DeFi Trader w/ Publius

March 14, 2022


Other Recording



hey welcome back to d5 trader and today we have this very special guest we have publius which is the synonymous founder of beanstalk protocol which is a stablecoin protocol that is revolutionizing the d5 space [Music] have himself introduced himself thank you for coming on today publius if you can't start off just who you are basically you're pseudonymous behind this development of being stock protocol and how did this come about could you walk us through a little bit about how that started sure so publius as you said is a pseudonym it refers to the founders of bean stock uh it's important to note that at this point in time we're just one cog in the wheel of beanstalk farms which is a decentralized organization working to develop beanstalk uh but uh we're happy to be here today to talk a little bit about beanstalk so to answer your question as to how it got started uh the the short-ish version of it is that publius we are uh a group of friends from college effectively that's how we know each other and around thanksgiving of 2020 uh we were catching up and basically shooting the and one of us was complaining about how we were sick of our traditional finance job and uh the the gist of it is that we had all had various experiences in crypto to that point in time uh you know extensive experience i would say and all of us for different reasons had a strong inclination that that was where we wanted to continue to spend more and more of our time and so as we're all kind of just sitting there we were thinking about well maybe we could work on something together in some capacity and at the time esd empty set dollar was really blowing up and that really jived with a lot of our prior conviction that one of the biggest problems currently facing defy was the shortage of stable coins and the fact that the market was taking such a serious look at something like esd which was an attempt at that stable coin shortage a solution to that stable coin shortage problem uh it was very interesting to us and so that evening we read the white paper the esd white paper together and kind of said to ourselves yeah this is really cool but it has some really obvious inefficiencies and problems with it and we thought basically we could work on a fork of esd and improve it for a couple of months and as we that evening we kind of all said ourselves yeah why don't we go ahead and do this it'll be a fun little side project and over the next couple weeks as we started to think rigorously about how the model should work we quickly realized that there wasn't just some minor problems with the esd model that ultimately was going to require more or less a ground-up rebuild of the model and that would require an entirely new code base and it would also require an entirely new white paper and so uh little did we know it wouldn't be a two or three month project it ended up being uh closer to nine months and we ended up deploying beanstalk on the ethereum mainnet in august of 2021 uh and by that point in time we had all basically quit our trad five jobs and moved to working on beanstalk full time and so uh it really became a labor of love so uh having kind of put everything into beanstalk that we could to to give it the best chance of success from a protocol design perspective we also wanted to give it the best chance to succeed in the grand scheme of things and so uh counter to the the normal way of launching protocols in d5 we really launched beanstalk entirely cold turkey we didn't do any sort of pre-mine or pre-sale or press or advertising or venture capital round or anything like that and just deployed the protocol on the ethereum with the thought being that given the nature of the protocol which is it's designed to handle any and all scenarios any coddling you provide the protocol in its early stages is ultimately going to be to its long-term detriment and so kind of just set it off into the wild and uh that was a little over seven months ago and as we speak to you here today uh thus far uh beanstalk has been able to retain the price of a bean at its peg without any collateral uh and so uh that's that's the long and the short of it of how we got here wow that's a good overview thank you for um that good intro the can we take a step back though i want to talk about how you first started getting into this back when empty set dollar was popular i don't know from my audience they all know what empty set dollar is but could you explain what that is and why you wanted to start working on a project that was somewhat of a innovation on that because you said there were inefficiencies that you saw with esd also known as empty set dollar and also what were those perceived inefficiencies and how were you planning on improving that sure so to answer your former question about why esd was important or why why why it was something that we were interested in working on the the current structure of the cryptocurrency landscape is more or less as follows you have uh layer one protocol native assets like ethereum and bitcoin that are incredibly volatile and their volatility makes using them for sophisticated financial transactions sub-optimal and accordingly there's a high level of demand for stable assets that are native to various blockchains or decentralized networks stable coins tend to fill that gap there are protocols that issue cryptocurrencies that are designed to be stable in value uh relative to some value peg the vast majority of stable coins that currently exist are pegged to the u.s dollar there seems to be an excessive amount of demand for u.s dollars on the blockchain at the moment which makes a lot of sense given that all of global trade currently happens in u.s dollars so in short uh since 2017 or so uh there have been a couple different really interesting attempts at uh novel stable coin protocols that don't use collateral so if we kind of go back to why esd was interesting to us there's a hundred billion plus usd stable coins currently on the ethereum network uh there was tens of billions back uh in thanksgiving of 2020 and despite the fact that there are tens of billions of uh us dollars