DeFi Trader <> Publius

DeFi Trader <> Publius

April 28, 2022

0:00 Banter • 1:24 Recap of Events • 6:50 Plan For Barn Raise • 10:41 Unpause • 11:36 Current Governance • 13:51 Phases of Barn Raise • 23:12 Audits • 24:31 Community Multi-sig • 27:22 Getting Paid Back

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Yeah, I've been really excited to see the whole thing play out. Everything working and seeing how it's been going. It's it was really unfortunate what happened to me. You know, see, this come really short because it's done a lot within the eight months that it's been around. Yeah. I mean, in the eight months it made, it made quite a splash and now, you know, now we'll see in the grand scheme of things what type of splash it's actually able to make given the circumstances.

But yeah, in eight short months a lot has happened. Yeah, it's, it's was really exciting to see it all play out and seen the journey from the beginning and just learning how things had progressed since like all the upgrades with the VIP and you know, the governance was all on chain was, which resulted in the exploit, which is super unfortunate, but it was all very exciting to see on full time.

The future looks bright and let's hope that we can see what's going forward with this being of the path forward. That's what I wanted to talk about. Let's get to it. Let's talk. Yeah, So let's talk about the barn race. It's coming up soon. So let me just recap with what's been going on. So the protocol launched in in August of 2021 with only 100 beings.

Right. And that's the equivalent of like each being is equivalent to a peg of one $1. Right. That's the mechanism. So that's very little. $100 is very little. Start a protocol. Well, the deployment is more than that, but the block being when it launched was the was the 100. Exactly right. So the concept was that the the algorithm would be able to run this as normal processing from the beginning.

Right. It grew to like 100 million and market cap and the exploit was pretty big that that affected pretty much everybody that was in been right 100%, 100% of being the people that were in being were affected by this. You know, the whole protocol lost 100% of its value. Yeah but up till that point it was working as intended.

And that was like the big struggle with these stablecoins that they were really failing left and right early on with the early versions of them. But this was very like a new type of design and it used a credit based model and it was working up until that point that it was exploited with the governance. So can you explain like what what that was like?

It was pretty much it was a hostile takeover of the governance system. Right? And it was it was on chain essentially. So it had nothing to do with the actual PEG mechanism. Yeah, that's correct. So the the governance mechanism, the on chain governance mechanism, as you said, which was the thing that allowed the protocol to upgrade over time from the time it was launched until when it was that was ultimately the same thing that that was was attacked in practice.

This had nothing to do with the peg maintenance and the or the ability for being staff to try to keep the price tag. And in fact, uh, in its eight months, eight, eight plus months, beings had done a, a decent, a decent job of regularly price above and below like the 1 to 3 or something, one or two.

One, two, three I think at the time of the attack. So in practice the the model itself was working pretty good from economics perspective. But ultimately there was a governance attack that happened to as much detail on that as you'd like. Yeah, I've seen some of these attacks happen before. It's unfortunate, but that's what happens when everything is totally decentralized.

I'm saying that it might be prone to that, and I guess maybe this was just like an oversight in that kind of design. And you're taking steps going forward. I saw that you're waiting and so you got a trail of bits, which is a really good audit firm to review the governance and just the mechanisms as a whole.

That way this has happened again. And up to that point, like you said as well, like the credit based system, it was working up to this point. So I'm reading here key 25 million back to the people that went to the Bienstock protocol and then reset all of the 200 or I'm sorry, 50 million payback since these stocks inception.

Yeah that's pretty impressive. Like 25 just over the past month. So the system is really paying back a lot of debt and demonstrating its its credit worthiness to creditors, which in the grand scheme of things is the whole point. Right? If Bienstock is credit worthy, then it should be able to hold the price on its back. So the fact that it was paying back so much debt was from an economic perspective, at least in theory pretty significant.

And that ultimately that proof of concept is ultimately what Bienstock is kind of riding now through this through this down period, if you will. But that yeah, that's the long and the short of it. So when I was researching Bienstock and like just trying to understand it from like a fundamental perspective, it was really a lot of these carrots and sticks that kind of kept everything aligned and made everything keeping everything working.

So yeah, it was really cool seeing it do that and it was unfortunate. So it was attacked. It was stolen of 77 billion in liquidity from the protocol. And this is what's led up to this. And barn raised right. So the plan going forward for the raise, could you explain a little bit about this plan and how you see this going?

