Recording

Transcript

A man is here now. We can add him. And so for me, you know, the need for a center, for the need for a decentralized, credit based stablecoin. Felt like it was it was the one thing that could really flood the chain with enough dollar coins or stable currencies that could actually lower borrowing costs, which would be really amazing because that would actually start driving some really good use cases that we wondered about that we've not seen.

So that's why we're here to talk about the importance of those stablecoins that are that are just running, that are just backed by algorithms and logic and not not collateral. So with that, I'll just request by two guests to introduce themselves, maybe. Manny, why? Provided we start with you and I'm so glad that that you're here and you've been able to make it.

Thank you and apologies to and to keep you waiting. I did not realize that you can only listen, but not speak unless you have downloaded the Twitter phone app directly, which I have never done to this point. So thanks again for your patience. My name is Manny. As as you just said, the founder here at the but the Buttonwood Foundation and Buttonwood Protocol, I operate a team called Prometheus Research Labs alongside Mark Toda, who's our CTO.

And just in terms of my background, I'm trained as a financial historian. I originally began as logician or at Harvard. I studied mathematics, but then switched over to financial history. And near the end I worked a little bit in finance and then decided to go back to grad school, which was an awful financial decision. And so I've been a little bit interested in crypto, I would say, since 2014 when I was having arguments about this over at Harvard Law School and then really only got involved around 2017 when I started advising a number of projects.

I'm an advisor to Black Power to the Ampleforth team, which I think is probably most of you know me. I have written a number of other white papers, and so I spend most of my time just thinking about Defi. It's kind of like the natural next point in terms of financial innovation, financial evolution and the progress of financial history.

So it's it's a bit addictive. And so I'm super happy to be in this conversation with you guys. I've spoken with colleagues and, and actually a lot, and this is one of the things that brings me the greatest joy. So thanks for having me, you guys. Amazing. Thank you. I'm glad you're here. And that you figured out that the app is essential for Twitter spaces.

I should have clarified that earlier. Publius or if you want to go with the name that we now know of you to introduce yourself and just maybe a quick background. Sure. So, you know, I'm I'm been speaking as part of public today. I'm just part of the operation. So, uh, you know, uh, take, take any of our thoughts, for what it's worth, if you will.

But nonetheless, very excited to be here chatting with both of you and our background. We have a lot less pedigree than Manny does. Hopefully that doesn't affect the validity of our our arguments. But we all I guess I'll say I although it is true, we all went to the University of Chicago. I originally went to the University of Chicago to study economics, which is where my main interest and passion lies, I would say in general, but was deeply disenchanted with the content of the economic crisis and so never actually took any econ.

Chicago and instead studied computer science and just continued to study economics on the side. And, you know, so basically don't have any formal economics training whatsoever. I also never graduated from the University of Chicago, so I don't have a college degree. I got exposed to crypto in 2017 and worked with a variety of different projects, none of which did particularly well during the 2017 2018 cycle and was particularly interested in token design and token economics and went back to school for a bit.

Then COVID hit and was just kind of doing an independent study on my own, reading lots of books and such, including economics books, and ended up serendipitously working with Brendon and Mikey on Bienstock. So I don't have much official qualifications, but obviously spend a lot of our time thinking about these issues. So very excited to get into a little bit of a discussion.

Amazing. Thank you so much, guys. So look, we know that the focus here is I want to start just by talking about, you know, why does why does a why does a credit based stablecoin even matter? I touched upon that briefly before before many joined. And, you know, for me as someone from Pakistan, as someone who's spent a good five years trying to bridge the digital divide by making Internet for all happen, things like connecting the unconnected banking, the unbanked, those are those are high priority problems for me.

And I do see the crypto is definitely in its in its speculative mania phase, but I do believe there is there is going to be there are going to be much more meaningful applications beyond that. And one of the things that that I think is, is going to really help crypto realize its full potential is the idea that we can bring lots and lots of stable currency in the most capital efficient way possible.

And since I would say the dawn of crypto when I wasn't involved, we've seen, you know, I would say collateralization levels come down. I mean the early stages of stablecoins are highly collateralized and then some of the newer versions that are becoming lesser collateralized. And however there's some interesting convergence also happening. We're seeing USD with, with Terra becoming building a bit more of a collateral reserve.