effectively on the blockchain there's some real problems with them in the sense that there's not enough dollars there's excess demand for dollars on the blockchain and the supply of stable coins have thus far been unable to meet the demand for those stable coins why is that so the vast majority of stable coins to to date uh and and we're just making caveat with the exception of tara luna which has also figured out a different uh solution to the collateral problem but every other stable coin protocol uses collateral to back their their stable coins and there's a simple problem which is that if you say uh i'm gonna hold a dollar worth of value for each dollar i issue on the blockchain you need to start holding a lot of dollars and it's really hard to hold 10 billion dollars in a bank account 100 billion dollars in a bank account and it gets really hard to hold a trillion plus dollars in a bank account to just issue dollars on the blockchain what are you doing with all that money there's an opportunity cost associated with locking up all that money in a bank account and accordingly even though these protocols have strong rules that create peg stability all of these dollars not all of them but the vast majority of them are pretty well pegged they're maintaining their price at a dollar pretty well the problem is that because you have a supply shortage when you have excess demand and a low supply typically that would result in a high price but again because the peg stability maintenance models are pretty good the high price actually manifests itself in high borrowing costs so your borrowing cost to use dollars on the blockchain is egregious compared to your cost using dollars in the physical world it's 10 12 14 a year to borrow dollars on the blockchain and in our opinion this was because of this collateral shortage and so esd was an attempt at not using collateral to issue a stable point it was instead an attempt at issuing a stable point and backing it by they didn't quite word it this way but backing it with the credit of the protocol the ability of the protocol to attract lenders and so when we say that beanstalk is a credit-based stablecoin protocol what that means is beanstalk is able to create stability of the bean price the beanstalk stablecoin by attracting lenders to lend beans to beanstalk anytime the price is too low and so the particular thing that got us so excited about esd was that frankly we'll talk more specifically about them there's some really obvious inefficiencies in the model and despite the fact that there were obvious inefficiencies the market around esd was blowing up and that was a big signal to us that our thesis that the shortage of stable coins was something that everyone else was also caring about significantly and even though this didn't seem like it had the highest likelihood of success people were willing to invest in an experiment because of how meaningful it would be to have a stable coin that was not uh limited by the amount of available collateral and so that's where the interest in esd came from and why we decided to start working on a fork now to talk a little bit about some of the various inefficiencies in the esd model the the most glaring was on the debt side so given that esd similar to beanstalk the core goal or the key objective to maintaining peg stability is its ability to attract lenders to attract loans uh one of the most important things when structuring a credit based protocol is making sure that the rules you have in place create an efficient market for lending right you don't want to create a market where your whole system is dependent on lenders and then there's some inefficiency causing nobody to lend right so if we get into the specific rules around esd uh when you would lend to esd there were two main problems that combined to create a really inefficient market for lending the first is that all of the coupons the bonds for lending to esd were all fungible anyone who lent to esd at any point in the past was effectively an equal member of the debt party positive and furthermore the other issue is that at the time that you were lending to esd the amount of interest the interest rate excuse me that you would receive for lending money to esd was a hard-coded function of the debt level of the system at the time and that that those two rules combined to create this really uh backwards incentive structure where if at any given point in time you felt like it was a good time to lend money to esd you were actually still incentivized to wait because if somebody else would lend to esd before you the debt level would go up the interest rate you could receive for lending to esd would go up and then once you lent you would still be an equal partner to the other person because all of the bonds were considered uh the same class they're all fungible and so those two rules combine to create a super inefficient market for esd debt if that makes sense and to to just put it into to direct juxtaposition with beanstalk on the debt side of things the debt of beanstalk which are called pods are first in first out they're not fungible they're ordered and so the the time at which you lend the order at which you lend to beanstalk matters significantly and then on the interest rate setting side bean stock actually lets the market set the interest rate so every hour every season within beanstalk seasons are the beanstalk terminology for an epic so every hour every season beanstalk raises or lowers the weather the interest rate for lending to beanstalk by up to three percent uh very minimal in the grand scheme of things currently the weather is like 70 100 so we're talking about a three percent the increase or decrease at the most an hour is pretty marginal and so if we go back to that same analysis if right now i think it's a good time to lend to beanstalk i'm incentivized to do so immediately because if not there's a chance that somebody else will then to be in stock before me they will get in front of me in line and that will negatively affect my return whereas the benefit to waiting a couple extra hours the weather may go up 10 or 20 percent but that's not going to make nearly as