Beanstalk University Class #53

November 29, 2022

0:00 Intro • 0:20 In order to reduce the Pod line, what if Pod holders could exchange their Pods for Stalk? • 4:32 A disaster response plan for a possible USDT depeg • 15:54 Demand for Beans • 19:01 Why is the interest rate for USDC lower than the off-chain interest rate? • 34:22 If the DAO finds a viable solution to a possible USDT depeg, would it make sense to proactively migrate liquidity? • 37:36 Closing statements

Beanstalk University


Meeting Notes

In order to reduce the Pod line, what if Pod holders could exchange their Pods for Stalk?

  • Publius thinks this does not make too much sense. The key to the Silo is the only way to get Stalk and Seeds is to have Bean exposure.
  • You can always exchange Pods for Beans and then deposit those Beans in the Silo for Stalk.

A disaster response plan for a possible USDT depeg

  • Publius thinks the hardest part is defining what triggers the event. The risk towards Beanstalk is likely to be realized in a very short time
  • The BCM would need a plan of action and very clear parameters around when they can act on the plan
  • Publius says there is always Tether FUD so it would be hard to tell what is FUD and what is real. If the trigger is when USDT reaches a certain price, say $.95 it is unclear how much Beanstalk could extract at $.95
  • Publius will not spend time on this but is happy to be a part of the conversation
  • Publius thinks that a pro rata share is the best way to do this
  • This plan should be repeatable overtime
  • The other token does not have to be a stable asset it could be Ether

Demand for Beans

  • Publius does not agree with the notion that products built on top of Beanstalk are not bringing liquidity into the protocol
  • Publius has no comments on Onibi, per the conversation around unaudited protocols
  • This is the first time we have real demand for Beans that is not speculative

Why is the interest rate for USDC lower than the off-chain interest rate?

  • The demand for stablecoins seems to be a derivative of other forms of yield that you can receive on-chain. There is nothing creating yield (besides Beanstalk) on-chain. We are not in a bull market, so people are not looking into borrowing stables to get directional leverage
  • People are not selling USDC for off-chain dollars because of various reasons, some of those could be they want to stay on-chain, there is friction going off-chain, and much more
  • The floor of the interest rate of a certain asset can be thought of as the marginal benefit of just simply holding that asset
  • There is not a lot of demand to borrow stablecoins, and there is a high amount of the current supply of stablecoins willing to lend out stablecoins for a low-interest rate
  • Publius thinks part of the problem is there is nothing really to do in Defi right now. Part of the solution is there needs to be a currency that is usable
  • If business building on decentralized primitives want to compete with ones that are on centralized primitives, the decentralized businesses need access to financial products to need to be highly competitive
  • Publius goes on and says AMMs suck when you compare them to CEX. It is much easier to use CEX and most lending is done through CEX because it is easier
  • There is a reason why people used FTX and continue to use Binance because there is no alternative, and Publius/ the Beanstalk community is trying to build the alternative
  • Mod323 added, as Defi scales, it needs a currency that will scale with the growth of Defi

If the DAO finds a viable solution to a possible USDT depeg, would it make sense to proactively migrate liquidity?

  • Ultimately, it is up to the DAO, and maybe it makes sense if we are going to go this far, why not go all the way?
  • Publius does not think they will actively work on this, and is unsure if Beanstalk Farms will work on this