But irrespective, I mean, you know, at a at a metal level, what we see is that that there is this search for the most capital efficient stablecoin or the most capital efficient currency that can actually facilitate transactions and make make defi very, very useful for for everyday use cases. So that's the that's why, you know, at least for me and I think for many of us who are here, that's why this topic matters.

Now, the challenge, of course, in making a credit based or a and under collateralized or a limited collateralized stablecoin work is that it's very, very, very challenging. And you know, the one analogy that I like to think of is that currently, you know, it's obviously not as dramatic, but it does feel like we're attempting flight. So, you know, the Wright brothers were able to fly their first plane for 12 seconds in 1903, and then by 1905, they were able to fly a plane for about 40 minutes.

And we're seeing some of that now with with credit based stablecoins that, you know, the more recent iterations being in particular is an example that that just lasted that this lasted a lot longer compared to previous iterations. And that's that's that gives a lot of encouragement that, you know, hey, maybe there is something here, maybe this can get solved.

And then if it gets sort of the upshot is is pretty incredible. So the first topic that I want to get started on today is just going down. There's going to a bit of history, both where to place and mining on that, on both designs of of and you know, we're going to use I just use algorithmic stablecoins I know probably as you prefer, credit based, but you know, basically what we're talking about here are currencies that are dependent on collateral on blockchain.

So I want to start with Publius and then then I'd like to ask the same question for money. Why did why do you think these past iterations, particularly basis gosh empty, said dollar and dynamics at dollar, why do you think they failed? So Publius, let's start with you. You guys hear us? Yes, sir, we can. Awesome. So be trying to just pull up our notes real quick.

Apologies So whereas most people think that the stability problem starts with when the price is below a dollar and how to prevent a run on the bank, we think that the problem fundamentally starts when the price is above a dollar. Any time a smart contract has written into it that at a given price there will be some inflation, there is naturally going to be some what we would call inorganic demand for that asset.

And if you look at previous attempts at non collateralized stablecoins, they all had and suffered tremendously from inorganic demand. In particular, this was the result of pre-determined minting schedules to a large extent went when they were originally launched and one of the main differentiators between beanstalk and other non collateralized stablecoin attempts is that it didn't have any sort of predetermined minting schedule at launch.

And so the first place where you saw inorganic demand rear its head was the people that participated in the very early stages of the protocol to participate in its predetermined minting, which didn't necessarily set the protocol up for long term success. But in general, the protocols didn't really have any rules to limit the purchasing of the Stablecoin when the price was above a dollar.

And this was exacerbated by the type of minting schedule that was in place. So in addition to the the natural inorganic demand that exists, the inorganic demand was greatly exacerbated, exacerbated excuse me, by excessive minting. In particular, previous stablecoin attempts used the quantity theory of money to determine minting schedules whereby if, for example, the price was 1% above a dollar over a period of time, the protocol would increase the total supply of the stablecoin by 1%, which in theory makes a lot of sense.

But in practice it doesn't actually work. And so Bienstock takes a radically different approach and looks at the market based amount of beings that need to be bought or sold. But we won't we won't talk about the stock just yet. But the concept is that by taking too much of a theoretical approach as opposed to a market based approach, the amount of stablecoins that were minted by these protocols was way too much in practice, and the success of minting when combined with the limit to the structure of inorganic demand, or at least the structure to limit inorganic demand, we should say that those two things work together to put the protocol in a position to

fail, particularly when you consider them the the launching. That was also deterministic. Those three different things combined to put the protocols in very poor positions to succeed upon launch and in practice, each of these protocols hardly made it through one or two cycles altogether. And a lot of that was just because of the far too excessive sell pressure that resulted from excessive inorganic demand immediately or shortly after launch.

Now, the the other side of the market isn't just when the price is above one, although it's very important. The other side of the market is what to do when the price is below a dollar. And previous attempts at non collateralized stablecoins had very inefficient lending markets or markets to lend to the protocol. In particular, ESD is a good example of one such protocol whereby the incentives to lend to the protocol were incredibly corrupted or suffered from the tragedy of the Commons.