meaningful an impact on on your returns as getting in as close to the front of the line as possible and talk about the uh collateralization because a lot of this is uh different than collateralized stable coins and also what you said with like tether for example that you have actual dollars in a bank account that is very inefficient so inefficiency is there with the one to one where you have a bank account matched with stable coins on the blockchain and then also inefficiencies with something like maker dow and their dye stable coin where it's over collateralized and also like something like on ethereum like uh l usd with uh liquidity so if you want to explain why we want to get away from those systems and you said luna is somewhat similar in in the sense that it's under collateralized and they've shown also somewhat of a success there well well i would just just to clarify that last point it's not that they're under collateralized you can always redeem one dollar of ust for one dollar of luna so you could make the argument that it's totally collateralized but the specific comment around tara is that they have figured out their own their solution to the collateral problem uh because the value of luna can float float freely but there's no limit to the amount of collateral in the form of luna that can exist because luna can grow to an infinite market cap in theory and so that is an elegant solution to the collateral problem but maybe if we end up getting there we can talk about how at the margin the way bean stuff is constructed based on credit does ultimately create an opportunity for better product market fit but just wanted to clarify that one thing about tara to answer your question about lusd and maker for example and how that also fits into this problem whether or not you're using usd in a bank account as collateral or ethereum or other assets on chain as your collateral ultimately you're you're still facing the same collateral shortage and the the problem is that whether you're trying to lock up a hundred million dollars of ethereum excuse me 100 billion dollars of ethereum in a cdp or 100 billion dollars of dollars in a bank account there is still an opportunity cost associated with locking up capital you can always be doing other stuff with that capital and therefore whatever you're doing with that capital the die you're minting against that or the l usd you're minting against that needs to be evaluated as compared to what else you could be doing with that capital and that's ultimately where uh when you combine the actual collateral shortage uh with the fact that all of your uh investments or what you're doing with that collateral has to be valued in terms of opportunity cost that's where you ultimately see really high borrowing costs manifest themselves in the market now the other problem with uh the on-chain collateralized stable coins and there's a lot of different models so maybe won't speak super generally but just the maker dow and lusd examples that you mentioned is that there's in both cases you're actually over collateralized so a there's the capital inefficiency associated with over collateralization where you're now actually locking up a dollar ten or a dollar twenty for every dollar of uh stable points that you can mint but there's actually a worse problem than that the worst problem is that you now have some asset that you claim is worth a dollar actually backed by a dollar and 10 cents or a dollar and 20 cents how is it that the market is expected to treat something that's actually worth a dollar and 10 cents like a dollar well you need to impose some sort of negative carrying cost or rent on those coins in order to actually keep its price at whatever you want it to and in the case of maker dow the adjustments to the borrowing rates are done somewhat manually via the dow it's not autonomous and that's sub-optimal in the grand scheme of things even though maker and dye seem to be working pretty well but then you have something like lusd which said to hell with it we're not going to have a continuous fee we're we're just going to charge a one-time fee but the problem with that is that uh lusd is constantly trading above its peck because it's trending towards the value of the underlying collateral and so in practice anytime you're using a collateralized model that uses collateral from other protocols or other places you have exposure to those protocols and places so let's take something like fey or frax fei uses a pcv model a protocol controlled value model and fracs is similar to terra in the sense that they want to use fxs as the collateral that you can redeem your fraps for but they're actually partially collateralized the rest of the collateral is still usdc and in both the case of fey and frax you have a massive amount of direct exposure to usdc where at any point circle could just turn it off and so when we talk about creating money right money that's ultimately going to support d5 at large any sort of exposure uh to a kill switch by a centralized operator is uh a non-sequitur and therefore while you do have like usable stable ones you can mint dye you can mint lusd you can uh mint fade you can mint fracks you can use them in various protocols in reality they have too many structural problems both from an economics and a decentralization perspective to ultimately become the main stable coin of d5 and the the other issue with terra and ust is that it exists on its own blockchain they have a really elegant solution to the collateral problem because the value of luna can float freely but they also exist on their own blockchain and that makes leveraging the composable nature of ethereum for example really difficult to do and so you kind of get all of these different there's a lot of trade-offs that go that you have to make uh from going from a collateralized model to a credit-based model because ultimately there's nothing backing the system and so you do have periods of increased volatility that's normal beanstalk welcomes all of that volatility because ultimately there's nothing backing it there's no there's nothing to redeem and therefore you're going to have natural tendencies uh to have