Discussion Post: Can Gambling Increase Savings? Empirical Evidence on Prize Linked Savings Accounts

Call to Action: In these threads, we attempt to further the discussion of a key problem in this category and evolve our understanding of the domain space where research work has not yet answered the specific problem or question being considered. These posts are living documents, and it is our hope that the community will continue to contribute to their structure and content.


Prize-Linked Savings (PLS) accounts could offer a safe, potentially profitable alternative to gambling according to a recent paper in Management Science. “Can Gambling Increase Savings? Empirical Evidence on PrizeLinked Savings Accounts” suggests that, based on a case study in South Africa, PLS accounts do not necessarily cannibalize from regular savings accounts, while directly contributing to a reduction in gambling.

Variations on PLS accounts are also beginning to emerge from the Decentralized Finance (DeFi) space from companies like PoolTogether. Often these projects use incentive mechanisms to promote saving and dissuade token holders from engaging in value extraction that might hurt prices or promote unwanted behavior. The following discussion also contains the results of a primary investigation into PoolTogether.

Prize-Linked Savings (PLS): A savings account that adds a periodic prize that is randomly awarded to a recipient(s) at a regularly scheduled interval. PLS accounts may also offer annual percentage yields (APY) in addition to prizes, in this case, the PLS would be offering two separate incentive mechanisms.

Million a month accounts (MaMa): A savings account in which depositors are entered into a monthly “Million Rand Prize” for keeping their savings in a MaMa account.

PoolTogether: A Decentralized Finance (DeFi) project offering a variation on a PLS account, in which various cryptocurrency tokens are pooled into separate contests. Pools may offer differing APYs. Prizes may be awarded weekly or daily.

Key Problem / Topic Area

In “Can Gambling Increase Savings? Empirical Evidence on PrizeLinked Savings Accounts”, Shawn Cole, Benjamin Iverson, and Peter Tufano looked at PLS accounts in South Africa to assess the effects of the new type of account on the local population’s banking and gambling behavior. A case study prepared by BTIG, LLC looks at PoolTogether, an example of PLS accounts being used to determine the benefit of rewards on the saving habits of small accounts.

Specific Question or Problem Statement

Can prize-linked savings accounts offer a viable alternative to gambling? Do prize-linked savings accounts cannibalize from regular savings accounts?

Approach / Methodology

The following charts break down the impact of PLS on various aspects of account growth during the South African case study conducted by Cole et al.

Growth Rates of Standard 32-day Savings Before and After MaMa


Savings Balances of Bank Employees: MaMa Users vs. Nonusers

Effect of Winning Prize on MaMa Deposits

Effect of Local Jackpot Prize Winner on Local MaMa Demand

Growth of the MaMa Product

The following charts break down the PoolTogether depositors and their accounts by pool.

Starting Deposits compared to Current Deposits by Pool

Percentage of Depositors per pool

Values of Highest Winning Accounts and Lowest Winning Accounts

Annual Percentage Yield (APY) By Pool

Mean of Winning Account Value Compared to Highest and Lowest Value of Winners by Pool

Reward X Winning Accounts X Number of Depositors X Value of Accounts

SUM of Average Reward Value (last 12) Type of Reward
APY (at time of recording) Number of depositors Pool Daily Weekly Grand Total






42 Total



0 Total








1129 Total



1.68 Total








389 Total



1.77 Total








1866 Total



5.95 Total








2321 Total



6.08 Total








5398 Total



8.62 Total








3323 Total



11.69 Total








574 Total



15.93 Total



Grand Total




Conclusions / Key Takeaways

The research suggests that PoolTogether may provide similar incentives to a traditional PLS account based on the growth of account balances over time. However, the gas fees associated with entering and exiting a pool may offset any earnings, but upcoming changes to the Ethereum protocol may affect that aspect of earnings in a way that would significantly improve net yield.

Research also indicates that although the weighting of prizes favors the larger accounts, it was fairly uncommon for the largest account in a pool to be awarded a prize more than twice in a row. This suggests that while the mechanism deciding winners is inherently weighted towards larger accounts, smaller accounts winning indicates that the pool’s fairness mechanisms are designed to benefit smaller and medium-sized accounts over the long-term instead of larger accounts in the short term. In this context, the smallest accounts benefit the least due to the odds effectively making it impossible for them to actually win.

There may also be a benefit to using DeFi PLS accounts that use pegged tokens as the definitive token for their pools. In the recent market downturn, accounts with USD-pegged tokens naturally resisted the loss of value associated with market volatility, while pools using unpegged tokens suffered losses of value directly correlated with the market.