We should say so in practice. Yes, we had a deterministic interest rate, so the interest rate was a function of the debt level of the protocol and all of the debt in the in the protocol was preposterous. It was fungible, it was the same. And in short, what that what that incentive structure created was the following. Even if at any given moment someone felt it was a good time to one to the protocol, they were actually incentivized to wait because if someone else would lend to the protocol first, the debt level would increase and therefore the interest rate that the next person to lend would go up.

And so there was a true tragedy of commons on the lending side, which created a radically inefficient market for lending to the protocol. And so when you combine the fact that the system was very inefficient in limiting excessive minting when the price was too high and not attracting demand in an efficient capacity, when the price was too low, the combination of the two factors that these protocol is up for failure.

So in short, that's the the main core issues that previous attempts at non collateralized stablecoins suffered from, in our opinion. Awesome. Thank you. So I mean just I mean paraphrasing it's the deterministic the biggest out in the U.S. is when prices are above a dollar and when there is a deterministic supply schedule, there can be a tendency to over mint when prices are above $1, which can exasperate, exacerbate, sell pressure, and when prices below $1.

The fact that pay outs led by Ebisu and not first in, first out, they were creating a tragedy of the commons and not incentivized lenders to provide capital. That's that that's that's very helpful. Very helpful framing. Manny, you've talked a lot about this topic. You've even categorized Stablecoins or algo staples in different categories. I would love to hear your take on why you think these past mechanisms failed for sure.

Well, first I wanted to say now that I know that Publius went to University of Chicago, then I think I can go on a couple famous phrases attributed to Chicago economists. I think one is that nominal rates affect nominal things, but not not real things in the long run. So I think that's one of the ways that I that I look at Stablecoin designs and then obviously the other one, which is quite familiar, is the everlasting debate between rules and discretion in managing money supply.

So I would say I agree with everything that Publius said. So just so you guys know, we we do have a lot of areas of agreement. I describe certain subspecies of Stablecoins as what I would call a scoop on coins. And the the schematic here that this kind of refers to is is is an uncle lateral ise token where the protocol has some sort of rules based mechanism for trying to restore peg.

So there's a you know, there's there's a price feed that's run out of a pool somewhere and the protocol offers people that lock up their tokens and remove them from that pool, raising the price with the promise of more tokens later. Right. And so that that's basically the existence of this coupon, right? You lock up your tokens, you get this four coupon that gets redeemed at some point in the future in exchange for more tokens.

And so these this general dynamic can be more or less complicated, right? I mean, I think Parise is that is a protocol. It's a stablecoin system that has this kind of general dynamic, but there's a lot of intermediary steps. Terra is really a coupon code and lots of extra steps. And so so but putting it that aside for a little bit, I think the general impulse, the thing that I love about being docked is to the creation and distribution of money.

And, you know, I'm at a monetary conference right now. I'm just taking some time to to talk with everyone. But this has been a topic that's been coming up over the last ten years who went away during the pandemic and it's coming back. But, you know, there's this just general underperformance of discussion based systems. And so Bienstock is doing, which I really like, is that they're trying to figure out what the right rules would be to minimize a lot of the disturbances.

So I am fully in agreement that a pre meant as they did for SD and a couple others set the protocol up for failure. I think the fungibility of debt of a queue was bad, not just because people would then wait to redeem, but because you weren't sure that you were going to be allowed to redeem at all.

Right? In some ways you have to automate that process in order to claim your your kind of profits later. So there were a lot of flaws with these previous models. I absolutely agree. I mean, this was something that motivated my writing that that the coupon coins piece and they were getting a lot of attention. But it was clear, I think now it's super obvious in retrospect that most of this was a kind of reflexive bubble around some of the derivative tokens for SD and basis cash and whatever else came out of it.

But I'll leave you guys with a little bit just to close out. I guess this topic, a little bit of historical perspective on why rules are so important. If we go back to the early 1800s when Britain and France were kind of at war with each other, they were both technically trying to adhere to kind of a metallic standard.

But France always paid a much higher interest rate and in fact, they had to stick with convertibility while the Bank of England just went off of gold and printed as much money as they needed. And that was always kind of a perplexing fact for people, right, that the country that actually followed the gold standard is the one that kind of got punished, that followed convertibility, got that punished.