more volatility as to compared to something that's fully collateralized so be it but in exchange for making that trade-off you really do get a whole lot of uh cool benefits uh the first of which is the total supply of beans is totally uncapped by the available collateral the total supply of beans will increase infinitely in line with demand for beans such that any time there's excess demand for beans above a dollar the bean supply can grow to meet all of that excess demand and when when beanstalk ultimately is able to convince the market and compel the market that the credit based model works uh that's when things potentially get excited awesome um i wanted to touch base on something you mentioned earlier about how other stable coins have a negative carry associated with them but bean has a neutral carry and can you explain like what that means so carrying costs or effectively how much do you have to pay or get paid to hold an asset and in short all of the high borrowing costs on collateralized stable coins are effectively negative carrying costs your opportunity cost or direct if you're borrowing coins and holding them there's negative carry associated with the cost of borrowing or if you own the coins there's negative carry associated with the opportunity cost of not lending them out and receiving some sort of interest and the problem with lending them out is that now you have additional exposure to other protocols right you have usdc that's one protocol now you have to lend it in a lending protocol that has its own risk profile and you may have now additional risk you have to take on it in order to just receive your your your interest or uh negate that negative carry if you will so in the case of beanstalk you can deposit first off beans if they're circulating don't necessarily have any borrowing costs associated with them anyone can just buy beans on the open market and because of the fact that there's an infinite supply of beans in theory if there's infinite demand for beans anyone should be able to if they're not in a huge rush to buy beans if you're willing to wait a little bit of time you can almost definitely buy beans at a dollar so you can buy your beans for a dollar you hold your beans they should be worth a dollar forever there's no cost associated with holding those beans now there is actually positive carry associated with your beans you can earn risk-free positive returns from depositing your beans in the silo the beanstalk bank so the silo is the dow of beanstalk anyone who holds beans can deposit their beans in the silo in exchange for stock stock is the governance token beans stock bean stock it's a little bit of a play on words but stock is the governance token stock entitles you to your pro rata portion of bean senior rich so every time the bean supply increases anyone who owns stock receives a portion of the new beans that are minted and so if you hold beans and you're just holding on to them for a period of time between uses you can deposit your beans in the silo and participate in the growth of the system so unlike with other protocols like maker dow which are over collateralized in like lust from liquidity which is also over collateralized there's there's a negative carrying cost associated with those so you're saying essentially when ever being is created into circulation um somebody like mints bean i don't know if that's the right term minting bean but so beanstalk mints beans every time the price at the end of a season uh if the if the time weighted average price was too high above a dollar beanstalk will mint new beans and distribute those beans half of them to stockholders and half of them to paying off debt to paying off pods so there is actually there's just a neutral carry right because you're not paying anything to borrow essentially and that's the benefit that being stock has is that it increases efficiencies for borrowing within d5 as well and also is providing a defined native stable coin or somewhat associating the price to a dollar is that correct correct now just to add on to that there's no current lending markets where you can buy or excuse me borrow or lend beans but there's nothing to say that in the near future there won't be right and the only thing to note is that high borrowing costs to borrow beans should ultimately trend towards zero because if we think about it the supply of beans can always grow to meet that excess demand and so whereas other every other stable coin when you have excess demand for beans people are borrowing beans from the market that results in high borrowing costs but ultimately the supply cannot grow to meet demand in the case of beanstalk that is the opposite so beanstalk will always be able to meet mint enough beans to meet demand such that there should never be high bar it's not to say that there won't be in a given instance right you could have periods of time where there's excess demand for beans and people want to borrow beef so be it but that's different than the long-term borrowing cost to borrow beans should approach zero so essentially are you saying that the mec one of the mechanisms that bean uses to hold its peg is using an interest rate model correct so almost somewhat like how the fed uses to tighten or loosen their policy with their interest rates if there's too much uh you know too much inflation then they'll raise rates if there's too little inflation then the lower rates yeah there's a nice uh corollary there with beanstalk which is that anytime so soil is the willingness to borrow beans anytime beanstalk is willing to borrow beans because there's too many beans on the market beanstalk needs to remove beans from the market and bring the price back up beanstalk issues soil every season every hour beanstalk changes the price excuse me beanstalk changes the weather the interest rate based on the price the debt level and the change in demand for soil over the previous two seasons and so in short what beanstalk is doing is it's taking a sample of market demand for soil and the current state of the system the price and the debt level and determining in an autonomous fashion should the interest rate be increased or decreased by