"No-loss" in the world of DeFi is a concept where users can participate in an incentive system without risking their principal investment or assets, i.e. it doesn't involve gambling or staking something of value with the possibility of liquidation or loss. Pooltogether pioneered this idea, presenting it as a decentralized, no-loss, prize-based savings mechanism.
How Does Pooltogether Work?
Staking: Users stake USDC (a type of stablecoin pegged to the US dollar).
Pooling & Yield Generation: All staked USDC is pooled together and sent to Aave, a top-tier lending protocol. These pooled assets generate a yield return on Aave over a specific duration.
Prize Distribution: Once the set duration concludes, the yield produced is distributed in a lottery-style system to random users. Think of every USDC staked as a lottery ticket – the more you stake, the higher your chances of winning.
No-Loss Feature: What makes it no-loss? Users can reclaim their staked USDC anytime. Only the yield (or interest) their staked amount produces is used for the prize pool.
ZooDAO operates on similar principles. The key idea is that users contest for the yield rewards, not their principal staked assets. The assets or liquidity a user votes with and any staked NFTs remain theirs. These can't be liquidated or won by another user. Only the yield these assets produce during a Battle is up for contention.
In its first version, ZooDAO employs GMX's GLP yields. Hence, users may experience impermanent loss (or gain) when participating in ZooDAO's V1 Battles.
There are some fees associated with ZooDAO to cover operational and development costs, many of which are one-time charges:
0.5% fee upon unstaking LP used for Boosting votes.
1.5% fee when initially zapping assets into a vote.
1% fee on both cross-chain and single-chain swaps via Squid.
The no-loss system, as seen in ZooDAO and Pooltogether, offers an innovative way to incentivize users in the DeFi space. It allows participants to earn rewards and save in a fun way while ensuring their principal investment remains intact.