But it wasn't so much that what happens is that the market rewards where you kind of call it a rules based regime. Right. And so people knew that England was generally following structurally could only follow a rules based regime, and so it could enjoy lower borrowing rates. So I think figuring out a rules based approach, I think is inherently superior to a discretionary based.

And it really is about figuring out the right rules and the rules. And if the context of a specific type of system, so so money, it almost seems like a little bit of your position. It has changed since our first discussion, which is that which we've never had a public discussion, but it originally seemed like you felt that there was no debt based model that is possible as opposed to now it seems like you're very interested in figuring out the optimal rules for, you know, for for for some some sort of model that may work.

Is that is that a misconception or a mis misrepresentation of your your your views? So what I would say is that I perhaps have become a little bit better at articulating what my position originally was. I think a let me put it this way. I think a an uncle laterally rules based kind of money requires other things besides just kind of the naked protocol by itself.

So I think that's probably where our disagreement is. So I think, you know, most of these coupon based competitors. Right. Have really not much economic activity, I think, to absorb kind of the currency that's being produced. And I think that's fundamentally the the contextual problem they have. And I think it would be helpful for the listeners. Manis You know, one of your points that you articulated in your thread was that you, you, you talked about institutional nakedness and you said that if you don't have that, that governments that are also supporting central banks, they have the ability to levy taxes.

But that protocols, you don't have the ability to reduce the total stock of money. So maybe can you talk a bit more about, you know, the need for I would say I don't know what the opposite of institutional nakedness would be, but if you could talk a bit about that because maybe, you know, that's kind of I mean, I think after that would be just really great tool to think about, you know, what does the potential solution look like?

Maybe there is a bare minimum level of institutional support combined with rules based money that ends up making this whole system thing? Absolutely. I think the main issue with the other coupon coins is that they have a set of rules that the protocol enacts that kind of masquerade as kind of real economic activity, but they're really not. And so I think being able to break out of that and being flexible enough to move away from that is really important.

So 100 B and I actually think this is where we're totally in agreement and we don't disagree whatsoever. But then the fundamental question becomes what is real economic activity? Does that make sense? And so we will we would we would posit that the the the providing or provisioning of beings as a liquidity pools in the pools that the protocol incentivized was perhaps the first ever product market fit or real utility for any credit based stablecoin that wasn't artificial or subsidized and curious curious as to whether you would agree with that classification or by the protocol in its rules based system, created a demand for holding and using beings for a use case which was providing

liquidity. Right. So the I think most of the listeners are familiar with the fact that you guys have protocol on liquidity. I think that is in fact a well, not any protocol on liquidity, but that there is a protocol like the protocol incentivizes users to provide liquidity, but none of the liquidity is actually owned by BIENSTOCK. Oh, got it.

And I think I think here I think in just in case people are not familiar, I think this context is helpful. So dear listeners, if you're not familiar with Beanstalk, if you were to put your dollars in the silo or some box in in the beanstalk protocol, you on governance tokens over time that entitle you to more share of future amounts.

And the stickiness is that if you were to leave the protocol, you burn your governance tokens. That's basically the the incentive that like and I have been one of those liquidity providers who talked about leaving a few times. And you know, the the fact that you're being asked to burn your governance tokens was a very interesting stickiness that is, I would say, different from what we've commonly understood as protocol on liquidity, where the protocol is owning the liquidity pool tokens.

So just want to give that little footnote before before Matthew responds. No, I appreciate that. I think that I'm still getting familiar with what goes on in silos, so I totally appreciate that clarification. So let me I mean, let me reframe the the point at which we could kind of approach this, right? So when I you know, there's two things that that are happening here, right?

One, you could think of as like the the the actual fiscal capabilities of the protocol. Right. And then the other one is really the the quote unquote real economic activity that's happening. The real economic activity part, I mean, that one's a little fuzzier. So I'll go with that one a little bit briefly and won't lean on that too much.

But when we think about money, right, most functioning money is kind of traveling circuits, right? So they can't get stuck and sometimes they get stuck in pockets and that causes problem. But one of the more famous examples was there. There was this island, I think in Italy where they ended up creating a digital currency when they had a big kind of financial crisis there with one of their banks.