up to three percent okay can you dig into soil a bit more because that was a question i had and not really sure like um how does beanstalk create it and like exactly what is it sure so uh if you go to the field module uh you can see that there's currently no available soil so the price right now is above one and therefore beanstalk doesn't have a high desire to remove beans from the supply there's excess demand for beans so beanstalk actually wants to mint beans now there probably was a little bit of soil available at the start of the season it was just negligible and someone clearly ate it up but at the top of the next season beanstalk will mint more soil uh because again if beanstalk is trying to measure the change in demand for soil every season it's important that there's some soil available for it to measure whether there's demand for that soil or not now to answer your question as to how does beanstalk create soil it can just mint it uh soil is the willingness to borrow beans so anytime beanstalk is willing to borrow beans it creates soil they're the same thing if there is soil beanstalk is willing to borrow beans and so at the top of every hour at the top of every season uh when the sunrise function is called on chain which is what starts the new season uh beanstalk looks at the time weighted average excess or shortage of beans in the relevant liquidity pools over the previous season and determines whether it should mint beans or mint soil so let's say there's a hundred thousand extra beans in the bean eat una swap v2 pool over the previous hour meaning beanstalk needed a hundred thousand beans to be sold for the price to be on average exactly one over the previous hour at the start of the next season beanstalk would mint a hundred thousand beans in the same way if there was a hundred thousand uh excess of beans in the pool over the previous season beanstalk needs to remove a hundred thousand beans from the supply from the liquidity pool on average for the price to have been a dollar over the previous season beanstalk would instead mint a hundred thousand soil it's saying it's willing to borrow a hundred thousand beans and so in theory if anyone is willing to lend beans to beanstalk at the current weather at the current interest rate they can take as many beans up to the amount of available soil and lend those to beanstalk and in theory uh you assume that the market wasn't some sort of equilibrium and therefore uh the the demand for soil is uh ultimately going to return the price to a dollar it may be trailing right if you remove a hundred thousand beans from the supply there may be more sellers this season but that's different than uh ultimately being able to remove sufficient beans from the supply by issuing enough soil so based on how this debt works is there like a maturity on like when this debt is due for anybody for the ones taking on this debt no so this is a unique feature to beanstalk the pods do not have a fixed maturity instead they have a place in line and so anytime the bean supply increases let's go back 100 000 beans are minted 50 000 beans go to stockholders and 50 000 beans go to paying off potholders so if you're in the front of the line the first 50 000 pods in line they would all harvest and become redeemable for one bean each at any time and so there's no fixed maturity instead you have a fixed interest rate you lock in the rate of return that you receive at the time you lend to beanstalk and then you have to wait until your pods get to the frontal line now we would just note uh if you hit the market tab uh that's the farmer's market which is the recently launched decentralized exchange for pods uh where you can buy and sell pods with beans uh via beanstalk and so even though you're locked in the pod line you can never redeem your pods for beans until they harvest until they get to the front of the line you can always go and sell them on the secondary market so there is some liquidity and uh as you can see there has started to be a decent amount of beans and pods transacted in the market uh since it launched around a month ago or so i'm wondering like why has why why is there this dynamic where uh beans has stayed above peg so there's not a negative carry with with this so there's a there's a positive carry is that is that like an incentive for it to be a little bit over peg so that's one reason you might want to buy beans and hold them and you can earn interest on them but to answer your question as best as i can why is beans above peg so if we go back to the fact that beanstalk is credit-based uh anytime the price of a bean is too low as long as there is sufficient demand for soil people are willing to lend the beans to bean stuff that it wants to borrow it should be able to remove enough beans from the supply to return the price to at least one when we were in the field we saw that there was zero available soil at the moment indicating that currently uh all of the beans that beanstalk is looking to borrow people are willing to lend to it therefore you can assume that the price should be at around a dollar or more now to answer questions to whites above a dollar right now uh because you can buy beans deposit them in the silo and earn positive carry earn interest uh it may make sense to certain participants to pay a slight premium slightly over a dollar to start earning interest sooner that's obviously up to the individuals to make their own calculus as to what's cost-effective behavior or positive expected value behavior but the idea is that the demand for beans when the price is too low is beanstalk is able to create demand for beans via soil but the fact that you have the dow the silo where you can deposit assets and earn positive carry that is uh that's where you may actually get demand for beans and product market fit for beans such that beanstalk can grow significantly and pay off large amounts of debt so the silo is where we really get product market fit since since this is not collateralized by any means outside of a credit market and to a degree we know credit markets are faith-based what has been proven to be an anchor to this uh faith in the bean stock protocol yeah