CTA: Future Work / RFP

This work looked at a case study and conducted primary research on PoolTogether. Further research on DeFi PLS accounts and the successes or failures of the pools in helping depositors build savings could provide additional context and clarity.


PLS accounts look like the alternative to get people saving up instead of buying lotteries. It provides a stronger psychological incentive and would be more appealing.

I’m still waiting for more empirical evidence though. The crypto world is quite different from traditional finance. There are lots of instruments available here. Pool Together has a lot to compete.

I skimmed the paper and found one piece of evidence that would be in favor of Pool Together.

Compared to bank employees with a savings account in the bank that offered MAMA, bank employees WITHOUT one are much more likely to open a MAMA.

This means that PLS accounts can incentivize people to open an account pretty well. That is, it has some potential to escape from the competition, and create its market.


You are correct that we need to have more empirical evidence from the defi space before we can come to any conclusions about the potential for PLS accounts in the defi space. I did use primary research on Pooltogether, as the charts from Pooltogether had to be created from hard data. There is a benefit to having open access to the pools so that the data can be analyzed in contrast to traditional finance where their reports are quarterly and not specific on individual accounts.

All that said, the current data shows that PLS accounts can potentially be viable alternative to traditional lotteries as a mechanism to increase savings while reducing gambling.


This is an interesting paper, but I do question the strength of the evidence regarding the reduction in gambling claim being made. But in some ways, that isn’t really the big news here. The real value here is the incentivization of a positive behavior as opposed to the alternative to a negative behavior (at least from my understanding).

I found the fairness mechanism observation interesting.

If the goal here is to get more people saving (which it might not be), it seems that some other mechanics would work better. Or is the likelihood to win enough of an incentive to continue doing the desired behavior?


The reason they correlated the findings with “gambling” specifically is that the balances in the mama accounts would change relative to large national lottery jackpots. When there were large national jackpots, the mama accounts would have fewer deposits; but as the mama accounts increased their monthly awards relative to smaller national lotteries, they saw increased deposits. It is obvious you can’t draw conclusions about causation in the real world, but they were finding correlation in movement with mama accounts and national lottery prize sizes. This is also specified in the context of South Africa.

The mechanism you’re observing in the latter part was relative to “Pooltogether” and not the South African study. I don’t think the defi space has a good grasp on building incentive mechanisms quite yet. The original research on the South African case study did not include a chart relative to the state lotto, but it was alluded to in the paper. One of the reasons I did not go into depth into that part is because the author gets into an unnecessarily racial analysis of the data, and I was not inclined to open that can of worms in this discussion post.

I think the issue is not even about modifying behavior so much as the exposure to “prize-linked savings accounts” which amount to “risk-free gambling”. If more people were made aware that these types of mechanisms exist, they may be inclined to put their money into a lossless prize pool rather than risk a prize in a system in which they lose their entrance fee if they are not the winner.

This is a zero sum design compared to a positive sum design. We are talking about a complete paradigm shift concerning capital management. In a sense, a “lossless prize pool” is still “gambling”. This is why framing it as “pls vs. gambling” is not quite accurate. “Gambling” implies a zero-sum game, but as we can see with PLS accounts that is not always the case. The outcome of the game is determined by the rules, and in this case a PLS system does not have the same type of “losers” as a traditional zero-sum lottery. If you do not win in a PLS system, you do not “lose” anything. That is a fundamentally different type of game, but it’s still a type of “gambling”.


If anyone is interested in learning more about PoolTogether, please check out our recent panel on Governance Implementation, where founder Leighton Cusack spoke to Connor Spelliscy, Seth Frey, Scott Moore and @kelsienabben discussed community, incentives and DAOs, among other topics.


First of all, thank you for the clarification, particularly regarding the PLS vs. gambling framing.

Perhaps it is still too soon to comment, but do we have any indication about the impact that gas fees might be having on the value of earnings?

I also wanted to come back to your question:

This is an interesting question because it might be where DeFi can appeal to more people. As you pointed out above, there is some strong gamification happening here that is appealing to people. Maybe more importantly, there is some analysis that could be done to identify tipping points between seeking a standard yield versus an opportunity to win. So, coming back to your question, what would cannibalization data look like? Certainly there will be some movement in the market if PLSs are present, but how much adoption is necessary to determine if it is changing the expectations and/or behavior of people looking to save?