Sure. So the Dow has spent a lot of time and discussion time over the past ten, 11 days trying to figure out the right path forward collectively and there's a lot of different moving parts around, trying to align the different participants in the system. Right. You have the pod holders, the previous creditors, the lenders, the system. You have the stockholders that were in the silo that ultimately had all of their values stolen from.

And now you have these new lenders that are going to lend to the protocol. And so the question is, how can you align the various participants as best as possible in a way that A leans into the current model? Right, In the sense being stuck up for long success such that the short term funding requirements at the moment don't ultimately set it up for failure in the future.

Right? You don't want to you don't want to set the protocol up for failure just to get over this short term hump. So those are the various different things that are being optimized around it. And in short, there's this plan called the barn raise, which is the communities voted on this concept whereby the protocol is going to issue something like 77 million well over a ten day period and try to collect as much of the the money that was stolen, the $77 million that was stolen as possible.

So I can talk in as much detail as you'd like about the specifics of the barn raised. But at a high level, the concept is the protocol. It's going to try to borrow or recapitalize by by borrowing from the market up to $77 million in a similar fashion to the way it normally borrows from the market. So if I can just go over how I see it, like you kind of just touched on it briefly there towards the end, that the protocol is essentially just doing what it's always been doing.

People are willing to lend to the protocol, the protocols in paying off that debt. Essentially, since this exploit happened. It's we're phrasing it in a way where the protocol has now this credit that has been taken out. So now we're seeing. All right, well, creditors step in to read to pay off this debt. And I think that the I've read the plan and it seems like you've devised a way to create more sticks and carrots in a way that makes sense.

I think that if you go over the plan, like I think it makes sense that incentivize people to get in early and then also people to get in at the last minute, if that makes sense. Yeah, it makes a lot of sense as you describe it. And in practice, the goal is to create a system where independent of the amount of money that Bienstock is able to recuperate, it's able to proceed going forward.

And that's another thing that's very you know, very important here. So I wanted to kind of go over the plan in detail if we could. What's going on with the protocol right now? I know that it's paused and what's the move forward to get it unpaused. So the the protocol is going to be unpaused at some point after the completion of the barn raids.

So the the timing on the unpaused is somewhat up in the air. It's something the Dow will have to vote on upon completion of the barn, raise one to unpaused. The main open question at the moment is whether or not to wait until the two audits that are happening in the immediate future, to wait until they are completed or not to restart the protocol or unpause it.

So that's the main question. And the Dow will have to vote on that after the completion of the barn raiser. So voting is I see being done on a snapshot that's somewhat controlled, like with the multisig and people are voting based on their deposit in a silo. So current snapshots are happening, I believe. I don't think all of them have been done like this, but they should be.

I think it was an accident before, but the concept is all of them should be based on the block prior to the attack and so until be instructed to unpaused, the stock prior to the attack will be the distribution for snapshots. So I was going over some highlights on the plan and it says you have four primarily primary goals in mind.

First is securing the enduring success of being Salk's economic model, attracting sufficient capital to restart Beanstalk three, preserving as much of each farmer, stock seed and pod positions as possible, and for aligning new capital with previous stock and pod holders. I'll be honest, that kind of sounds easier said than done, but I really congratulate you on even devising all of this to execute in the first place.

Well, I wish I could take all the credit, but ultimately this has been, I mean, the write up. We had nothing to do with the write up itself and give a lot of credit to the copy team at Beanstalk Farms for putting together such an eloquently worded phrasing of of what's ultimately going on here. But yeah, there's a lot of different moving parts to optimize around.

Certainly. So I want to get into these four objectives here because you did bring up some of the ways that you're going to go about them, which I think are well thought out. I was impressed when I spoke to somebody on the team about it prior. And you do have the same mechanics that you have baked into being stuck.

The carrot and stick mechanics of incentivizing and penalizing to get the desires of the protocol. It's pretty much similar, similarly done with the barn raise. So can you talk about how this is done and like a this process of the fundraising? So we start off with like, how would you describe this? So it's consisting of two parts, the bidding period and the selling.

You're going to get into that. Sure. So from our perspective, we we tend to think about things, sort of think that it's I think that it's really three parts. The first part is the barn raise itself. The barn raise has two stages or phases, as you were describing it. The first is the bidding period whereby people can bid an amount that they want to lend to the protocol at a given interest rate, at a given weather.

