Beanstalk University Class #9
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Beanstalk University Class #9

Date
January 4, 2022
Recording
https://www.youtube.com/watch?v=GiBx8mnpL64
Timestamps

• 0:00 Intro / Infrastructure Month / DAO Structuring • 4:40 Difference Between Beanstalk and TerraUSD Stablecoin • 14:30 How Beanstalk Returns to Peg • 16:30 How Beanstalk Prevents a Bankrun

Type
Beanstalk University

Recordings

Notes

Announcements:

Topics

  • UST vs BEAN
  • Curve integration implications
  • BIP-9 soil mechanics
  • Pod marketplace updates and info
  • and more!

Q&A

In what ways is BEAN different/better than UST, also known as a decentralized algo stablecoin?

  • Terra is fabulous and innovative! Working, decentralized, algo stablecoins—there’s basically only 2, UST and BEAN.
  • What are the key differences though?
  • Neat innovation around UST is that they have their own blockchain (Terra)
    • positives: miners and holders of LUNA can get decentralized over time
    • drawbacks: native interest opportunity with UST is only possible on the Terra chain. With Bean, people will be able to deposit their beans into the silo on any chain that Beanstalk is supporting, native to beanstalk and earn yield.
  • UST/LUNA and BEAN/STALK almost have reverse models
    • With the former, the system backstops the stable price of UST using LUNA as collateral. This is still an innovation over traditional collateralized model is because LUNA is a decentralized asset and can grow as large as people would like to speculate on it.
    • Beanstlak is different—When people want to just buy Stalk on the market when it’s liquid, in effect the value is transferred to the Bean market cap. This is because of the arbitrage opportunity that exists when the Stalk price is too high, people will buy Beans and deposit them and sell Stalk on the open market
    • People buying LUNA on the open market does not directly accrue value to LUNA
    • In LUNA you could have fatal run on the bank in a black swan scenario if people are down on LUNA. Beanstalk is potentially more resilient to bank runs given its credit based nature and offering higher utility to stablecoin users on various blockchains in the near future

Is there a mechanic that prevents bank runs?

  • The Silo is the closest thing to the bank of the Beanstalk ecosystem. They can deposit and withdraw assets in the Silo. The “bank run” scenario is not so much prevented as it is discouraged. Anyone operating efficiently, given the rules and incentives that Beanstalk has designed, would not operate in a bank run.
  • Lowering withdrawal period from the Silo to 0 hours (currently 24 hours) over the next few weeks.
  • The Stalk system discourages a bank run scenario given that you accrue Stalk while in the Silo and lose it when you withdraw.

Does BEAN continuously rely on new investments to maintain peg or if new investments stopped today, could it still maintain its peg?

  • Beanstalk could probably survive for a few weeks / couple months without new investments.
  • At a macro level the main thing that creates stability is the ability to attract lenders. This would be necessary if the price were to come significantly below the peg
  • The goal in the next couple months is to have Beanstalk pay off its debt and decrease the pod rate. That will be the larger proof of concept that allows Beanstalk to become a larger player in DeFi.

What’s the status of the Curve integration?

  • Plan is to launch the Curve pool within a week or so, probably around when BIP-9 passes or not.
  • On the Curve side, Beanstalk Farms is working on a proposal to have the BEAN/3CRV pool be included in the gauge votes. This will increase liquidity in the pool, will work on this shortly after the launch of the initial pool.
  • Then after that will be to integration the BEAN/3CRV pool into the oracle. Then after that is to fully integrate Curve into the LP tokens into the Silo. Then after that is to add Convert functionality from Uniswap/Beans/Curve pool/etc, all within the Beanstalk ecosystem.
  • All of this will improve price stability and introduce Beans to a wider DeFi audience.

Some folks have pointed out the APYs on the Silo/Pods seems low—should we change them?

  • We were always nervous about adding APYs to the site due to the cyclical nature of Beanstalk in the early days. The price has spent more time below the peg in the last month (which is the set of data that the APYs are calculated over) so there haven’t been many new beans and thus the rates seem low.
  • It’s difficult because we don’t want to mislead and suddenly change the calculation or remove them. Interested in community guidance on what feels appropriate. We agree it’s not the best information to display. See #website-suggestions for the discussion.

What incentivizes people to deposit their 3CRV on Beanstalk?

  • Originally nothing, there won’t be any gauge added to the pool nor Stalk/Seed. You’ll be able to benevolently add to the pool. But we will be aggressively shipping to add incentives though ASAP.