I had thought about these questions, and I believe a way to tell if gas fees were cannibalizing the savings would be to look at accounts that had exited and average the difference between the yields and the gas fees at time of exit. I think the gas fees at time of exit are more relevant than the “least fee possible to exit the pool at the optimal time,” because those that exit may have had an external pressure that forced them to get out of the pool and in some cases be forced to take an excessive gas fee.

Since we can’t look at the Pooltogether users’ bank accounts, one may be able to look at their other coin holdings to see if any of them had been transferred into Pooltogether. It might be relevant to do a study to see how many users switched from trading on Dexes where the trades were visible to using Pooltogether. There is some way to glean behavioral shifts if they do exist. In that regard it would only be possible on accounts that had a history of trading prior to joining Pooltogether. While it would take a considerable amount of work, I do believe it would be possible to determine if Pooltogether cannibalizes trading market account balances. While the term “cannibalize” sounds bad, the overall outcome would likely be a net positive movement for the market if Pooltogether PLS accounts cannibalized speculative trading accounts; but potentially an overall net negative outcome if the gas fees subsequently cannibalized the PLS accounts.


I absolutely agree that there is a potential net positive here for the market if speculative trading gets displaced by PLS accounts. I suspect this would bring some stability to the market.

Thanks for digging into these questions a little more. Based on my understanding now, it seems to me that PLS mechanisms might be something that projects that are seeking to attract stakers could or should be using. More analysis of those tipping points of account holding and likelihood to win prizes is needed, but it does seem like something that could be alluring for potential project investors. Maybe @tjd233 could bring some perspective to this as well.


Hi @Larry_Bates. Fascinating concept. I see the potential for cross-overs to many spheres other than just personal savings with concepts like this, as well.

I’m curious whether there is talk of a “critical mass” of sorts by which systems like these would start to lose effectiveness. Would there be other forms of incentive systems that could be attached to this general concept?


This was a great article. Firstly, thank you for posting and beginning the discussion on PLS accounts.

I see the real value here in the incentivization that @zube.paul mentioned, specifically as it relates to platforming the unbanked and motivating low-income individuals to save with a legitimate financial product that resembles the outcome of gambling, but is far from it. Effectively, moving those that might be subject to the predatory practices of gambling schemes into the banking sector. My interest lie in this exact capability of new DeFi and TradFi products that can open the banking and financial services sector to low-income for new forms of wealth creation. Few TradFi products now cater to the low-income user, and leave large portions of communities outside of the financial sector – which we know continues to grow the wealth gap, as low-income individuals turn to non-traditional and predatory methods of “finance” (i.e., payday lenders and check cashers) in the lack of credit unions and banks, and therefore appropriate financial products. Furthermore, the authors are right when they mention: “a growing body of evidence suggests that a large percentage of households in developed and developing countries alike maintain little to no savings.” Even more US households had significant portions or all of their savings wiped out during the pandemic. Which highlights the growing potential market size and need for products like this in the US.

Beyond the technical limitations (gas fees) and need for maturity in DeFi, I’m interested in the potential for social production to be the key focus in a lot of these products. What can be built to solve the failings of a current system that exclude low-income or the unbanked from wealth creation? Can we expand DeFi to those individuals in an effort to remedy the wealth gap? These are the individuals that have the most to gain from a transformed financial system. DeFi products promoting the benefits to low-income and attracting the unbanked can also engage in an Environmental, Social & Governance (ESG) framework that is lacking from the crypto-sphere in general. Ultimately, ESG says ‘are you helping the planet, people, and yourselves’…if yes, then consumers can have another signal that this product is appropriate for them and others.

Lastly, wanted to input here some other quotes concerning the low-income benefits mentioned in the paper, as I found it impressive that the authors were able to see some behavioral patterns among this demographic:

  • “We find that the lowest-wealth group are nearly 17% points more likely to open a MaMa account than those with a small amount of savings. These individuals are those for whom a large financial prize is a significant incentive, even if the chances of winning are small, as it represents a chance to significantly change their economic situation.” (page 11)
  • “Individuals who feel this way [that their debt is never ending] may be more likely to use PLS because it represents a chance for them to pay off their debts and escape a poverty trap, whereas standard savings products do not accumulate enough interest to do so (Banerjee and Mullainathan 2010). In addition, financial constraints themselves could lead individuals to play the lottery (Haisley et al. 2008, Shah et al. 2012).” (page 13)
  • “This finding [that low-income individuals are attracted to these PLS & MaMa] is also related to evidence from the Consumer Federation of America and The Financial Planning Association (2006), which found that 21% of Americans and 38% of those with incomes below $25,000 thought that winning the lottery represents the most practical way for them to accumulate several hundred thousand dollars. Individuals who feel that their dreams are extremely difficult to reach may feel as if the only way possible for them even to have a chance at reaching those goals is by winning a large prize. PLS differs from standard savings accounts by offering highly skewed payouts, making large wealth accumulation possible.” (page 12)

@valeriespina Thank you so kindly for these fantastic questions and observations. I am going to take a couple days to think about these questions and do some further research so I can give a more informed response, so please be patient with me as I think about these wonderful questions!


