On Monday, December 4th, Lucky8 successfully initiated its protocol launch by establishing a Uniswap v2 liquidity pool (LP) with 82,000 USDC and 75% of the total $888 token supply. Following the launch, there was a rapid surge in trading volume, surpassing the $4 million mark within a few hours. Notably, the $888 token incorporates a 10% tax on both buy- and sell transactions, resulting in substantial tax earnings being generated.

The considerable volume of fees generated presented a significant challenge, as the tax rewards were not automatically liquidated after each individual purchase. This led to a substantial accumulation of rewards that were intended to be converted to USDC and allocated to the prize pool. Concurrently, a small portion of the tax earnings, approximately $94,000 USDC, was manually sold, contributing to the prize money.

In numerical terms, 17.1% of the total $888 token supply (17,093,074 $888) was accumulated in tax earnings, net of tokens sold for USDC. Following a community vote, it was decided to burn the 17,093,074 $888 tokens. Subsequently, a bot contract was implemented to automatically sell additional accruing $888 for USDC when specific parameters were met, leading to increased selling pressure as $888 tokens were unloaded on the open market.

This incident highlighted a flaw in the design of the $888 token, necessitating an update. However, due to the immutable nature of the smart contracts, a direct smart contract update was not possible. Consequently, the decision was made to overhaul the entire protocol, anticipating a comprehensive re-launch of Lucky8. Presently, the prize pool balance of Lucky8 is approximately $111,000 USDC, which will be distributed once the protocol upgrade is executed.

In response to the current protocol design and its economic flaws, we present a re-launch of Lucky8 including full re-implementation of the lottery contract, as well as the token contract.

In the following, we specifically address the main flaws the current implementation faces and how the new implementation will look like. This layout demonstrates a very close interpretation to Lucky8’s initial inspiration, Empty Set Dollar.

Currently existing bottlenecks:

1. 10% buy- and sell taxes are severely high causing sell pressure on tax conversions from 888 to USDC with its current tax reward split.

2. Resulting from (1), continuous sell pressure prevents people from entering the system (buying $888 tokens) as a large tax harvest sell will follow.

3. Staking early to participate in the lottery has no benefit opposed to staking “last-minute” before a lottery draw.

4. Lotteries defined by governance votes creates friction and generally a bad UX.

Design features of the new implementation:

Token Contract

Implementation; Natively Implemented Tax Swaps

The new token will atomically swap accruing taxes captured in $888 to USDC without relying on an external smart contract to execute the task.

This modification ensures that tax swaps are seamlessly integrated within the same transaction as the user's buy or sell activity, preventing them from being recorded as distinct sell transactions.

Lottery Contract

Implementation; epochs

Each lottery draw counts as an epoch. Instead of manually voting for the next lottery draw, lotteries will take place every 20 hours fully eliminating voting on lotteries in general.

This resolves a significant user experience issue associated with governance, as each lottery will now occur based on a standardized set of pre-defined parameters. Additionally, facilitating more frequent lotteries will enhance the flywheel dynamics outlined below.

Implementation; Different lottery prize pot distribution

As the new design features more frequent lotteries of every 20 hours, the new lottery prize pot distribution only distributes 1/4th of the entire accumulated USDC per lottery to three lottery winners.

The effect of this is to have a longer lasting flywheel that incentivizes people to stay inside the system as lottery prize money for the next lottery draw is already “reserved”. Furthermore, always distributing prize money to the same amount of winners makes the EV more predictable.

Implementation; Different tax distribution

While the 10% buy- and sell taxes remain, they will be distributed differently to not convert the entirety of rewards to USDC. The new distribution looks as follows:

• 40.0% Lottery Prize Pot (prev. 80%)

• 20.0% Protocol Owned Liquidity (prev. 10%)

• 20.0% Distributed to bonders (prev. 0%)

• 10.0% Burn (prev. 0%)

• 5.0% Distributed to LPs (prev. 0%)

• 5.0% Team (prev. 10%)

The effect of this is to reduce additional sell pressure on the token while incentivizing people to remain bonded in the lottery by providing a staking yield that increases the odds of winning for bonders. Adding to that, featuring non-inflationary LP rewards aim to further incentivize liquidity for $888. Adding 10% supply burn will enable an aggressive deflationary mechanism on the token.

Implementation; staged:

To join the lottery, individuals must bond their tokens. If participants decide to exit the system and withdraw their $888, they will enter a staged period of three epochs. During this staging period, individuals are ineligible to participate in consecutive lotteries and will not receive additional 888 distributions through native staking yield. After the completion of the three epochs, participants are permitted to exit the staged status and proceed to withdraw their 888 tokens.

The effect of this is to penalize people exiting the system and not letting them earn additional 888 rewards. Simultaneously people that stay inside the system are rewarded with increasing pro-rata distributions that were previously diluted by the people that decided to exit. This creates huge opportunity costs for people that want to exit.

Implementation; LP rewards / no lottery participation

LPs will now earn 5% of all accrued taxes in $888 as LP incentives. Furthermore, staking LP tokens will not be able to participate in lotteries anymore.

The effect on this is to further incentivize people to provide liquidity, and further increase liquidity resulting from this. As calculating the value of LP tokens comes with significant risk, we decided to not make LP staking eligible to mint lottery tickets. Nonetheless, LPs can bond their non-inflationary $888 LP rewards to participate in the lottery.

Implementation; New Metric called EV APR

This metric provides the north star for people participating in the lottery calculated:

= 100% * USDCPricePot / 888USDValueBonded * DrawingsPerYear

As the new implementation comes with lotteries every 20 hours, the total number of lotteries per year can be calculated. Deriving from this we can issue an EV APR that is a tangible metric for people to play Lucky8.

Implementation; Remove referral system

The referral system will completely be removed.

While the referral system adds an engaging element by encouraging individuals to share Lucky8 within their social circles, it poses a significant drawback for bonders who actively contribute to the system by locking up supply. The inflation of lottery tickets through referrals disproportionately impacts individuals who have purchased and bonded $888, resulting in a negative economic shift. To mitigate this, we have decided to eliminate the referral system entirely, preventing any adverse effects on EV.

We also turned off the selling bot until the new implementation goes live. The accrued rewards will be distributed to bonders.

The draft above provides a comprehensive overview of the changes that will be made to the protocol. As the new implementation features a new token contract deployment, everyone who holds $888, will be able to exchange their old $888 1:1 for new $888. In another article we will outline the next steps in regards to the token migration, and lottery contract migration.

We're really sorry about the bumpy start with Lucky8 and want to genuinely apologize to everyone who got caught up in the prize rollercoaster due to the initial glitches. With the fresh design of the protocol, we're very confident about kicking off a successful re-launch, complete with a $111,024 USDC prize pot. We're determined to turn Lucky8 into what it should have been from the beginning and put all the effort required into it to make this big.

If you have any suggestions / thoughts or fedback on the proposal above, please join our Discord and let’s chat:

https://discord.gg/Lucky8