Blockchain Games: Decentralizing Randomness for the Common Good
How Chainlink VRF Evens the Odds for Developers and Savers
Smart contract developers and entrepreneurs are building the financial rails that tomorrow’s self-sovereign global economy will use to exchange value. Decentralized, trust-minimized blockchain games democratize access to essential financial services, support the welfare of the global community, and help users build wealth regardless of geography or economic status.
The Chainlink Labs and PoolTogether partnership uses smart contracts and verifiable randomness to gamify and upgrade bank savings accounts and government-run lotteries, two common wealth-building mechanisms corrupted by centralization.
Centralized Infrastructure, Broken Promises
The majority of Americans (56%) use a regular bank savings account to earn, on average, 0.06% interest on deposits. But as the price of commonly consumed goods inflates by 8.5%, savers are losing, on average, 8.44% of their purchasing power on every dollar saved. Rather than feel powerless as they watch their wealth diminish, many turn to more speculative ways of imagining a better future.
Government-run lotteries can be fun and exciting. They are unpredictable and promise the possibility of financial freedom. In 2019, state lotteries in the US netted nearly $29 billion, and though government run lotteries raise revenue for spending, at whose expense? An academic review of lottery research found that “the poor are still the leading patron of the lottery.” The people who stand to benefit most from saving and building wealth are instead distracted from that goal by another centralized entity that is supposed to be working for them.
Seeing an opportunity to do better – and do good, PoolTogether worked with Chainlink to remix savings accounts and lotteries into a no-loss, gamified experience that allows for meaningful interest accrual on deposits and incentivizes saving with the exciting unpredictability of games of chance.
GameFi’s Random Number Generation Dilemma
Play-to-earn blockchain games (GameFi) are one of the fastest growing use cases in Web3. They are responsible for more than half of the industry’s connected wallets and have received over $2.5 billion from VC’s in 2022. One of the most critical inputs for GameFi developers to build fun and reliable games is provably unpredictable, tamper-proof, and affordable randomness. Without it, games can be manipulated or biased by bad actors looking to extract value, and users who do not trust will not play.
GameFi devs have invested significant time and resources trying to build random number generation (RNG) to facilitate in-game mechanics. Unfortunately, these tactics distract teams from their mission, require unreasonably high trust in their assurances of fairness, and ultimately fail – so steer clear!
Faulty Tactic 1: Generate Randomness From On-Chain Block Hashes
Since block hashes are susceptible to block-withholding attacks from selfish miners (or validators), even seemingly random block hash values are vulnerable to manipulation. Malicious miners may extract value from smart contracts by biasing outcomes in their favor of the hashes they decide to submit to the blockchain.
Faulty Tactic 2: Acquire Randomness Off-Chain From A Third-Party
Without cryptographic verification that the off-chain value is unbiased, randomly generated numbers can be tampered with by data providers or whoever transmits the data back on-chain. What’s more, it is impossible for users to verify off-chain values and requires massive trust that third-party data providers won’t manipulate randomness inputs for their own benefit.
Blockchain games require unpredictable and provably fair randomness to eliminate all exploit risk. That’s where Chainlink’s academic research-backed verifiable randomness function nodes come in.
An Impossible-To-Exploit, Verifiable Random Function
Chainlink’s verifiable random function (VRF) uses highly trustworthy blockchain signature verification to cryptographically guarantee unpredictable randomness.
How Chainlink VRF Works
Smart contract applications send a request for a random number and provide an unpredictable seed to the Chainlink oracle network node. The VRF node receives the request and uses its own private key to cryptographically sign and respond with an RGN result and a proof generated by the seed.
Once the results and proofs are published on-chain, cryptographically verified VRF outputs can reliably settle transactions. As long as smart contracts are built with the proper ordering for the use of randomness, node operators cannot bias or manipulate generated results.
Node operators are rewarded for the quantity of security guarantees they provide the network with a cut of the transaction fees. Malicious nodes are mitigated with financial penalties and may be removed from future RGN requests and fee payouts.
With Chainlink VRF, PoolTogether provides a superior alternative to both traditional savings accounts and lotteries with its innovative no-loss savings game.
For a deeper dive into how Chainlink VRF works and a complete technical walkthrough see: Verifiable Randomness for Blockchain Smart Contracts.
Totally Random: Gamifying Savings For Fun
The PoolTogether protocol gives users a chance to win prizes without risking their deposited funds. The rules of this savings “game” encourage users to “play” for a chance to win additional rewards.
How PoolTogether Works
A group of users each add funds into a liquidity pool which may be withdrawn at any time. PoolTogether invests the pooled liquidity in a high-yield DeFi lending protocol (like Compound) to earn interest. The amount of interest generated on a pool is far greater than what any single contributor could earn alone. PoolTogether then randomly selects winners to receive a portion of the total interest a pool accrues during a set period of time. Prize winners are cryptographically guaranteed to be chosen at random. If a user doesn’t win a prize, their funds are automatically entered into the next game.
PoolTogther’s “prize APR,” a rough estimate of expected returns, was roughly 9% in mid-2022 – that’s ~15,000% higher than the average US savings account, and in two years, over $750 million in prizes have been awarded.
Decentralized Verifiable Randomness For The Common Good
Blockchains’ decentralized infrastructure distributes wealth securely and efficiently, increasing the value for all network participants by disintermediating centralized entities. Developers can now incentivize individuals to save and collaborate in groups that maximize everyone’s upside – with the safety of a traditional bank account, but the fun and excitement of a lottery.
With Chainlink VRF, GameFi is becoming a new financial services category using decentralized verifiable randomness for the common good. Projects like PoolTogether are among the first in a growing cohort evening the odds for users looking to grow their wealth.