I want to address as many of the aspects of the questions and comments posted as possible within a reasonable and useful amount of time. I will address the Defi potential upsides and pitfalls, some previous findings of PLS accounts, and some insights about the infrastructure and social adoption aspects. Further, there are some opportunities for implementation of PLS accounts that might be easier to trial in the decentralized/open-source space before attempting to trial them in a municipal setting.

First, the theoretical applications of DeFi projects show a lot of potential in the context of growing capital through algorithmic exchanges. There was a couple of analyses of the theoretical framework that were posted on the forum -

Theoretical framework:
Whitepaper: Uniswap v3 Core - Mechanism Design and Game Theory - Smart Contract Research Forum

An analysis of Uniswap markets - Mechanism Design and Game Theory - Smart Contract Research Forum

While this data has not been peer-reviewed, a cursory study of accounts participating in DeFi trading would have been better off just letting their capital stay in place instead of attempting to use DeFi trading mechanisms -

Real-world outcome:
Rekt - Uniswap V3 LP - REKT

This excerpt from the blog post explains that roughly half of the liquidity pools using Uniswap were losing money over time. -

" A recent study suggests that around 50% of UNI V3 LPs are losing money compared to if they just held their assets (and the fees they earn don’t make up for it) .

When V3 was launched, Uniswap promised their LPs increased capital efficiency via the use of concentrated liquidity positions.

But after 6 months of use, it appears that the increased complexity (and risk) have left half of LPs losing out under the new system."

Although their study was limited to 17 pools, it is a strong indicator that the Uniswap liquidity pools are not necessarily as viable for generating revenue as initially anticipated.

That said, there was a significant amount of data that showed PLS accounts can reduce gambling and increase savings among lower-income populations that either gambled, had problems accruing savings, or a combination of both. The long-term studies showed various benefits to PLS accounts, including one study which showed a 3% reduction in gambling among the sample population.

Long Term Study:

Long-Term-Effect-of-Temporary-of-Incentivs-to-Save_Gertler.et_.al_March2018.pdf (povertyactionlab.org)

Making Savers Winners: An Overview of Prize-Linked Savings Products | NBER

Testing strategies to increase saving in individual development account programs - ScienceDirect

Supply Chain Transparency for cost is preferred by consumers when available:
Lifting the Veil: The Benefits of Cost Transparency by Bhavya Mohan, Ryan W. Buell, Leslie K. John :: SSRN

While there are proposed benefits of bringing more transparency to supply chains, there have yet to be any successful case studies. To the contrary, most of the case-studies I have come across that tried to implement a blockchain into their supply chain did not actually see significant enough improvements to make a case that blockchain technology will actually bring transparency to supply chains:

On the quest for supply chain transparency through Blockchain: Lessons learned from two serialized data projects - Rao - 2021 - Journal of Business Logistics - Wiley Online Library

The Struggle is Real: Insights from a Supply Chain Blockchain Case - Sternberg - 2021 - Journal of Business Logistics - Wiley Online Library

That is all to say; a realistic implementation of a PLS account that also includes blockchain technology could potentially be a quicker way to get unbanked populations into interest-bearing savings accounts that could also randomly see them getting an outsized prize.

While it is not currently clear what type of structure might yield the most positive outcomes a few issues would need to be addressed to reduce risk:

  • It would need to benefit the local supply chain
  • It would need to be cost-effective (ethereum gas-fees would be prohibitive as an example)
  • It would need to be resistant to volatile market swings
  • Optimally, it would be resistant to inflation
  • If it were local, it should not undermine the local economy
  • If it is part of a national initiative, it should not undermine the national economy (I.E. building on an extranational network)
  • It can’t have a high barrier of entry into the global market (I.E. localized currency exchange gouging)
  • It can’t be at risk of being banned by local government
  • It can’t be at risk of being shunned by the citizens because of cultural/institutional associations

While this list is not exhaustive, it represents a starting point to show that there are factors that would make blockchain/DeFi PLS accounts more likely to be successful if implemented in a real-world situation.

