Mission DeFi EP 42 - Beanstalk 2 - A better stablecoin model - progress, lessons learned, vision
Primer: Publius returns to the Mission DeFi podcast hosted by Brad Nickel. This is his second time as a guest in the show talking about Beanstalk as he shares about upcoming changes in the protocol.
About Publius
Pseudonym referring to the founding people working on Beanstalk
Started with them but now Beanstalk Farms - a decentralised development organisation working to develop Beanstalk - has over a dozen full-time members
The quality of the people recruited are top-notch too
Hired a community organiser who had been a long time member of the community
Some people are doing it part-time because they are finishing their PhD dissertation
About Beanstalk
The core principle is that it creates financial incentives that coordinate misaligned participants in the ecosystem to solve the tragedy of the commons problem
Does so in a way that increases decentralisation and decreases the concentration of ownership over time
Other collateralized stable coin models all come at high borrowing costs and have implicit negative carry due to the shortage of supply
However, Beanstalk has positive carry and yield
The Different Components Of Beanstalk
The Silo is like a bank account giving passive interest. It allows anyone who holds BEAN or LP tokens in specific pools to deposit these tokens at the back of the line to participate in the future growth of the BEAN supply
Stalk, the governance token, and seeds, which yield more stalks, will also be received for depositing BEANs into the Silo
The Field, which is the decentralized credit facility, will attempt to borrow BEANs from the market to reduce the supply whenever the price of BEAN goes below the peg of $1
Debt is paid out on a first-in-first-out basis and lending BEANs to Beanstalk returns Pods, which are the debts asset of the protocol
The number of Pods received is based on the weather, which is like the interest rate
This incentivizes people who feel that the weather and the price is right to lend BEANs to Beanstalk immediately
How the Field Works
The price of BEAN is below $1 and Beanstalk is looking to borrow 10,000 BEANs to reduce the supply of BEANs in the market in order to raise the price of BEANs back to peg
Weather is 6500%, so for every BEAN lent to Beanstalk, about 66 Pods is received
A user swaps 3 ETH for BEANs. If the current price of ETH is 2500 USD, that will be 7500 BEANs removed from the market
The user then lends to Beanstalk in exchange for 495,000 Pods (66 x 7500) which is added to the back of the Pod line and is currently standing at 640 million Pods long
All the 640 million Pods have to be harvested before it reaches the user’s turn. This makes it illiquid
However, the Farmers Market is set up recently to serve as a decentralized exchange for Pods
In the future, there might be integration with protocols to borrow cash by using the Pods as collaterals
How the Silo Works
“For every BEAN you lend to Beanstalk - high risk, low liquidity, high return, that's the profile of the field, more or less. Now, the Silo is much more liquid and offers a passive return for depositors.”
- Publius
SIlo is more liquid and offers a passive return for depositors
BEAN, LP tokens for the BEAN-ETH pool and LP tokens for the BEAN:3CRV pool can be deposited into the Silo in exchange for Stalk, which is the governance token for Beanstalk and Seed, which entitles you to more Stalk over time
All these can be done on the website itself in a single transaction
In the near future, Stalks will also become more liquid
DeFi is complex so they try to make it as user-friendly as possible
Why start Beanstalk?
Shortage of stable coins
Not enough collateral to create the trillions of stable coins needed
This makes the borrowing costs high which cascades through the whole DeFi ecosystem
None of the different models of stable coins is designed to reward the holders of the stable coin, hence there is no product-market fit
“But when it comes to designing a token, how can you create product-market fit for a stable point by (a) untethering it from collateral requirements, and (b) offering some sort of positive yield on that stable coin in a way that rewards people proportionately?”
- Publius
The goal of generalizing the Silo by letting other tokens as deposits is to create utility where both protocol native interests from Beanstalk and from other protocols can be earned
So Beanstalk will be constantly looking to create new BEANs that are looking for other protocols to be integrated with the Silo to juice their yield
This creates a product-market fit and will be the solution to the negative carry supply shortage issue
Having a big vision is alluring to people
Explains the high level of success at attracting so many people to work with Beanstalk
Ambitious but it is a complex road ahead to a trillion-dollar valuation
Business development in a decentralized capacity
Beanstalk is an autonomous protocol with an on-chain DApp while Beanstalk Farms is the decentralised development organisation funded by the Beanstalk DAO
People in Beanstalk Farms has been trying to find the right integrations and ways to develop Beanstalk
An example is Fiat DAO with zero-coupon bond lending using Pods as collaterals
Deposits in the Silo might become fungible ERC-1155, which means that they can be used as a collateral
With Beanstalk Improvement Proposals (BIP) 12, which allows other whitelisted tokens such as BEAN:3CRV LP tokens to be added as deposits into the Silo, other protocols will be able to integrate with Beanstalk
Going to other chains?
The goal of Beanstalk is to be the stable coin issuer where people have a lot of demand for Beanstalk debt and have faith in the credit of Beanstalk
If that is the case, leveraging that credit history across different blockchains will make sense
Good for Beanstalk to issue assets on different chains and deposit these assets in the Silo on different chains
But all these must not come at the expense of compromising security and decentralisation of Beanstalk
The economics of the whole complex system on operating on multiple chains has been worked out
But there are problems
Bridge - how to exchange BEANs or stalks from one chain to another securely
Field - how to coordinate loans which are first in first out across the different chains and how to ensure the loans and harvest of the redemptions of the BEANs are done in a way that is not compromised
All these technical issues mean that this is not going to happen anytime soon
Views on whether BEAN can replace centralized coins
Do not think that ‘replace’ is the right word because BEAN also derive its peg to $1 through other centralised, collateralized stable coins like USDC
It does so by comparing the BEAN-ETH Uniswap ratio with the USDC-ETH ratio to derive the price of BEAN relative to USDC
Do not think that USDC is going to disappear but the use cases for it will change in the future
Believes that BEAN have product-market fit created by the SIlo
Regulatory impact on Beanstalk
Designed such that it will be nearly impossible to get affected by a simple blacklist
In the Uniswap pool, BEAN is not paired with USDC directly so they cannot be blacklisted by Circle (the centralized entity behind USDC) unless they blacklist the USDC-ETH v2 pool in Uniswap. But doing that will be suicidal to their own business
Only in cases where there is a full kamikaze threat will there be a case where even decentralized protocols like Beanstalk can be affected
What surprises Publius about Beanstalk
The protocol has been resilient to issues that lasted for an extended period of time
“It's just surprising to me that the protocol was able to be so wrong, to have so many things in it that needed to be fixed, and yet it is still working? That’s amazing.”
- Publius
Due to the flexibility of the governance, they managed to avert failure
Surprised that there are so many things that are wrong and needed to be fixed but the protocol is still working
“You start something anonymously, you can't even tell your friends. Like, that's a pretty lonely place to start. And to be just one part of a community that loves this thing, just as much as we do.”
- Publius
The other thing is the quality of people who are working on Beanstalk and to be surrounded by a community that loves this protocol as much as they do
People are saying that they want to quit their job or drop out of their PhD program to join them
Upcoming changes
Brand identity and style guide
UI overhaul
Upgrades to Beanstalk protocol to seamlessly integrate with the rest of the Ethereum and DeFi ecosystem
Tally wallet is a decentralised wallet that Beanstalk is going to integrate within their main website
Any advice to people starting out in the space?
Important to have the core principles so as to guide everything else
Believes this is the reason why Beanstalk has succeeded thus far
Links
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