Is Beanstalk planning to accumulate gauge voting power and how will that help beans?

  • Curve has a whitelist that can make direct votes on Curve governance and gauge, so most protocols do gauge allocation through Convex
  • Still figuring out the finer details

Why does Publius sound like a robot?

  • We are committed to remaining anonymous to the best of our abilities. In attempt to obscure our identities we use a voice mod. We apologize for having to listen to this ridiculous thing. If you look at enforcement against Polymarket by the CFTC, for better or for worse, we have to be anonymous.

Has there been any inbound interest from VC or large investors?

  • We try not to sound like salespeople, but there has been a noticeable uptick from larger crypto investors, but they haven’t yet participated in Beanstalk in a significant way. There has been an uptick in interest, but that doesn’t necessarily mean it will translate to demand.
  • We’ve gone out of our way to make Beanstalk bootstrapped and not dependent on VC. No discount, they have to buy Beans like anyone else, and some have been disappointed when we tell them that. What will put Beanstalk in a position to survive in the long run is the organic community forming around the protocol.

Will BIP-9 remove the 10M soil?

  • It’ll instantly disappear. It will go straight to tens of thousands probably. There won’t be any accumulation of soil from season to season

What’s the greatest headwind/threat to the future of Beanstalk?

  • Threat: probably a security vulnerability but the audits are funded and will start soon.
  • Another threat would be a 80% drawdown in ETH. This threat will be greatly decreased with the launch of the Curve pool
  • After that, probably the debt level. But if you think about the pump and dump in September as a threat to Beanstalk at the time, the fact that Beanstalk survived that, that is the proof of concept for the price stability. So if Beanstalk is able to significantly deleverage, that will be the proof of concept for Beanstalk being able to take on a lot of debt and eventually pay it back.

How much internal testing/internal security checks go into beanstalk code before its committed? are the devs familiar with solidity best practices for security?

  • We use hardhat as a test environment and publish a lot of our tests with every BIP. We read plenty of resources about smart contract security and integrate those ideas. We run coverage tests a large suite of testing through the UI on Ropsten among other things

Any talks with insurance protocols like Risk Harbor (parametric insurance) for peg insurance?

  • We haven’t spoken with any insurance protocols directly. It would be pretty hard to backstop the whole Beanstalk system, particularly in a decentralized way, particularly at billions of beans. It’s an interesting idea though!

How are the audits going and when are they expected to be completed?

  • Hopefully we’ll have preliminary report from Omniscia by mid February. The Trail of Bits audit likely won’t start for a couple months. We aim to have our review partners review each BIP before it’s live.

Do you see risk during that 3-4 week period between Curve pool launch and having audits?

  • In the initial stage, all you’ll be able to do is add BEAN or 3CRV into the pool, which doesn’t really introduce much risk

Is there a scenario where Publius’ walk away from beanstalk and do something else? what motivates him/her/them to keep working on this?

  • We believe dependence on Publius is a vulnerability to Beanstalk, so our hope is to mitigate that over time.
  • Beanstalk has a real opportunity to change DeFi and that excites us. We’ll never leave Beanstalk hanging and intend to continously work towards improving the protocol.

Update on the pod marketplace?

  • Mostly community-led. Goal is to have pods tradable within the next 2 weeks. You’ll be able to list plots for sale and buy them. More details in the upcoming announcement/writeup.