If there was a hypothetical DeFi/PLS account that gave users the option to “save” their money in a digital version of their local currency and/or “invest” their capital into a government-matched bond which subsidized a local supply chain operation, while also having a lossless prize associated with these accounts; that would be more beneficial than gambling or investing in a non-local company. It is difficult to get these types of constructs when maximalists will push single blockchain solutions, but inevitably there will need to be many experiments to get to a PLS/DeFi account model that would work in multiple countries.

I have linked an example of a proposal for a sustainable blockchain infrastructure that was put forth in Bangladesh, as something like this would be necessary to ensure that the net effect was not negative.

As long as all of the relevant aspects are included, down to the storage and power consumption implications; there is potential for these types of accounts to be made accessible to their targeted population. The issue becomes, these tools will not likely be made accessible until either someone can profit off the users, or a government makes a major investment into a digital infrastructure shift.


A thought I had recently might be worthy of piggy-backing onto your discussion re: government investment into infrastructure transitions…

Would there any potential for an overlap between PLS accounts and funding public projects through state-based lottery?

This is a limited example of what I’m referring to, but it seems that there could be a future where the concepts intersect.

I feel like @tebogonong could weigh in on this, as well, considering her work on public procurement as it relates to smart contracts.


Thank you for this framing! I did some digging into this subject to get a little more insight as to some of the potential implications. On the one hand, there is a potential for a “lottery-funded public project” path to increase the funds that citizens would give towards a cause. One study showed that people were more likely to buy lottery tickets knowing that the funds would go towards a public good than to just donate directly to the cause. While this is not generalizable across all situations, there is a clear potential to raise funds for specific state projects using lotteries where voluntary contributions are hard to come by.

On the other hand, there have not been clear correlations between state lotteries funding projects and an actual increase in the funding for those specific projects. One study showed a negative correlation between state lotteries and public funding, indicating that the money going into the lottery was effectively causing the budgets for affected programs to shrink. Another study showed a five percent increase in public spending on higher education directly correlating with the state lottery.

In these examples, there is the notion put forth by the researchers that while the state lottery can have benefits for society; “using it as an implicit tax can be regressive”. In other words, there is a potential that using this mechanism as a means of funding public goods can reinforce high-risk behaviors with the implication that the behavior does a greater good for society. PLS accounts were analyzed from the perspective of their potential to curb gambling.

If there was a combination of a PLS account that somehow gave prizes but also funded public projects, it might be the most net-positive implementation of the mechanisms that promote risk-reducing behaviors. It would seem based on data that regularly participating in lotteries inherently increases the likelihood that a person will participate in high-risk activities such as gambling. If a design was able to leverage the lossless reward aspect of the PLS account with the capacity to take some of the pooled money to generate funds for public good, then it might be possible to combine them.

After preliminary research, it would seem relevant to ensure that the implementation was not reinforcing high-risk behaviors that might be carried over to other environments. Further, there does seem to be potential for an implementation that employs the proper behavioral triggers to motivate people to get involved in contributing to public project funding without reinforcing high-risk behaviors.


Seems like there are some interesting parallels between PSAs and state-run lotteries / casino compacts, including weighing their public benefit vs, costs. Since the publication of this summary, Pooltogether has been in the news because a Warren staffer has sued the company under a law against lotteries – from the WSJ “Although Mr. Kent’s lawsuit, supported by two plaintiffs’ law firms, is nominally focused on winning a potentially large pot of financial damages, it also appears to be a deliberate effort to put some of the DeFi community’s core doctrines to the test. A former technology lead for Sen. Elizabeth Warren’s 2020 presidential campaign, Mr. Kent is described in his lawsuit as someone “gravely concerned” at the prospect that cryptocurrency, which consumes voluminous amounts of electricity, could contribute to climate change, besides enabling bad actors to circumvent financial sanctions.”

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I sincerely wish they had a better representative for the argument against these practices. The aforementioned case is frivolous at best, intentionally obtuse pandering at worst. When you look at the details of that specific case, it is clear that Mr. Kent is using generic arguments that are not necessarily specific to DeFi platforms and are more of the general concerns associated with Proof of Work mining. Further, the notion that these platforms enable bad actors any more than cash is disingenuous, as there is no legitimate proof these transactions are coming from nations which are under sanction.

There are legitimate problems with the prize-linked savings defi platforms, but this type of frivolous action will only serve to make officials look uninformed and in the process, it becomes painfully clear their attempts to cast a negative light on this issue were only coming from a place of political gain and no actual attempt to improve the technology.