And so that provided really clear data, I think, for later researchers to see kind of how this currency kind of moves and circuits. And so the main problem, I think with things like Terra is that, you know, there's no circuit if you think of money as kind of water flowing through circuits, right? It's not really flowing through its water cycle.

It's kind of just going into a hole and then at some point that whole overflows and causes problems, right? So it's not quite being used 100% according to this is we're in perfect agreement here. And in fact, if you look at where is all the demand for us actually coming from, it's coming from anchor protocol. Right. And as we know exactly, you were saying a money slick and why is money being sunk there?

It's not doing anything there. It's not providing any utility for being an anchor protocol. It's just collecting some sort of subsidy from Luna holders. Right. So exactly as you're saying, there's no circuit there's no economy being formed there. And I think to some extent, that's why we're seeing that protocol move away from totally. You know, the original model is is a very elegant solution to the collateral problem.

And now they're moving to partially collateralize the system with Bitcoin. And, you know, I think that's partially reflective of the fact that they're they're not particularly confident in the real economic activity that's being generated here. So. Right. We're not fully in agreement. Those types of setups don't last forever. I mean, and they were there, I think, for a very strategic reason, which was they were subsidized by people that bought a lot of Luna early, 100% draw a lot of people to mint a lot of Tara to them of the price of Luna, and they're selling it along the way.

So you know, at some point deposit is going exactly right to subsidize that anymore. So now they're selling out of the sky. Exactly. Exactly. So whenever someone's offering you interest rate for just locking a token and not doing anything with it and there's no actual risk being taken with that to generate the return, you're probably the fuel in kind of an exit liquidity machine.

I mean, that's that's kind of the heuristic here that I would always use. So Tara was definitely that and hope. So we're in perfect agreement here. Yeah. Yeah. So so putting the monetary circuits aside, let's, let's look at it kind of the other way, right. Which is really what you would call the repo before we put the money circuits aside.

I just want to make the comment that just because to date there haven't been those monetary circuits, that doesn't mean that they're not possible. And I would point to the increase in liquidity in the Bienstock ecosystem over the couple of weeks prior to the attack and would make the point that when we consider what are currently stablecoins used for the majority of stablecoins are used to provide liquidity, right?

That's one of their main use cases at the moment. The fact that beacons were being used in mass to provide liquidity, I think that that was the very beginning of the first type of product market fit and a real monetary or an economic circuit being formed that was organic and was natural and had some sort of cyclicality to it.

That was not just purely reflexive, although obviously there's some reflexivity to it in general because of the inorganic demand, as we were saying, but felt that if you look at the dune dashboard, there's some really compelling evidence that for the first time there was some product market fit actually created here. But, you know, let's let's let's move on to the fiscal capabilities.

I didn't mean to interject. No, nowhere. No worries. I mean, I don't disagree. I think monetary circuits in digital currencies will happen at some point. So, I mean, it's just about getting, well, incentivized, right? Yeah. I mean, I think we would make the argument that the positive carry of beans, the fact that there are all these different things that the silo will ultimately pay you to do with your beans that are net beneficial to the Bienstock economy, let's call it that is the product market fit, that is the, the beginnings of an ecosystem and then would point to all sorts of other protocols that may get built on top of the positive carry being.

In addition to just liquidity provisioning that, you know again the protocol was only nine months old. So it's very hard to say that there was tons of evidence for it, but there was the beginnings of evidence, at least, right? I mean, I think so. I mean, this is, you know, definitely reflects a difference in kind of philosophy or perhaps where you think the space is going.

But you know, when when ESD came out, I thought that they were playing four or five tests. Like I remember calling one of my friends who's who's a fund manager. I think he's on this call. But I said, Oh, I know what these guys are doing, because I was like, This is clearly can't work, right? It's, you know, it's kind of this exit liquidity machine.

But what they're going to do is they're going to provide extra liquidity probably to some consortium of gambling companies in Europe who don't want to be touching real cash from people because they don't want to have to deal with the KYC and people don't trust them with credit card information and so on. So I figured that somebody was going to come in there that already had monetizable activity and then substitute in this digital currency.