Transcript

so the most notable one for recurring class class members or listeners will be that infrastructure month is going quite well and so um not to turn this back on you dumpling um but maybe you could talk a little bit about how the the dow is getting structured and you know that might be a great way to just get us started off on what's actually going on as you know when we talk about what's important in order to chug forward towards having a really awesome 2022 uh getting organized to step one of course yeah um so it's been uh it's been things are getting more organized uh we're we had a really nice meeting um with hugh today which um austin maybe if you're here if that recording if you could um post that recording maybe in the in the class notes that was really great um so that's his okay perfect so that as far as the notion uh he he has been helping us kind of architect a really great notion which is just is going to have really good workflows to keep everyone organized um we also have a lot a couple of notable uh people that we brought on board um so like on the um and i'm sorry i'm a little bit a little bit sick today if you can hear my voice um but uh we brought in max so he's gonna be helping us with um the biz dev type of stuff and so we had a great meeting with him uh and have a good plan for for q1 as far as as far as biz dev is is concerned um we have we're working on of course the q1 budget and so people are working on their snapshots that's looking like it's going to be approved so once that gets approved we're going to be issuing a bunch of snapshot votes um and that will give some clarity as far as uh the organization of the dow and who is who's going to be in what role and that sort of thing if you're interested in that too and you want access to the notion you can send me a dm and i'm happy to give you access you can take a look and there's an org chart in there and everything so that's all starting to come along we have a uh publius i'll let you speak to the uh the curve integration um but that's coming along as well and yeah so much going on so we've been doing working on stuff as far as branding we've been um yeah but there's we have a whole whole new layer of three bounties coming out we have um yeah so there's a lot on on top of my mind but if you come also to the meetings on thursday we have a stand-up meeting um this thursday leo fibb is going to be talking a lot about what he's been working on and then afterwards we're going to have a more open format meeting last week if you missed that meeting it was really fun at the end of it we looked at meta bean which bean intern and q and liam i think we're all kind of working on that that was really cool so a lot of really fun stuff uh tons of good energy and uh just really excited to get q1 started off on the right foot so i'm sure i forgot a couple of things published if you want to chime in and also give people a little bit of a breakdown of the uh of the curve pool as much as you want to share yeah so uh happy to do that but uh in the spirit of class uh maybe we'll start to yield to questions and uh given that the curve pool is hot on everyone's mind uh you know i'm sure it'll be one of the the many questions that are asked tonight so uh without further ado uh why don't you know people can per usual feel free to raise their hands or um you know we'll get you up here and anything that's on your mind uh or you want to understand better about being stuck or you're worried about or uh concerned and think is bad you know like please bring your questions and concerns and uh i'm sure it's on other people's minds as well also if you don't want to raise your hand you can drop it in the discussion board or you can send me a dm both of those things work too so i see there's already something on the discussion board that was just awesome okay you can also come up on stage like austin is go ahead austin yeah i have a question actually um so i've written that what's beanstalk article and kind of socialized it around twitter and the discord and i dropped it in the share channel for those who are curious and one of the most common questions i got in response to that were folks asking about the differences between beanstalk and tara's ust stablecoin given that kind of the meme i associated with my post was this a meme asking if this was a working decentralized algo stable coin which is also what tara uh you know claims to have so maybe publish who could talk a little bit about kind of the core differences that you see and think about between the two definitely so [Music] in general um while we try not to speak poorly of uh any protocols tara is one in particular that we think it's really fabulous and innovative um and so in general when you ask like if the question is what are the what are the working decentralized algorithmic stable coins at the moment um tara and bean are probably the only two um obviously the market cap of terra is much larger than the marquis kappa bean which boats well for beanstalk um if our claim is correct not that things seem to be working um but there are some key differences um some of which are clearly uh in our opinion better for beanstalk and some of which remain to be seen but uh we think are still probably better than uh tara luna in general so to speak specifically um one of the really neat innovations around tara and luna is that they have their own blockchain and so that comes with some positives and some negatives uh the positives are that you know as a proof-of-stake system uh more specifically the miners or the holders of luna um you know the ownership of the network uh can get decentralized over time uh and they seem to be relatively decentralized in ownership which is really awesome and the the the primary drawback of having your own blockchain and your own validators um per se is that uh at least in juxtaposition to bean and beanstalk where our vision for a cross chain bean which isn't quite live yet is that people will be able to deposit their beans in the silo on any of the chains that are supported by beanstalk and therefore there is like a risk-free return uh if you consider the return in the silo uh like the risk-free rate of return of the beanstalk ecosystem there is that protocol native interest available on any of the chains that beanstalk is supporting native to beanstalk um whereas in the case of um you know because they have their own blockchain their native interest opportunity is only on their blockchain um so that would be uh one place where we think that in the long run uh beanstalk uh has more more utility than terra on an apples to apples basis now from then you know and just to further that point anchor uh which is uh in many ways directly related to their blockchain because it has to do with