And the concept is that for these seven days, the earlier you bid, there will be some bonus to encourage people to bid. Earlier. But after the seven days, all those bids will then fill over the following three day sowing period whereby the weather will start at 20% and increase by 1% every 10 minutes for three days. And the concept is that under this proposal the weather will go up to around 452%.

And let's say you would bid 100% whenever the weather, the interest rate gets up to 100% during the sowing period, your bid at 100% will fail and clear and you'll then get in the pipeline. There will be a new pipeline for everyone that participates in this barn raise that will receive a third of all new permits until it's all been paid back.

And so the concept is people can bid and then they'll be placed in the new pod line by being stock based on, you know, the number of people that are willing to bid at a lower interest rate than they are. But the bidding system locks in the capital. So that's the barn raised itself. Then you have the second the second part, which is the haircut.

The haircut is the the idea that the stock needs to be able to continue independent of the amount of capital that it raises. So let's say Beanstalk only raises 50% of the $77 million. The haircut is that under this proposal, the entire state of being stopped prior to the attack, the pods, the beans, the stock, the seeds, the being denominated value in the silo, all of that is going to get cut by 50%, such that the state of the system will be the same prior to the attack as it was prior to the attack, but scaled down.

So that's part two. And then part three is a vesting schedule. So one of the the fourth bullet, if you will, which as you said, is a very hard point to get right, how to align the new capital and the old capital. There's a question of, well, anyone that's lending to Beanstalk now is effectively recapitalizing the assets that were stolen.

And so there's a question of, well, if someone had $100,000 or $1,000,000 in the in the silo, that was worth a million and now it's worth zero and suddenly it's worth a million again, they may very well want to just leave immediately. And so there's a question of how to make it such that the new capital does isn't scared that they're being they're providing exit liquidity to the to the old capital.

And so the third phase is that under this proposal, there is a vesting schedule whereby the recapitalized assets, the beans, circulating beans, deposited beans, LP tokens, any asset that had value, liquid value prior to the attack and went to zero that will be that are being recapitalized, they will be subject to a vesting schedule whereby the percentage of the assets that are claimable at any given time is a function of the new pods that are issued during the barn raised that have been harvested.

So, for example, let's say 300 million pods are issued during the barn raise under this proposal, under this vesting schedule, if 100 million of those 300 million have harvested, if you add a thousand beans before the attack, you could only claim a third of your beans at that point in time because 100 of the 300 had harvested. If 150 had harvested, then you could claim 50% of your beans.

And if you claim, then you forfeit your rights to the rest of them. And so there's this game of chicken introduced where the people that are long term believers in bean stock and silo yield, you know, they're likely to want to stay because they get all of the extra from the people that rage quite effectively. So those are the three phases and it tries and we think it does a decent job of balancing all of those points.

Yeah, I like how it's been presented. I think that the phases are well thought out. Like I said, let me go back to like the first phase and I want to see like when do these dates actually start? When should we be preparing for this? I think this is on the second May. Second. Grant Yes. The barn raiser scheduled to begin on Monday, May 2nd, this coming Monday.

Okay. And this is essentially so we have the option to bid for the pods, which is being stored, being stocks that needed assets like the debt units. Right? Correct. And the weather. I see the weather as kind of like an interest rate. Right. Exactly. Right. Okay. And so these bids say they're going to be putting in in a line just like how normally you get put in a pod line, right?

Correct. With the only difference being instead of going to the back of the current pod line, there will be a new pod line that will start at zero. And that pod line will receive a third of all new business until it's paid back. And my incentive to get into this new pod line is essentially like a bonus in getting in first.

But the bonuses increase as well. But less of a likelihood or longer wait time to get paid out. That bonus? Well, the bonus is to encourage bidding, if that makes sense. The bidding, the the bonus or the bidding has less to do with your place in line then your interest rate. If that makes sense. Okay, so this is going to go on until the ninth, May 9th.

And right after that is the selling period around what names we have here, huh? Yeah. So in the sewing period, yeah, it took me a little bit to kind of make sense of them at all. So I got my notes here, but that starts at 4 p.m. UTC on the ninth. So pretty much like right after that, correct?

It'll start immediately, immediately after. So the system will as soon as the drilling period closes, the sewing period should start in theory. All right. And the weather will be starting at 20%, increasing every 10 minutes for the duration of the zone period. And that will last for the next three days until it reaches zero or whatever. It reaches zero until the weather reaches 452% or until the soil reaches zero, meaning that the system sells out.