that's a fabulous question ultimately the question is why do people believe in the model why are people willing to lend beans to beanstalk even though beanstalk has uh like a 1600 percent debt level at the moment its amount of outstanding debt is 16 times higher than the current supply why is that so it might be illustrative if you click on the analytics tab uh you can see the bean price chart and if you click the all time which will pop up in the top right once this loads in just a second uh you can see the entire history of the bean price so the short answer and we're speculating here but this is uh you know we spend a lot of time talking to the community why do people believe in beanstalk the short answer is it's live through the fire and flames and at this point people feel like wow like it has a track record and a history with which uh it can stand them so let's talk a little bit about how it how it earned that track record so when beanstalk was launched early august uh no pre-mine no pre-sale no team mint uh nothing the first hundred beans were minted when the contract was deployed and all beans minted thereafter were in line with the normal protocol uh the protocol was growing pretty slowly and steadily uh there's no real you know people willing to buy above one or anything like that um for a month plus and the supply grew pretty steadily up to like two and a half million uh which was very exciting right it's a successful first month or so then and we still don't really know how this happened but beanstalk went viral on crypto twitter and everyone this is now speculating but uh based on what happened it seemed like everyone thought and not unreasonably that in the same way that with esd and this is true the name of the game with esd was getting in as soon as possible and so everyone thought this had a same dynamic at play and were willing to come into beanstalk independent of price in esd if you had paid fifty dollars for esd which was only supposed to be worth one dollar but you did it early enough that was still a good move and accordingly these apes thought there was a similar dynamic at play that was not the case beanstalk is specifically designed to discourage buying beans when they're higher and higher above a dollar so in short uh over the course of a couple days 25 or so million dollars came into beanstalk when it was only two and a half million dollars large and one of the members of our discord put it best when all of the apes realized they couldn't exploit the protocol they all left and so you had 25 million dollars come into the protocol and then almost all of it immediately leave so yet the price goes highest four dollars and then as low as 24 cents and over the next month or so uh being stocked even though it was very volatile and not exactly how we drew it up on the big board if you will uh it did provide an amazing opportunity for beanstalk to prove whether or not it's credit based system could work or not and over the next month or so beanstalk was able to attract millions of dollars of loans from hundreds of different wallets and create enough demand for beans to return the price to a dollar uh it took a couple attempts as you can see here at keeping the peg it made a couple runs and finally ultimately after about a month maintained the peg and that was really exciting and then beanstalk continued to grow uh relatively consistently and oscillate above and below the peg for another month or so until late november and in late november another huge uh wave of demand came in someone put in like a million dollars in a couple hours and that kick started another growth cycle and that was pretty great actually everyone that had lent to beanstalk or almost everyone that went to beanstalk during the first death cycle they all made their money back and got got paid back and that was really cool but to speak candidly there were still some inefficiencies in the model in the grand scheme of things which led to the fact that even though beanstalk had proven its model and oscillated and then started to grow again it ended up having another two significant dips below the peg and to speak a little bit more substantively about that beanstalk needs soil every season in order to measure the change in demand for soil now originally and this was a mistake the amount of soil available as a minimum even if there was excess demand for soil was har set as a percentage of the bean supply and therefore even though beanstalk was growing and paying off lots of debt it was also issuing a ton of debt at the same time and so if you click the field right here and then click pod rate you can see that over those couple weeks in november the debt level actually continued to increase and so if you think about the debt level as an indicator of the health of the ecosystem because it's a credit-based system so the debt level is a pretty good indicator of its health while you would have expected and hoped when it's proving its concept and paying off its first round of debt it would have entered a much healthier position because of the inefficiently set soil parameter it actually exited that two-week growth cycle in a worse position objectively than when it started and so that's kind of what led to the next couple of uh downturns where beanstalk was dealing with the fact that it had issued way too much debt during the last cycle but the beauty of the model working well enough over the past seven months is that beanstalk farms the development organization working on beanstalk has been able to propose bips beanstalk improvement proposals to make tweaks to the model to fix various small issues like the amount of soil that's currently available and so if you click on the dow tab on the left you can actually see a history of all of the the different bean stock improvement proposals that have gone live and uh you know do your kind of own research as to how effective they've been on uh beanstalk's ability to maintain the peg but that's that's a little bit of a high and low for you on on the history yeah yeah i love uh you know these these types of stable coin models and uh you know i got into all these pretty early i saw being you know