their rewards um their their block rewards um ultimately is like that is a cool innovation and really neat um but is like it's uh an interest-bearing uh account that that beanstalk in the future could could likely uh do in a similar capacity and the credit based nature of beanstalk would likely mean that even if there was like a stable interest rate product offered by the silo um it's it's likely especially given the current size of tara and the current size of beanstalk you know over the next year or two to be probably more competitive um so there's a lot of exciting opportunities uh ahead of being stuck on the integrations front and tara is definitely a leader in the in the algo stable space um now from a model perspective and this is where things get a little bit more complicated and um we're less confident speaking uh affirmatively uh you know is that there's sort of a reverse in the two models of usdt or excuse me ust and luna and beans and stock where in the case of tara and luna the system backstops the value of or the stable price of ust at a dollar using like luna as uh collateral now the reason it's still a major innovation over traditional collateralized models is specifically because luna is a decentralized asset and can grow as large as people want to speculate on the value of of terror in the future now the reason well first off beanstalk is different um in the sense that if you want to just buy stock on the open market once stock is liquid um the fact that in general anyone that buys beans on the open market can buy uh can deposit their beans in the silo and earn stock um in effect you can you can earn your when people want to buy stock on the open market the value is transferred to the bean market cap because of the arbitrage opportunity where if the stock price is too high people will buy beans and deposit them and sell the stock on the open market whereas in the case of luna and tara people buying luna to speculate on the future growth of terror does not directly translate to the growth of terror and so like people can decide whether that's better or worse but where we would make the argument that in the long run that is better is that the value of terror which again is the collateral backing the stability of terra so the value of luna excuse me um is speculative in nature and in the instance where people are very down on the growth of terra in the future and uh there's a supply shock and tara that causes you know the protocol uh rules based arbitrage to cause um an increase in the luna supply um to keep the tariff price at a dollar and that is combined with a major outflow in demand for luna that could cause ultimately like a fatal run on the bank of the system which we're not necessarily saying is likely uh tara and luna seem to be very robust but we're talking about in a black swan scenario comparing it to beanstalk whereas in the case of beanstalk the credit based nature and the fact that there is no collateral that could ultimately uh you know go to zero per se uh means that in the long run beanstalk uh is potentially more resilient um to attack and to uh runs on the bank or in this case the silo and so uh while ust has gotten around the collateral restriction uh in a very innovative way and we think they're awesome um we do think that as you know for the reasons we've described uh you know beanstalk is ultimately uh going to offer higher utility uh to to stablecoin users on various blockchains in in the near future okay and i do want to let other folks ask questions but i just have one clarifying question and so the reason that you would you would think that being is more resilient to a bank run scenario is that at a high level like given enough crosses of the peg or or what have you that people would be confident and thus like sew and buy beans when it's below a dollar is that how you think about it well the the proof is sort of in the pudding when it comes to how beanstalk handles major runs on the bank and the evidence is that even if there is long periods of time weeks where the clearance is below a dollar ultimately beanstalk does have the ability to return the price to the peg and candidly and again this is more of an opinion but when you consider what you want to be the the primitive of decentralized finance um we think that as a trade-off it is much better to have a system that makes a liveness trade-off um in exchange for basically always like in a zombie sense always coming back to life um then you know tara because of its protocol direct like protocol based arbitrage that keeps it at a dollar um you know is is more likely to be live all the time as opposed to beanstalk which can have periods where the price of a bean is below or above a dollar uh you know in the long run it's probably much healthier for for a financial system to be built on a system like beanstalk that is you know ben don't break then like never bend but like might break at some point make sense appreciate the answer okay um some question on the discussion board this comes from poussants uh new here and my primary concern is the peg of bean previously participated in iron which was at peg on both binance and on polygon until it suddenly wasn't due to an exploitation of its design flaw followed by a bank run question number one is there a mechanic that prevents bank runs question number two does bean continuously rely on new investments to maintain peg or if new investment stopped today could it still maintain its peg so not too familiar with the specifics around the failure of iron finance so it's hard to speak specifically on that um but with regards to how beanstalk prevents a run on the bank now in a metaphorical sense the silo is the closest uh thing to the bank of the beanstalk ecosystem in the sense that people deposit assets into the silo and they can withdraw assets from the silo and the run on the bank scenario is not really prevented as much as it is discouraged and what we mean by that is um anyone who is operating efficiently or even close to efficiently uh is unlikely to participate in a run on the bank and that is because of a variety of rules that beanstalk has designed that again doesn't prevent runs on the bank like what happened in early september when there was a huge pump and dump like people are gonna do what they're gonna do but anyone that did not dump uh during that pump and dump um or at least dumped when the price was below a dollar uh ultimately uh you know it was not only made whole but hey folks unfortunately our recording software is a little bit buggy this time and uh cut at the 20 minute mark without me realizing it but you'll still be able to check out the rest of questions and answers uh in the notes which you can see linked in the spotify description see you on the discord you