November 3, 2021
n/a — but if you listen in, feel free to shoot us the timestamps!
📖 Beanstalk University Class #1
- What's the best indicator to know were moving between a debt cycle and credit cycle? Or negative feedback loop to a positive feedback loop?
- How does the APY on Silo get calculated?
- What will happen to the APY over time?
- Why is the Soil staying at 5M? If $5M immediately sowed right now, would the soil go down to $.33M soil?
- What's the health of the weather? Can the podline get too long if the weather is too high?
- How should we think about Health of the Protocol? How will we know when the debt cycle has flipped into a credit cycle? What are the heuristics to be aware of?
- How will market cap affect Beanstalk?
- What's going to happen to Stalk and the price of Stalk?
- What's the status on the audit?
- How should people explain Beanstalk?
Publius just hosted the first Beanstalk Agricultural & Technical University Class on the Beanstalk Discord (join here).
Here are my class notes for those who weren’t able to attend. Those who attend and demonstrate curiosity and competence with the Beanstalk Protocol will be get the “Scholar of the Bean” role on Discord. Follow @BeanstalkFarms for updates on when the next class will be.
What's the best indicator to know were moving between a debt cycle and credit cycle? Or negative feedback loop to a positive feedback loop?
- Recently there have been signs that the negative feedback loop has ended. The sellers below $1 are basically exhausted.
- In general the price is at or above $1 recently is reflective of the absence of sellers below $1. That's probably the foremost indication that the negative feedback loop is nearing it's end. And if you don't have sellers below $1. That is conducive to starting the growth cycle. And that's what we've already started to see to some extent.
- The reason APY's are rising is because price has been above $1 more than it's been below $1. That will attract more demand for Soil and for Deposits. which will translate to more Beans being minted which will translate to higher APY's which in theory starts the growth cycle.
How does the APY on Silo get calculated?
- The APY as its currently displayed is based on the previous 7 days of seasons.
- So, over the previous week, if there had been no Beans minted, the APY as it's currently constructed would have displayed 0. That obviously wouldn't have been accurate and similarly during the big pump the APY would have had an impossibly high number.
- So the team waited to put the APY's up until the price had reached a more stable place so that the APY's are more representative of short term expectations.
- The APY is the liquidity weighted average Beans minted to the Silo every season over the last 7 days, weighted to the current amount of liquidity.
What will happen to the APY over time?
- In terms of short-term expectations, as Beanstalks exits its current debt cycle with a negative feedback loop and enters a credit cycle with its own positive feedback loops the rate of minted Beans is going to go up which will likely raise the APY's.
- In the very long-term, over the course of years, the Silo APY will slowly come down. The only way the return goes to 0 is when Beans are the ubiquitous stablecoin of DeFi. That would be the best thing that could happen to Beans.
- But as Beanstalk is growing, the Silo is the place where the native interest bearing mechanism is and will likely offer high interest rates for years to come.
Why is the Soil staying at 5M? If $5M immediately sowed right now, would the soil go down to $.33M soil?
- Yes, if $5M Beans were sowed right now, it would go down to $.33M immediately.
- If there was a big influx of Bean purchases and Bean sows, it would start to go down.
- The Soil is an indicator that we are still in a kind of negative feedback cycle and the positive feedback cycle is not yet upon us. More on this later.
What's the health of the weather? Can the podline get too long if the weather is too high?
- Beanstalk wants to pay the lowest price it can pay for sows while keeping $BEAN at its peg.
- But it doesn't just want the price to be at $1. It also wants the system to be at an optimal equilibrium.
- Counterintuitively, in order to get the debt to go down, it needs to raise the weather which means the debt level goes higher in the short term, until all of the Soil is really eaten up.
- Once the Soil is eaten up, that's an indication that we are now in a growth cycle, and the weather can come down significantly.
- The way the system facilitates that, the minimum soil rate is .1% of the total Bean supply. And accordingly, it can measure the demand for soil each season. And so increasing demand for soil with very little soil. Once the soil market becomes competitive you would expect there to be a lot of seasons where demand for soil is increasing. Then the system will start to lower the weather.
- Currently, the weather is particularly high. And in general, you wouldn't expect the weather to get up into the thousands. But because of the scale of the growth and debt cycle over the past 2 months. And the fact that it was the first debt cycle.
- Beanstalk may need to keep raising the weather to ensure that all of the Soil gets eaten up.