how's it going Publius quite well man how are you I'm doing very well here okay there are a few things um or questions maybe that are already dropped in the tunnel chat but we can um start maybe with some of the discussion that has been going in the questions Channel and maybe a few other channels as well in our in our Discord um starting off with um an idea or a question uh that we maybe have discussed before but we can revisit untouch upon it um and I think Breezy maybe actually took screenshots of that is it no so maybe that's another question all right so we'll start with the first one and that's from thinkibit where he recommends um and I said again that was you know suggested earlier and that is uh what if we in order to reduce the the Pod line um we you know Port holders can exchange it for stock basically and then what I think that's it so the thinking there is that let's reduce the the Pod rate so we'll offer those who have pods to exchange it for stock or equity and that way you know the the protocol has less debt there are no beans attached to it sure I'm not sure what their thought was but let's say that you only get stock and no beans attached to it yeah in general things like that are something that we would not think makes much sense one of the key design principles of The Silo is that the only way to acquire air stock and seeds is to retain Bean exposure and the idea of issuing some sort of stock and seeds that exist in perpetuity with no requirement to hold being exposure does not seem to be in the interest of being stuck okay I wanted to maybe take take it take the sloth experiment a step forward so right now with let's say you know whatever the hotline is there is a mechanism to continue you know to give an incentive let's say uh to to sell to sell soil uh and that's the temperature so the temperature keeps increasing until you know you reach that demand if we move you know all of that pod into stock or what happens to the silo uh or you know the the other side of it does it get too concentrated and then what do you do there or what do you do then I mean to some extent just disagree with the premise of the question because in an efficient market and Beanstalk is far from an efficient market you'd expect the return in the pod line or the implied return in the Pod line to to be efficient relative to the implied return for holding a given asset in the silo or a given deposit in The Silo uh if you assume that there is some sort of ex like like the the implications are derived from some curve on the Assumption around Bean mints per time so the market will have to come to some sort of assumed price around B expected Bean mints over time and everything that's about it is a function of that price effectively or that curve we should set um that's that's separate from the the notion that that that you should be able to exchange pods directly for stock you can always exchange pods for beans and then by having beans you can acquire stock so to some extent that already exists uh but not in the way that you can at the system level destroy pods for stock uh which would be uh just in practice destroying a fixed return for a Perpetual infinite return and that would make the whole notion of lending to Beanstalk something fundamentally different than than what it is currently okay and I don't think sync is with us however if um you know they listen to this recording and they have you know they want to further expand on their idea please feel free to do so okay Publius I'm going to move to another discussion or topic and this is going to be more I guess of a conversation here now um Safi and the Beanstalk ideas um channel uh what started the thread and the thread says a Disaster Response plan you know for a potential usdt DPAC uh and and they're thinking they're saying they're saying that you know they're not proposing that the dial takes action but the their proposal is that for the Dao to be prepared if something happens uh and maybe it's a long it's a long thread and I may not summarize it well but I think the two key points there you know for us to think about maybe are two things one what is the response um that is you know maybe that will want to prepare for it and have it prepared so that we can take that action quickly instead of you know waiting for the event to happen and then start thinking of what to do and then number two is when would that you know trigger uh be happening if we have a plan when would that plan be returned it well I think the real difficulty is around defining a trigger because the risk to Beanstalk is likely to be uh realized in a very short period of time uh the market would tend to very quickly start to price a tether d-peg let's call it as as unlikely as we personally think it is uh just considering it it for what it is uh if if it were to happen it's likely to happen very quickly and therefore the question is the BCM which is the owner of Beanstalk and would be the the multi-stick that could act swiftly would need as you said mod both uh a a plan of action and if anything everything done in advance uh to be able to just send the transaction uh and two very clear parameters by which they would be authorized in order to do so uh so in short uh you know the I mean maybe it's worth talking about talking about each of those uh specifically uh if you think that would be good I think we can spend some more time why not Joe with regards to the trigger this is maybe the more difficult issue which is you know there's always tether fud and so it's very hard to know what would be credible news uh or what would be a data point or a series of data points uh that if met or some combination of them were met would would justify the move maybe it's the tether price debaging to 90 five cents but if we look at the structure of the three curve pool if usgt is already at 95 cents not sure how much value being stock will be able to get for redeeming it uh and it's worth I mean it's worth actually doing some sort of statistical analysis on the current liquidity in the three curve pool uh the current liquidity in Beanstalk that's exposed to three