Okay. And that's 77 million. Essentially, they were happy needs to sell, correct? That would that would be the maximum. Okay. So what if is there a chance that it goes over that? Certainly. But that would just mean that it's overfilled and then the people that in the highest weather might not get filled effectively, Does that make sense? Okay.

Yeah. They just like fill the system or just clear the lowest 77 million. It can clear the. Okay. So right after that is the haircut and that's based on what's been been raised essentially. Correct. The scaling of the system based on the amount that is raised. Okay. So going it past that, what's going on with the governance, because that was the main issue that led to this these this problem here.

I know that the audit is being proposed for trial of this. It's saying early June. Is that still in the pipeline to complete by then. So so there's a couple things. One, for the moment on chain governance has been turned off. So Beanstalk is going to move to a more, they say, governance system for the time being. And in addition to that, beanstalk is being audited by Hal Bourne starting May 9th and by Trail of Bids starting June 2nd.

And so both of those audits should be completed end of June or so. And then the concept is that won't even include any sort of governance. The system will continue to be with off chain governance for for the short term. And over the longer term. The idea is for decentralized governance to be re-implemented, but anything that would be re-implemented would be, you know, once, twice or thrice audited prior to ever going live on Main.

So going back to ancient governance remains certainly a personal priority, I think a priority for for for most of the people working on Beanstalk. But a short term, you know, short term not the priority as of right now, the governance is using off chain multisig wallet, custody by the community and you're also using that with Snapshot as well.

So you can kind of gauge kind of consensus throughout the holders. Well, so the the community mode, they see it's still being formed, but the short answer is before the procedures and stuff around that multisig are put in place, the contract remains owned by a public controlled multisig, but in the immediate future, hopefully the next 24, 48 hours, that'll get transferred over to a community run.

Multisig But there's still official procedures being put in place prior to that happening. And is there any details on how that interim multisig is being formed with who is on that kind of like on the console of signing? Well, that's those are some of the main questions that are trying to be figured out, whether to have doxxed or non doxxed or disclosed or non disclosed members of the multisig, I guess it would be disclosed who they are.

But one of the questions is whether they should be doxxed or not and things like that or kind of the open questions. And honestly, I'm not too up to speed on what those discussions where those are at. So hard to comment. Okay. I know it's probably hard to comment. I'm just wondering, will the current signers or will they forfeit their privilege of signing and then the new members, would they take over that responsibility?

Can you restate that? I don't think I understood the question. So the current multisig signers are they're going to forfeit their signing privileges and pass those on to the ones that are going to be formed during this interim process. Well, in practice, it's a question of what wallet owns the contract right? And so right now the wallet is owned by a public controlled multisig, whereas the contract will be transferred to a community controlled Multisig.

Okay, got it. I was just trying to understand the intricacies of that. So I also see here that you're going to be working with the Unified, which is like a county by county platform, correct? One of the community members has been spearheading that, getting that program up and running. That's that's really good news. Good to hear that. I would agree.

So can we speak to how the people affected during the exploit, how they will be paid back, how they'll be essentially as that the protocol gets back on line, how they'll eventually get back to where they were before? Well, it depends on how successful the barn is, is in practice. If the barn raised is able to recuperate 100% of the money that was stolen, then on paper, everyone will be immediately back to the value they were at prior to the attack, with the exception of it will no longer be liquid or liquid, you know, after a four hour withdrawal freeze, because you'll also be subject to this vesting schedule.

Right. So in theory, even if the barn raise raises 100%, there's a question of, you know, being made whole over time, not immediately. Now, independent of that, you could also have the additional wrinkle that the protocol may not raise 100% of the funds. In addition to the vesting schedule, whereby then there needs to be additional growth from senior edge to try to get you back to what your your value was prior, if that makes sense.

And those two factors make it hard to predict when or when or when that will happen. But, you know, in theory, if you have a long enough time horizon, that should happen at some point, regardless of the status of the fundraiser. Understood. I'm wondering about the ten day time span that you've set on this, Baris. Why ten days went to two days or 100 days?

Yeah, why not two days or 100 days? It's you're right. It is somewhat arbitrary. And the there's a couple of different things to be said here. There was a lot of discussion that was had on what was the right length. And originally the thought was just have a three day period, a sewing period. Then the bidding period got added because it seemed like three days was too short, you know, 30 days probably seems too long because the goal is to get everyone you know in the room at the same time, if you will, and looking at it for a period of time.

So, yeah, a little bit more art and science on that one store.