pretty early but that that would be maybe the other thing i would just add about beanstalk is beanstalk unlike esd which was does esd the sooner you got in the better and at any point in time if you're like should i get into esd now the answer is you should have gotten in yesterday bro beanstalk is designed the opposite like at any given time if you think it's a good time to enter beanstalk now is a good time the incentives are created in a fundamentally different way where it's not just whoever got in first benefits the most and so when we think about how you know oh and if anything that's one of the things that i think beanstalk more recently has had a little bit of success at convincing people but to date has struggled with is a lot of people have been burned with previous stable points and frankly it's because their models were really not designed in a way that is conducive to lowering the gini coefficient of the system ultimately each of these systems were designed to centralize uh ownership and we would even comment that as cool as the terrorist solution is to the senior rich problem ultimately the fact that uh ust holders they don't have any of the upside in the growth of the supply of ust the way bean holders do you can deposit your beans and and participate in the growth of the bean supply if you're holding usd all you can do is deposit your your ust and anchor and look for a handout from the luna holders that are receiving all the upside from the growth of the ust supply and so ultimately the fact that beanstalk has these really specifically designed uh and it extends from the field and the incentive structure to lending in the field to the construction of the silo and the accrual of stock rewards within the silo over time the goal is not to have ownership uh trend towards a few hands or early investors or anything like that the goal is to have a truly decentralized system that increases in decentralization and decreases in concentration over time seems like the system's been set up from the start to the fair in its distribution a lot of projects talk about a fair launch but when you're emitting you know 100 of the supply in the first couple weeks how is that fair or the majority of it within the first couple weeks how is that fair um so that's very like admirable in the way that you've set up bean stock well ultimately it's not admirable we want bean stuff to succeed like we really view the problem that beanstalk is solving as a really essential problem that defy needs to solve and we don't believe that realistically the whole market is going to adopt something like what you were describing where it's designed to enrich a select few it may right there have been lots of protocols like that that have been incredibly successful but when we talk about actually fundamentally changing the structure of d5 and becoming a beanstalk becoming a primitive across ethereum native d5 in the next year or so and then across wider d5 over the next three years let's call it you got to do it the right way and if not you're never going to succeed and so the goal in constructing beanstalk and doing the fair launch or you know the the no pre-minor whatever you want to call it all of that is is is with the objective of giving beanstalk the highest quality chance at success because it's really hard right doing a non-collateralized stable point is really difficult and so we didn't want it not again it's not about being admirable we didn't want anything to get in the way of beanstalk succeeded i had a harder question um that it is always in the back of my mind with these types of protocols because i've seen it before what what are the risks that we see or we could maybe foresee with being stock protocol in regard to a bank run beanstalk has specific incentive structures that are designed to minimize bank runs as much as possible you can't limit them right because anyone can withdraw assets from the silo at any time but uh this goes back to let's compare with esd uh any time the price was below a dollar for esd there was no senior age being paid to anyone in the dow and therefore there was always an incentive to withdraw your assets from the dow and basically run on the bank and that created these huge negative feedback loops in esd where any time the price was below a dollar you immediately had massive amounts of outflows ton of reflexivity with beanstalk there's a couple rules in place in the silo which is the beanstalk bank that's designed to prevent a run on the bank so most basically you have a withdrawal freeze uh which is uh right now like 10 seasons or something like that so 10 hours if you're going to withdraw but that's not really substantive the incentive structures in place uh are as follows so when you deposit assets into the silo you receive stock which is the governance token and you receive seeds seeds are not not liquid but seeds yield more stock every season and so the longer that you're deposited in the silo the more stock that you accrue now from an incentive structure perspective if you are going to withdraw from the silo you need to burn all of your stock all of your seeds and all of the stock that grew from your seeds and therefore if your intentions to withdraw and then in the not too distant future redeposit your assets again in the future there's an opportunity cost in the form of all of that grown stock you've received from seeds for the previous time you've already spent in the silo and therefore the longer that something stock grows linearly from siege not exponential so there's a linear effect in the sense of the longer you spend in the silo the longer an asset is deposited in the silo the higher the opportunity cost becomes for removing and so the silo is really sticky but in a way that doesn't actually uh hinder the system right because when we talk when we go back to the goal of having a widespread ownership and not rewarding people that are in earlier because the stock grows from seeds linearly let's say that i deposited today and after 100 days i have double the stock that i have and now today you deposit the same amount so i have double the stock that you have after another 100 days all