curve and what what would be able to be able in terms of liquidity that would be accessible uh at given prices of a d-pag uh perhaps that would be the best way to determine what might be a realistic metrics to to try to use uh in terms of a plan of action uh this is something that is that the Dallas had at least one one call on but has discussed many times and at this point in time feel like uh it is probably you know it makes sense to put into place a plan that requires the minimal amount of development effort uh given both the probability that that this is necessary to go into action and the marginal relative Improvement relative to the dev cost for each additional solution uh so so to be frank you know the the minimal solution of using the frax base pool uh uh and having that trade against beans that's it's pretty heinous uh it's not frax is highly centralized it's a layer of centralization that is way less trustworthy than usdc or to even tether from our perspective tether it's way more of a reputation and and stuff on the line than the frax multi-sig so to be frank it's not uh don't view it view it as a an attractive option in general and should be something that's that's uh only done in the most exigent obser circumstances but it is possible to move the the bean liquidity to the frax baseball with with very minimal development effort uh now any any other type of pool would require real upgrades to The Silo and therefore it's it's less likely to be something that could be implemented uh in in the very short term uh but feel like this is such an uh a constant thing that's been raised by the community it is you know it shout out to Safi for taking the time to write up uh kind of the current state of the problem and hopefully this is somewhat constructive and therefore people can continue to discuss what what what should actually be done and maybe can someone can actually go do this analysis again this is not something that we view as particularly pertinent uh such that we are going to spend time on it ourselves but more than happy to continue to be a part of the conversation and try to move this ball forward okay and you do raise a good point maybe the price is not the trigger it's more of the Liquidators available in the pool just given that the price is always manipulated by the amplification factor of the pool put this from a development perspective let's say you know we had that emergency and whatever trigger that we decide is a trigger and we decide that let's let's do it um is is the BCM able to immediately exchange the liquidity without impacting you know the user balances and stock and so on is that something that could be done so we pause green Stock Exchange that liquidity and then we'll sort out everything to bring it back you know and then resume so the short answer is that's one way to do it where the protocol could be paused uh the liquidity the lp tokens underneath the deposits which are owned by Beanstalk could all be redeemed uh for for three curve and bean and the three crew could then be redeemed for uspc uh and or die and at that point you know the question is what to do with the liquidity now it's possible to have a a frax based pool Bean pool not sure on the exact terminology so apologies if we're misspeaking but the frax BP I think it's called Uh Bean pool uh that could be deployed at any time or be ready to be deployed and at that point the liquidity could be added to the pool uh using beans and whatever uh uh frax baseball could be minted using the usdc that was received now right I should say redeemed is probably a better word now in terms of the distribution of the deposits for the lp tokens to the deposits there's an open question as to whether the LP tokens themselves should just be replaced Pro rata or whether there's some additional like layer of sophistication around fair treatment but would think probably just a pro rata swap assuming Beanstalk had xlp tokens and now as ylp tokens everyone should just get uh to get y over xlp tokens so that's times whatever they had before uh so that's I think that would be the simplest thing uh it would still require uh some sort of update to Beanstalk itself uh but perhaps all of the code that would be needed like the script itself that would update Beanstalk even that could be done in advance and even audited by halborn uh such that if the trigger were met the downtime of Beanstalk could be could be truly minimized yeah I think to some extent you know if this type of plan were put in place it does become a repeatable thing where let's say there's a problem with fracks uh or with usdc which would also be a problem with frax uh the same thing could apply but in that case there really wouldn't be a backup plan to redeploy liquidity easily or quickly but nonetheless maybe it's good to have some sort of parameters that are defined through which the BCM can remove liquidity uh which at some point could be codified on chain and through Wells at some point certain things like that may implicitly exist but otherwise uh you know for now for now we're certainly stuck with with the the need for manual action or multi-cig action whatever you want to call it and don't feel like we should shy away from from using using that to its Advantage but again the real question is what is the marginal development cost here and and so uh trying to trying to just take everything at it in in that light okay um and for the sake of the discussion um as we as we're discussing it um it doesn't also have to be a swap for a stable you can swap for if and then maybe relaunch once you figure out you know the pricing or the Oracle for uh for eth and me and as you said it could be done ahead of time but we minimize um the impact or the downtime of the protocol but that is not necessarily um let's say required it is possible that you know we pause the protocol we swap and then take our time to restart is that correct in theory yeah okay so I think maybe our listeners and and this is to the to the Darwin General that you know security and and whatever Direction being so takes is is the you know responsibility of everyone uh