Tournament Payout

Prizes are determined by a leaderboard ranking at the end of a defined competition period. Common structures include:

• Winner-takes-all: The top-ranked participant receives the entire prize pool.
• Top-N distribution: Predefined percentages of the pool are allocated to the top 3, 5, or 10 players.
• Exponential decay: Rewards decrease sharply after the top positions, incentivizing competition for the highest ranks.

The total value distributed originates from multiple, transparent on-chain sources.

• Entry Fees: A portion of each participant's buy-in contributes to the pool.
• Protocol Treasury: The game or platform may subsidize prizes from its treasury to bootstrap participation.
• Sponsorship: External entities can deposit funds to sponsor specific tournaments, visible as a separate allocation in the smart contract.

Payout logic is encoded in a smart contract, ensuring automatic, trustless distribution when tournament conditions are met. Key aspects include:

• Immutable Rules: The distribution schedule (e.g., 50%/30%/20% for top 3) is fixed in code before the tournament starts.
• Automated Triggers: Payouts execute automatically upon the contract verifying the final, signed leaderboard state.
• Direct Transfers: Rewards are sent via the contract directly to winners' wallets, eliminating custodial risk.

Advanced systems introduce flexibility within the fixed ranking framework.

• Guaranteed Prize Pools (GPP): A minimum prize is guaranteed regardless of the number of entrants, with the platform covering any shortfall.
• Bounty Prizes: Special rewards for achieving specific in-game milestones (e.g., 'first to reach 1000 points') are paid out alongside final rankings.
• Progressive Knockouts: In poker-style tournaments, a portion of each player's entry fee is awarded as a 'bounty' to the player who eliminates them.

The entire payout lifecycle is auditable on the blockchain, providing cryptographic proof of fairness.

• Transparent Ledger: All transactions—entry fee collection, prize pool funding, and final distributions—are recorded on-chain.
• Score/State Attestation: The final ranking must be submitted to the contract via a signed message from a designated, verifiable oracle or game server.
• Contestation Periods: Some implementations include a time delay before payout execution, allowing participants to cryptographically challenge an invalid final state.

Tournament payouts interact with several other crypto-economic primitives.

• Prediction Markets: Use tournament-like payout structures for events with multiple ordered outcomes (e.g., election results).
• Leaderboard Oracles: Decentralized services like Chainlink Functions that provide verified off-chain game state to trigger on-chain payouts.
• Vesting Schedules: Large prizes may be distributed over time via vesting contracts to align long-term incentives.
• Royalty Mechanisms: In creator economies, a percentage of the prize pool can be automatically routed to game designers or map creators.

The payout logic is encoded in a smart contract, making it susceptible to classic vulnerabilities. Audits are critical. Common issues include:

• Reentrancy: A malicious contract could re-enter the payout function to drain funds.
• Access Control: Missing checks could allow unauthorized addresses to trigger payouts.
• Integer Overflow/Underflow: Incorrect calculations could lock or misallocate funds.
• Logic Flaws: Edge cases in ranking or tie-breaking logic can be exploited.

The transparent nature of blockchain mempools allows Maximal Extractable Value (MEV) bots to exploit payout transactions. Specific risks:

• Payout Sniping: Bots may attempt to front-run the official payout transaction to claim prizes illegitimately.
• Withholding Attacks: Validators or sequencers could censor or reorder payout transactions.
• Mitigation: Use private transaction relays (e.g., Flashbots), commit-reveal mechanisms, or schedule payouts during low-activity periods.

Participants may create multiple identities (Sybils) to gain an unfair advantage in tournaments with per-wallet limits or to manipulate voting for community-judged events. This undermines contest fairness. Defenses include:

• Proof-of-Personhood: Integrating systems like World ID or BrightID.
• Staking Requirements: Requiring a stake that would be slashed for collusion.
• Behavioral Analysis: On-chain analysis to detect coordinated wallet activity.

The security of the prize pool itself, often held in escrow by a smart contract, is paramount. Considerations include:

• Upgradability: If the contract is upgradeable, ensure a secure, decentralized governance process to prevent admin key compromises.
• Timelocks: Implement timelocks on critical functions like changing the payout address or withdrawal limits.
• Multi-Sig Wallets: For administrative functions, use multi-signature wallets requiring consensus from multiple parties.

Security is a shared responsibility. Participants must verify:

• Contract Audit: Has the payout contract been audited by a reputable firm? Are findings public and addressed?
• Open Source: Is the contract code publicly verifiable on a platform like Etherscan?
• Admin Controls: Who controls the contract? Look for clear renouncement of admin functions or use of decentralized governance.
• Prize Source: Ensure the prize pool is sufficiently funded and from a legitimate source before participating.

The mathematical function or predefined schedule that determines how the prize pool is divided among ranked participants. It defines the fairness and incentive structure of the competition.

• Common models include exponential decay (top-heavy), linear, or flattened curves.
• A steep curve heavily rewards the top few places, while a flat curve spreads rewards more evenly.
• The curve is typically encoded in the tournament's smart contract logic.

The recorded state of tournament rankings at a specific block height or point in time, used as the immutable source of truth for determining winners and calculating payouts.

• Immutable record prevents post-competition ranking changes.
• The snapshot block hash is often published on-chain for verification.
• Essential for competitions where final rankings are dynamic up until the closing moment.

A self-executing program deployed on a blockchain that automatically distributes rewards to winners based on pre-defined, immutable rules (like the distribution curve and snapshot).

• Eliminates intermediaries and manual processing.
• Ensures trustlessness; payouts execute exactly as coded.
• Handles complex logic including multi-token transfers, vesting schedules, and fee deductions.