i've only gotten another x of my stock off 3x and you'll be at 2x right so now the range the comparison between my benefit for being slightly earlier is much less compared to you but each of us individually have the same instruct incentive structure to stay invested in the silo as long as possible does that make sense yeah it does so essentially you've created these incentive dynamics where it makes it more sticky to stay in and that helps with the reflexivity in the price of bean exactly i understand that correctly exactly right and just to to be honest and to answer your prior question about risk to beanstalk the biggest risk we would highlight at the moment is the ethereum price you know if you look at the current liquidity structure at the top here we have a b three curve pool and a unit swap being heath pool the fact that so much of the liquidity more than uh two-thirds of it is currently trading against ethereum means that if ethereum tanked to a hundred dollars that would be pretty bad so in the grand scheme of things you think about like what are the existential risks beanstalk is still very early and it's still somewhat correlated to the rest of the market particularly ethereum and so you know we would expect either 2100 being stock would be fine either 1800 beanstalk would probably be fine you get down to eat that a couple hundred bucks that's a lot harder for a novel young system like this to to continue to attract demand for but uh you know that's just in the spirit of honesty and answering your question about existential risks how we would evaluate that no no thank you for uh a transparent and uh clear answer uh because it's always a concern of mine so going forward where do you see beanstalk within i would say this year going forward and also what's the best way to get involved for anybody watching this wanting to get into the bean stop use the protocol so to answer the latter question first uh the best you can interact with the protocol on bean.money which is a website uh hosted and run by beanstalk farms um but if you're interested in getting involved or have questions uh the discord community is you know and we try not to speak in uh hyperbole the discord community is as cool as it gets like bring your questions bring your concerns bring your problems what don't you like and there will be a really high quality discussion uh in a in a genuine fashion no one telling you you're you're wrong but people just looking to have a conducive high quality constructive discussion the beanstalk discord is the place to be for that and uh that's something that we're really proud of uh having this community that maintains just such a high quality of uh discussion and respect and you know that's not something that you typically see on the internet so that's pretty cool um and would definitely recommend people come check out the discord um now to answer your former question where is beanstalk in a year or where are things going over the next year so beanstalk farms recently put out like a six-month roadmap laying out some of that but to just stick with some of the highlights so the silo is the beanstalk bank and when beanstalk launched you could only deposit beans and bean eat lp tokens into the xylem now you can as you can see you can deposit being three curve lp tokens as well into the silo that was due to bip 12 which took the first step towards generalizing the silo what does it mean to generalize the silo so in short what you will be able to do in the not too distant future is deposit assets that are yield generating from other protocols in the silo and earn interest from beanstalk and other protocols simultaneously and so let's take the example of uh a b3 curve pool which can currently be deposited in the silo but let's assume that uh that pool gets added to the curve gauge which beanstalk farms recently drafted and dropped a draft of a proposal uh in the curve community and at some point we'll formally propose to add that pool to the gauge you would then be able to uh use convex to receive boosted curve rewards on your bm3 curve and deposit that convex mean three curve into the silo and earn both boosted curve rewards and beanstalk rewards and that's just the first step in a more general beanstalk that will allow you to do all sorts of really cool things like for example uh let's say you have beans right you'll be able to take beans sell beans into eat take that eath uh put it into a liquidy trove or a maker dash cdp mint l usd or die then add that l usd or die to a bean like the bean three curve pool or the lusd bean pool that doesn't exist yet and then deposit those tokens uh add liquidity deposit those tokens in convex add the convex tokens into the silo all within a single transaction so you'll be able to literally go from beans into arbitrary assets or even arbitrary assets into arbitrary assets within beanstalk and so the goal is to create like a super clean user experience where they can perform pretty arbitrary interactions within d5 and leverage the benefits of other protocols and being stuck at the same time wow really nice that's a cool road map going forward especially with the other uh pull two and all at the ui functionality which is really needed in d5 because everything just seems to be so complicated with the ui so that's great to hear yeah it's a it's a work in progress but uh the beanstalk farms uh ux team is uh actively working on making this the best ux and d5 so i i'm all out of questions you want to leave off with anything else before we uh get off here just want to say thank you very much for having us uh it's a pleasure and uh anyone who who has questions or uh wants to learn more uh would just encourage you to come ask questions and discord uh on twitter uh this is this is a very welcoming community and uh want to just extend an invite to anyone and everyone well i want to thank you personally uh coming on the show publius and talking on behalf of beanstalk protocol and we've had you know a great conversation thank you again if you like this type of content make sure you hit the subscribe button and hit the like button if you like today's video and we'll see each other next time