um in the Dow I see you know harm and uh having such a plan Planned let's say even if you know members or some people think it's unlikely uh and then you know if if it happens or it gets you know triggered that is there are always um again as as we said in theory for for the for the doubt to take to take action okay um Tyler B asks the demand for beans are right now in existent does that mean products launched on top of Beanstalk through it and on mbb are not bringing any liquidity any ideas on how to increase demand for beans usage of beans and other D5 protocols can be a start uh totally totally disagree just saw on the box a thousand uh 22 beans bought for a thousand usdt that were then used to Mint 1018 routes that were then bet on Georgia so that to to beat LSU in the SEC Championship game that's organic demand that's what we should all be looking for more of uh no real thoughts on owner being at the moment for our conversation last time about audits it's very hard to to talk about what we what we'd like or expect from an uh you know something like that that's just been thrown out there I mean uh frankly I haven't haven't been following it too much either uh so don't know so don't have much data on how that's doing or generating demand but the idea that the stuff that is actually creating utility like root and then the the real utility comes from the paramutual betting markets uh that that's not creating demand totally disagree totally disagree now it may not be creating millions of dollars of demand uh but that's a that's a separate that's a separate the magnitude is a separate question then is it creating demand and really don't don't want to understate the fact that that type of demand to buy beans and then bet using the roots that you minted with the beans that you bought that that's uh this is the first time there's been any sort of real utility for beans and the first time you've had any demand for beans that isn't speculative so I feel like it's very cool and uh yeah it's not a I mean to be frank the ux isn't at a point where you'd expect people to be betting hundreds of thousands of dollars the the liquidity isn't there yet and liquidity begets more liquidity but I feel like this is a very exciting start agreed and you you've touched upon that I think in the last class uh Publius when you said uh you know there are two types of demand uh speculative and then transactional and what we're seeing right now with root is transaction you know maybe for the first time but not really for the first time there were other transaction uses of being at a smaller scale but now we're seeing more transactional you know users uh foreign that are not just purely speculative um and the other the other bit as you said as well as the magnitude so maybe the size of fluid that's recently just launched is still small in comparison you know to to the size of being select the protocol but that may change and as more more protocols get get built and are also you know using using buildings okay I'm going to stop for a minute there and see if our audience have any questions before I I go to the next topic okay so popular Beanstalk Farms today um released or announced a video and explainer video and in that video it explained um you know interest rates uh on the idea of you know that collateral is an inhibitor uh to scalability or growth uh for G5 um that there has been some discussion on on Twitter and then one of the questions or one of the highlights and that was from asphy where they said that the current interest rate for usdc for example on Ave um is lower than you know the federal fundrais or the funding rate that you would get off chain uh can you maybe explain why is it right now that the interest rate on usdc for example lowered uh than you know what you would get on off-chain let's say well there's a couple things one the demand for stable coins seems to be a derivative of other forms of yield that you can receive or return that you can receive on chain and at the moment that's because most of these these collateralized stable points uh particularly usdc usdt they don't have native yield to them and so the demand for them comes from uh and the demand for them that manifests itself in high borrowing costs comes from the opportunity cost of what else you can do with that and it's a little bit of a catch-22 but the point is that right now there's nothing that is creating uh I guess you could say with the exception of Beanstalk but people don't seem to be very interested at the moment uh there's no real yield on chain and there's also no uh token go up momentum at the moment which means that people aren't even looking to borrow stable points for directional Leverage and when you combine that with a rising interest rate environment uh it kind of all becomes compounding and reflects it so the result is that the the things that you can do with your stable coins on chain are want to do with your stable coins on chain I should say very limited uh but more than that the the the opportunity cost of the risk-free rate of just holding T bills is now is now making it sort of prohibitive to to hold the stable coins on chain but you have you have all the supply and so it seems like Supply is exceeding Demand right now and you're having redemptions and decreases in the supply of stable coins but uh it that's that's really a result of the the non-competitive interest rates uh and again the non-competitive interest rates are a result of non-competitive yield existing on chains that people would want to borrow stable coins to access so a little bit of a cabs 22 here as we said but that's that's how economic systems typically work things are all related yeah I think the question also missed uh the point of the the interest rate which is the opportunity cost so um you would expect UCC holders that if they're not getting the interest rate that they can get off-chain for them to redeem it to real actual dollars and then deposit it in some in some bank so the question is why aren't they doing this but what doesn't change is that there is an opportunity cost that you know that they are