Flow of Funds

Flow of Funds

While there is a lot of nuance in how pools get allocated by Allocation Strategies, generally speaking there are four steps in the life cycle of a pool. Each step is handled by the Allo core contract (Allo.sol), though some of these methods are implemented by the allocation strategy attached to a pool.

A pool's allocation strategy is what determines how funds are both allocated and distributed. But to make implementing consistent front ends on Allo easier, allocation strategies assume that they are being called by Allo.sol, which implements an allocate() and distribute() method

Diagram of how funds flow through Allo

Creating a pool

The Allo core contract has two methods for creating a pool:

  1. The createPool method
  2. The createPoolWithCustomStrategy method

While there are some differences between the two methods, they both create a pool for a given Profile in the Registry, and associate an allocation strategy to it. You can read more about the differences between the two and which to use in Working with Pools.

Finally, you can create and fund the pool simultaneously through both methods or you can create the pool and then fund it separately with the fundPool method on Allo.sol.

Some things to note:

  • Pools must be created by a Profile from the Registry
  • Pools can be created with an initial balance of 0 and funded later
  • Technically, anyone can fund a pool

Funding a Pool

A pool can be funded when it is created and/or it can be funded afterwards. You can do either or you can do both. If funding the pool after creating it, then you'll use the fundPool method on Allo.sol.

Pools can also be funded with either native Ether or an ERC20 token. Note though that a pool can only distribute one token, which is determined when the pool is created. Trying to call fundPool with a token other than the one used when the pool was created will cause the method to revert with an error. Pools should always be funded using the fundPool method and you should never transfer funds directly to Allo.sol

Once a pool has been funded, there is no way to withdraw funds from the pool other than to distribute them through the allocation strategy.

Some things to note:

  • The address that creates the pool doesn't have to be the one that funds it
  • Technically, anyone can fund a pool
  • The protocol fee is taken on the pool
  • Pools can only distribute one token (including native Ether)
  • Never send funds to Allo.sol. Funds sent to Allo.sol are considered a gift to the Allo protocol team and will be used to buy pizza. If you ask nicely, we'll share the pizza with you.

Allocating Funds

While allocation strategies handle the implementation of allocating a pool, the act of allocating is done through Allo.sol. This allows for interoperability between strategies and gives every front end built on Allo a consistent interface for every strategy. So allocating to any pool, using any allocation strategy should be done through the allocate() method on Allo.sol.

Every pool is created with one allocation strategy that follows IStrategy.sol. The allocation strategy of a pool cannot be changed once the pool is created.

Some things to note:

  • Regardless of your allocation strategy, you'll call allocate() on Allo.sol
  • Writing allocation strategies is a large topic and you can read more about it here.

Distributing Funds

Any distribution from any pool, using any allocation strategy will be done through the distribute() method on Allo.sol. This is for the same reasons that every allocation is done through allocate(): to provide a consistent interface for front ends and make strategies interoperable (a front end shouldn't need to care what allocation strategy a pool is using).

What happens when someone called distribute() is determined by the allocation strategy.

It's important to note here that Allo keeps track of a pool's total balance, but the allocation strategy should keep track of each distribution to avoid things like double spending or over spending.

Some things to note:

  • Regardless of your allocation strategy, you'll call distribute() on Allo.sol
  • Allocation strategies are responsible for managing how a pool is distributed, not Allo.sol



The flow of funds through Allo is currently linear: a pool is created and funded, then it's allocated and distributed through an allocation strategy. Allo aims to be a general-purpose protocol for allocating resources onchain and that includes considering where funds come from to fund a pool and where they get distributed to. Our solution to that is what we call an Aqueduct.

The Allo team is working on a release of an Aqueduct, which is a bonus "wrapper" around the Allo protocol for communities, DAOs, and protocols to use to make funding circular:

  • An Aqueduct is set up by a community, DAO, or protocol
  • Some portion of fees or revenue generated by the owner are deposited into the Aqueduct
  • After enough time has passed and enough funds are raised, a pool can be created in Allo to distribute the funds to projects that drive TVL, GMV, or the equivalent metric
  • Funding these projects generates more revenue or fees, which replenish the Aqueduct

The Allo protocol team expects to release some research on Aqueducts in Q4 of 2023.