium.
In most of the modern lotteries, a lottery is actually a form of gambling, in which most of the participants lose their bet, and one selected lucky player wins everything. It does not have to be like that. Recent innovations, such as premium lottery bonds, have re-used the concept of random winner selection to incentivize saving behaviors. With the advent of blockchain and decentralized finance, there are many unexploited fixed yield opportunities in products such as staking and lending.
In this article, after a review of lottery bonds, we analyze how blockchain is enabling a new form of lossless lotteries, and introduce to our new $ICX risk-free lottery.
A short history of lottery bonds
Investors’ risk preferences evolve throughout time and events. In periods where the enthusiasm of investors is low, governments have appealed to societies’ most risk-tolerant investors with a mechanism called lottery bonds.
These, often used in a period of war or reconstruction, would offer a fixed coupon — just like a traditional bond—but the purchaser would be subject at an element of chance: he would not know at which value the bonds would be redeemed or when. Because of the characteristics of human nature, this element of chance with the possibility to win a far greater prize actually excites the interest of investors. Once the bond financing closed, regular drawings would then take place to decide which bonds are to be redeemed and at which value. A small number of the bonds would be redeemed for an amount greater than the face value. Lottery bonds like such have been issued by many nations across the globe, including the USA, France, UK, Sweden, Belgium, Pakistan, and others.
In a variation of lottery bond, UK has been issuing what it called Premium Bond since 1956. Premium bonds are perpetual and redeemable at face value at any time. Here, rather than the principal being gambled, as it would be usually, it is the interest on the bonds that are going to be distributed to the drawn winners. Although the total prize pool is usually less than traditional lotteries, the fact that the bonds are redeemable at face value makes the opportunity very attractive to millions of investors. It transforms a gambling behavior into a saving one, with very low opportunity cost given the current low-interest-rate economy. As such, 1 in 3 Britons invests in Premium Bonds.
Understanding the differences between early lottery bonds and premium bonds
How blockchain lossless lotteries are re-inventing lottery bonds
In blockchain lossless lotteries, just like in the UK-issued premium bonds, rather than the principal being gambled, it is the interests generated by this principal that are distributed via lottery.
The digital asset owners lock these into a smart-contract. These assets are then put the work by the smart-contract, which will lock the digital assets into a reward generating opportunity, such as staking. The staked assets then generate rewards, also called interests in the case of lending. Every week or month, these rewards are then distributed to one lucky winner. If the user wishes to get his digital asset back, he can redeem these whenever he wants to, and thus the original assets are sent back after a few days of the “unlocking” period.
Nobody is excited by the idea of saving. A lot of less fortunate people turn into gambling for a chance to earn some extra money. We believe there’s a better alternative, and savings can actually be exciting.
Blockchain lossless lotteries offer many advantages over the traditional lottery system. First, because the rewards come from the interests of the pool and not from the face value of the assets themselves, it is more similar to gamified savings then gambling. In a way, locking some of your unused assets into such a mechanism is probably a sound financial decision, in addition to being fun. Second, blockchain enables the assets to be simply locked in an audited and open-source smart-contract versus transferred into different kinds of accounts, reducing counterparty risks. Third, they enable a global mass of connected people to take part in the opportunity, ultimately increasing the size of the reward pool, but also offering an opportunity to save and earn to the unbanked. Finally, these lotteries are perpetual, meaning that by locking the equivalent of $1 into the contract, you’d always have a ticket for the next drawings: you can play in a run & forget mode.
Discover Stakin $ICX risk-free Lottery
Stakin is currently working on the first implementation of a staking blockchain lossless lottery. This lottery is built on the ICON blockchain thanks to the support of our voters and VELIC Financial. It will be available for all $ICX token holders to join. The ICON protocol currently offers an annual reward rate of around 16%, making it an attractive staking asset for our risk-free lottery project.
In this model, to participate in the lottery, players will need to lock ICX into the lottery smart contract. The smart contract will then vote for P-Reps, and earn staking rewards.
Every week, a random number will be generated by an oracle, such as the one we’ve recently developed and open-sourced for the ICON community. We’re also thinking about integrating verifiable randomness through a decentralized oracle in the future. A winner will be drawn randomly, and earn all the staking rewards generated by the pool.
In a traditional lottery, people buy lottery tickets, and the money is then sent to an institution, and winners are chosen randomly. One person gets lots of money, and everybody else loses.
In our model, one winner gets all the staking rewards from the smart contract, and others can claim back their ICX when they want to stop participating. Players will be part of the drawings for as long as their ICX is locked-up.
Once you’ve locked ICX into the smart-contract, you will receive tickets such as 1 ICX = 1 ticket.
Your chance to win will then become :
# of ICX lottery tickets / Total ICX balance of the smart contract
If there is, for example, a total of 10,000 ICX participating in the lottery, and you have 100 tickets, you will have a 1% chance of winning.
Every ICX sent to the smart contract will be then staked, and the entire staking rewards will be sent once a week [Every Seven term with one term being around 24h] to the lucky winner.
If you keep your ICX lottery tickets, you will be automatically enrolled in next week’s lottery.
In the other case, if you want to stop participating, you can simply send back your ICX lottery tickets to the smart contract. You will then automatically receive back your ICX tokens after the unbonding period. (~5-10 days).
Sounds exciting? We are looking for early users to provide us with feedback while we fine-tune the product and its features. At the moment, we’re still developing this risk-free lottery Dapp and testing it on the ICON Testnet. Please can get in touch with us via Telegram or Discord ❤️
Get to know more about our project
DISCLAIMER: This is not financial advice. Staking, delegation, and cryptocurrencies involve a high degree of risk, and there is always the possibility of loss, including the loss of all staked digital assets. Additionally, delegators are at risk of slashing in case of security or liveness faults on some protocols. We advise you to do your due diligence before choosing a validator.