losing that let's say or someone is paying um I'm for it why are people still holding you as you see and not exchanging it that could be for multiple reasons one of that is that it takes time maybe for people or for you know use the participants user whatever they are to react or otherwise is that you know they want to stay on chain and it was there is an inefficiency in keeping and going off-chain on chain off chain on chain on it but it doesn't change the fact that there is still an opportunity cost here lost between you know having it off chain with a lower interest rate versus what you would get um option all right um we are at the end of the Town Hall questions here let's let's give it some time or a few minutes and see if others have questions whether it's something that we discussed or something that we haven't um and we can start or start the discussion I mean maybe just to explain a little bit more if there's no questions for a second is from an interest rate Theory perspective the the interest rate can really be thought of as like all prices being derived from supply and demand and the people that have the currency they're the supply they're the people that are lending in to them you know that there's there's some some benefit to just holding the currency itself in theory and so the the the the floor of the interest rate on a given asset can be thought of as the the marginal benefit to the holder of that asset of Simply holding that asset for the period of time that it's lent out and if you think about usdc or usdt in particular they're not the greatest assets to hold right they're not when you think about oh I want to hold large amounts of this thing uh for a period of time usdc doesn't really come to mind usdt doesn't come to mind and therefore the the supply of uh coins that can be lent is likely to be a very high percentage of the total supply of coins and is also likely to approach zero in periods of time where there's no demand for borrowing money and so the other the other side of the equation where the price of interest is derived is again from a theoretical perspective is the the demand to borrow money and what what you'd expect that to come from is at least if if if there were a real crypto economy you'd expect that to be the the the the maximum cost that entrepreneurs could could pay where they could reasonably expect to to make a profit when you consider their borrowing cost or make a profit at a certain uh margin or rate or amount that they view the whole Venture as profitable and in short there's not a lot of a entrepreneurial activity happening on chain right now where there's lots of great stuff to to to invest in or participate in or use capital for or as we started this talking about just yield opportunities which is what stable points have typically been used for um and therefore there's not a lot of demand for stable coins at all so so separate from the actual supply of the stable points which is a lot just in terms of the the borrowing and lending activity there's not a lot of demand to borrow stable points right now and of the supply that exists there's a high willingness to lend stable coins at low interest rate because of the nature of the assets themselves so structurally don't feel like the this this has anything to do with the the concept that and this is maybe the point to answer about Ashby's point on Twitter which is does the one of these one of the core Theses of Beanstalk which is that the borrowing costs on chain are non-competitive that that's one of the things holding back crypto does the fact that we're in this period of time where there's there's lower on-chain costs uh that off chain does that does that mean that that thesis is wrong uh to some extent that's a very reasonable uh interpretation of the data uh and it has to be considered uh from our perspective that data is more reasonably interpreted as Defy is still very much in a catch-22 situation where there's almost no utility for D5 there's nothing that you can actually do in D5 that is that we would classify as real economic activity or very little and therefore uh the concept that there's there's a lot of things that you would expect there to be organic demand to borrow stable coins to do doesn't really follow and and so in practice the situation that Defy is in because there's not a lot of things to do with stable coins uh or to do in general is that there's no Demand right now because there's nothing to speculate on but from our perspective that's that's part of the problem but but the other part of the problem and it is a cat 22 is that you can't even really start to build protocols or use cases that are used without a currency that is uh is usable and in short uh whereas we perhaps naively thought that just working on the currency would be enough to ask each point it's become clear that there isn't a lot going on in defy that actually facilitates real economic activity and so one of the things that we're constantly asking ourselves is what does what does the road to real economic activity look like and this is a little bit of a tangent but uh the the concept is if you think about what businesses are are doing and if businesses want to compete businesses that are building on trustless Primitives want to compete with businesses building on trusted Primitives at the end of the day the access to financial products that they have needs to be highly competitive and financial products are not just a currency uh it's also a whole Suite of uh uh I guess you'd want to say access to liquidity of customized exposure or derivatives or products such that businesses can get the tailored exposure that they need call it treasury management called risk management uh call it hedging whatever you want this is a huge part of how all of Finance currently exists and all of the economy exists if the businesses want to hedge certain exposure and financial markets really serve that role and to be frank current Define markets suck uh amm's stock they don't rival centralized exchanges the experience of trading on decentralized exchanges simply does not rival the experience of