Protocol lotteries
Players buy tickets with a token and match numbers to share a prize pool, with part of each pool kept or burned. PancakeSwap's lottery is the best-known example. Paying for a chance to win is the classic definition of a lottery.
+ Crypto and on-chain lotteries · Guide
Crypto and on-chain lotteries.
On-chain lotteries such as PancakeSwap's made provably fair draws famous: randomness anyone can check, run by a smart contract. What they do not do is change the law. Here is how they work and where the legal lines sit.
01 At a glance
The short version.
- What they are
- Draws run by smart contracts, with tickets bought in tokens and winners chosen by verifiable randomness
- Example
- PancakeSwap's lottery sells tickets for about $5 in CAKE, draws six numbers and burns 20% of each prize pool
- Randomness
- Usually a verifiable random function, such as Chainlink VRF, that anyone can check on-chain
- The legal test
- Most markets ask whether players pay, whether there is a prize and whether chance decides it. The technology is not part of the test.
- Licensing
- A smart contract is not a licence. Paid chance draws still need a licence or an exemption where the players are.
- Lawful routes
- Licences, free entry routes, no-purchase sweepstakes, promotional draws under permit and charity lotteries
02 The models
Three on-chain models.
Crypto draws come in a few shapes, and the legal analysis follows the shape of the draw, not the chain it runs on.
No-loss lotteries
Players deposit funds, the yield becomes the prize and deposits can be withdrawn. They echo prize bonds, which some laws exclude by name rather than by general principle, as Ireland's 2024 Act does for state prize bonds.
Crypto sweepstakes
Entries come free with a purchase of tokens or credits, alongside a free way to enter. The structure mirrors US sweepstakes law, but several US states banned dual-currency, casino-style sweepstakes in 2025 and 2026.
+ Know before you run
What makes one lawful.
- A smart contract does not create an exemption. Great Britain defines a lottery by payment, prize and chance, and Ireland's 2024 Act by paying money for an opportunity to win a prize.
- Paying with a token rather than cash is unlikely to change the analysis, because the rules look at payments and prizes of value.
- Provably fair randomness proves a draw was not rigged. It does not prove the draw was lawful.
- Paid games of chance need a licence where the players are, such as a Malta Gaming Authority licence, or a recognised exemption.
- Exemptions include Great Britain's free entry route, no-purchase sweepstakes in the US and Canada, and promotional draws under permit in markets such as Malta.
- Excluding countries in the terms of use is not the same as keeping their players out.
03 Questions
Common questions.
Are crypto lotteries legal?
Not by default. In most markets a paid draw decided by chance is a lottery whatever the payment method or technology, so it needs a licence or an exemption where the players are.
How does the PancakeSwap lottery work?
Players buy tickets for about $5 in CAKE, each with six numbers. Matching numbers from the left wins a share of the pool, 20% of each pool is burned, unwon prizes roll over to the next round and Chainlink VRF provides the randomness.
Does a smart contract make a lottery legal?
No. Lottery laws look at payment, prize and chance. Running the draw on a blockchain changes how it can be verified, not whether it is regulated.
Is a provably fair draw automatically legal?
No. Verifiable randomness proves that nobody rigged the result. Whether the draw is lawful depends on its model and on the rules where the players are.
Can you run a verifiable draw legally?
Yes, inside a lawful model: a licensed lottery, a draw with a genuine free entry route, a no-purchase sweepstakes, a permitted promotional draw or a charity lottery. Verifiability then becomes proof of fairness rather than a substitute for permission.
Sources
- Lottery, PancakeSwap docs
- Lottery FAQ, PancakeSwap docs
- Verifiable Random Function, Chainlink
- Gambling Act 2005, section 14
- Gambling Regulation Act 2024, section 2
- Licensable game types, MGA
- California AB 831 (2025)
General information, not legal advice. Rules change and depend on exactly how a draw is run, so take advice for your own model. Reviewed September 2026.
04 Access
Provable fairness, legally.
Blockdraws brings draws anyone can verify to lawful models, under your own brand, with no wallet or token needed to take part.
Blockdraws is white-label draw software with every draw verifiable by anyone. Available by application.
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