- In the next couple of days, Publius will propose a BIP that changes the tax efficiency of Beanstalk for people that re-sow or move assets around in Beanstalk in varying capacities. It also makes small alterations to the weather changes where the debt is "excessively high" or "high" which is now and when the price is greater than $1 so that the system is slightly more aggressive lowering the weather. The reason for this is because currently Beanstalk is demonstrating utility and the best way for it to attract more sowers at this point in time is not to keep raising the weather but just to keep Beans at $1.
- The more debt Beanstalk issues, the smoother the ride up is as Beanstalk grows. There's nothing fundamentally wrong with higher debt.
How should we think about Health of the Protocol? How will we know when the debt cycle has flipped into a credit cycle? What are the heuristics to be aware of?
- The Field has the Available Soil which is something to watch. Available Soil going to 0 will mean that the negative feedback cycle is over and Beanstalk is entering a growth phase.
- The Pod Line is also something to watch. The Pod Line has continued to grow.
- Beanstalk is in some kind of stable state because the Pod Line is growing, but not in a growth cycle because Available Soil is still high.
- Pods Harvested is a great stat to look at to be aware of how much of the Pod Line Beanstalk has been churning through either recently or just in total.
- Pod APY is probably best to compare to the weather to understand if the APY is higher than or lower than a year and that will determine if the weather is higher or lower than Pod APY.
- Deposited LP is another good thing to look at. It's an indication of the subtraction or addition of LP in the Silo.
- Always good to look at Withdrawn Beans and Withdrawn LP this is a good indication of short-term sell pressure. So in general if Beans are around $1 that's evidence of a short-term equilibrium price. And withdrawals are good evidence of how much short term sell pressure to expect. So the fact that withdrawals are coming down is evidence that there's not a lot of sell pressure at or below a dollar except for withdrawals.
- Going down to the Seasons section of the Analytics.
- New Beans, New Soil is pretty simple. So when the price is greater than 1 you're gonna have new Beans, and when the price is less than 1 you're gonna have new Soil.
- Delta Demand is basically the demand for soil this season divided by the demand for soil last season. That's because there was no sown beans last season and there has been sown beans this season.
How will market cap affect Beanstalk?
- The Bean supply increases in response to increases in the market cap. The faster the market cap increases the more demand there is for Beans.
What's going to happen to Stalk and the price of Stalk?
- It's hard to predict the price of Stalk but it's deeply interrelated to how the price of Seed will trade.
- And one Stalk represents, based on the total amount of standing stalk, a perpetuity of future Bean mints.
- The price of stalk should factor in the dilution of the price of Stalk over time.
- It takes ~100 days for 4 Seeds to generate 1 Stalk.
- If the price of 1 Stalk and 4 Seeds is greater than 1 Bean there's an arbitrage opportunity where you deposit the Bean as LP and sell the stalk and seed for more than $1. And that abritrage should naturally keep the price of Stalk and 4 Seed = 1 Bean.
- 4 Seeds yield 4 stalk in 1 month or about 1 Stalk per week. So based on that you'd expect Seeds to be more valuable than stalk. It remains to be seen how 1 stalk will trade against 1 seed exactly.
- Stalk is a better asset to own if you think there will be near term Bean inflation.
- Seed is a better asset to own if you think there will be inflation in the longer term.
- If you think there's not inflation in the long or short term, you wouldn't want to own either asset. And you'd expect them to sell their stalk & seeds.
What's the status on the audit?
- Publius is having conversations with various auditing firms, but in general they've been pretty disappointed with the quality of the auditing firms they've been in contact with thus far. Beanstalk uses a Diamond structure which many firms are unfamiliar with. But if anybody has an in at QuantStamp or OpenZepplin that would be greatly appreciated.
How should people explain Beanstalk?
- It's a decentralized deposit accounts for your USD. And it's 170% interest rate..
- It has the potential to totally disrupt DeFi. if you can get a low cost basis on your Beans, and then go use them in DeFi. It'll be the best way to get cheap dollars to go use in DeFi. So then you can go use your Beans everywhere in DeFi.
- Check out the Whitepaper: https://bean.money/docs/beanstalk.pdf
- Bean Merchant’s FAQ:
Beanstalk is a protocol that issues a decentralized credit-based stablecoin called $BEAN. The value of 1 $BEAN is algorithmically pegged to $1.00 US Dollar. Why do we need $BEAN? Why is it different from other stablecoins? USDC and USDT are reliant upon Coinbase and Tether.