uh centralized ones uh perhaps you can make the argument that with borrowing there's some significant advantages to D5 borrowing over C5 borrowing but at the end of the day most of lending and borrowing is still happening through C5 why is that uh these are these are really important questions to be thinking about and so to be frank there's a lot of work to be done to develop not just Beanstalk as a currency or an issue of currency but defy in general to support real economic activity and betting is cool and what we were talking about earlier in classes it's really cool that people are buying beans to bet bet with them that's really awesome uh it is awesome but betting is I mean maybe maybe you could make a a an argument that betting is a is a massive massive part of the economy and to some extent it is but that's not that's not real economic creating stuff so maybe you can think of the bedding and the exchanges as creating the ability for these Financial products to exist uh or these these these businesses to then access a permissionless tech stack that allows for them to to access things that are competitive with centralized trust trusted permissioned Alternatives but that's you know this is a very in order for the world to really switch to to permissionless Primitives it's not just Beanstalk it's not just going to be a lending and borrowing protocol it's not just going to be well it's going to be the integration of all of these different protocols in such a way where the the the the suite of things that are created are not just uh equivalent to C5 but significantly significantly outperform C5 and outdo C5 in terms of efficiency capabilities what's what's possible and I think it's all within reach and think that the the development community that is forming around Beanstalk is really amazing and a lot of it's a lot of it's well underway uh but it's not going to happen certainly overnight and it's going to take a massive effort from lots of different parties and we're excited to see people starting to raise their hand and companies starting to raise their hand and the call all starting to raise their hand and we're very grateful to be a part of it but this is not Defy is not in the place where it can rival C5 and there's a reason why you see people using FTX and still using binance it's like well there's no alternative so what are we going to do we're going to try to build the Alternatives but right now they don't exist and it's worth it's worth it to be humble about the fact that it doesn't currently exist and then then the point is well you can ask questions about why doesn't exist but uh you know that that may be a that may be too much for now for for for this answer I mean and I think one uh one key uh Point here as well is um as defy you know scales it needs the currency that is that can't scale with it um so you know as as these things happen slowly as you said it's not where it is at the state that maybe maybe it does arrivaled in all things uh because again not everyone has um access yeah let's say to to to these off-chan tools um so to to the others you know amms and all of all of the other things that already create are much better than the alternative but generally speaking uh as you said as these things improve the one thing for sure that will be needed is is a currency that can scale with it okay probably as back as um comes back or goes back to the to the discussion of you know um usdt deep hanging um maybe I can read the question so they said if we find that there is a viable solution to migrating our liquidity and that the risk of us depacking is significant enough to use development resources to implementing it in case of an emergency would it make sense to just proactively migrate our liquidity so a at least to some extent this is this is up to the Dow uh and it's a great point back is that well if we're going this far why not go all the way uh to some extent again just to reiterate at least on this end don't intend to spend any any resources on this not sure about Beanstalk Farms this kind of goes back to one of the questions around uh whether or not the Dow can can propose things but then they authorize or require beamstock Farms or certain organizations to to execute but as of now not for that exists so at least from our perspective we we reached out to Safi to ask her to or them excuse me I don't know don't know uh don't know don't know Safi uh but just going off the pfp but ask them uh to to to review or to to propose or draft something that that would kind of get this conversation going but do not have do not have any do not have any thoughts on who would get that done or how it would get done but at least on this end you know more focused on participating in the conversation and then hoping that someone would step up and and get it done and we're happy to to to help and have multiple conversations to help whoever's going to do that do it uh but on this end you know not gonna do it and don't know don't know who's gonna do it at this point so for now it's just disgusting yeah and Becca's you you know you said if that is confused depending is significant enough um to do that I think the idea is that um or the point is that not everyone shares uh that thought but it doesn't mean you know that someone could be it could be right I would only find out you know in time um nevertheless said we continue to have the discussion um at minimum maybe it is just you know a good idea to have an emergency plan even you know if it never gets uh it's never used um implementing something of a change let's say you know um in such a short time maybe um may come you know have negative effects or it could be like reacting uh to panic but the Dao in the end of the day is you know what chooses who chooses uh where we decide or where we where we move or where we go from there all right um let's give it maybe one more minute see if others have questions otherwise we can we can end this class okay thank you all for joining us this class on Publius as always thank you for taking the time to answer all these questions and we'll see you all next week thanks Mark