Turned out that was not the case. It turned out they actually thought they were going to be fine. But I mean, that's that's kind of where I think ultimately lost is that's funny. Matt and I, I know I was sad. I almost thought of calling up PokerStars. I mean, like, you guys should just buy USD. There are two man.

You got you got to be a little bit more. I know this is why I enjoyed getting to know you guys. I mean, I knew that you were in it for the right reasons and you were not just kind of dodgy and non characters who weren't super open. So no, this is why I enjoy kind of, you know, chatting and hanging with you guys.

But I think ultimately you write digital currency production has to be for monetizing digital activity and so you can move towards things that are, you know, digital only where you don't in fact need to off board into some sort of real world asset. Right? So the game economies are clearly one. I'm not sure what's going to happen in there.

I'm not so sure about NFT because I myself don't quite get them. But I think, you know, like, you know, games with fungible, transferable, true ownership, you know, things that you can own will have markets that probably need to be kind of, But why would people use a currency that's not going to pay them to use it? That's the concept.

Being stuck is the first I guess beans are the first currency to pay you to use them in theory. Right. And you may say, well, if the beans aren't in the silo, they're not earning any interest. But in a world where you can transfer deposit in beans, there's no reason why the beans in the silo that are earning interest won't become, you know, currency effectively.

Right. Well, well, okay. So this is I guess maybe this is a perfect segue into the the fiscal part. So when you think about like lending to the US government and what that means, it's ultimately BAF backstop. As much as they break away from this kind of general framework and we don't see it for many years, it's ultimately backstopped by the government's ability to then tax that currency out of circulation and back into the hands of people.

That's that's kind of how this whole thing works, right? And this is correct. Again, this is this is their bread. And that there's an ability to collect tax revenue is based on the fact that the country has a military and can compel people. And of course, so there's there's like a price. Yeah. So so so I mean some of the incentives that are provided by the protocol to pod holders, you know, it's not coming from a similar dynamic, which is why I don't quite think the the metaphor not being compelled is your point.

Not necessarily that it's not being compelled. So let's say that I ran a I created a protocol and some sort of wi fi knockoff, and it's called potato stock. And you give I'll take your beans and I'll invest them somewhere in the back and on some other tokens. And periodically I get payouts. That isn't that's not compelled activity.

Right. But it does have this kind of like, you know I spend the beans to acquire, I don't know, uniswap tokens and then eventually I have to sell the uniswap tokens to get the beans back to pay back the people that limit the beans. Right? So it creates a cycle on the back end, but it's a cycle some what I would call the real economic there, because there is a risk that you might not be able to get all the beans back.

And it's that type of behavior that actually creates the real return. And so in the in the case of like money, right, in real world, governments actually think that markets grab attention, too. So one of my favorite papers is called the fourth grade inflation At the end of fourth grade inflation's by by Thomas Avent. And he just looks at hyper inflation and, you know, I like the fact that you kind of threw shade towards the quantity of money because the quantity theory of money would tell you that governments would have to reduce the money supply in order to get the price level back under control.

It turns out that that's not the case at all. What markets look at is, in fact, what they think of as a regime change in terms of commitment. So if a government reforms its kind of fiscal deficits into surpluses, then suddenly the price label price levels just stabilize. And so it's it's kind of this you both need the circuits, you need the rule based kind of activity, but you also need the ability to, you know, remove the currency back from circulation if in fact, you're calling it kind of a a credit based transaction, this requires that somebody be doing something with that token and not just printing more out of it.

So help me it like I want to I want to double click on that meaning a little bit like make, you know, as in what would that look like as in if you like, you know, I mean it does it look like, you know, a protocol supporting another protocol is it is in an organization supporting a protocol. The things you know, I mean in the case of Tera, right, Like let's say there's and this is also something you alluded to in the thread that, you know, the the the solve a lot of people talk about is that, you know, you'll create enough off ramps and then enough use cases that enough real world applications that

you know, there will be these release valves that will emerge. So I'd like to hear your thoughts on, you know, what could that look like? What is that institutional support that actually addresses this this limitation in a protocol that actually helps, you know, I would say reduce this the stock of money that's outstanding and creates some form of taxation equivalent that that currently doesn't exist.

But ultimately, I want to push back on the preface here. Short. Short. Yeah. Yeah, of course. Because the the difference between a government is that and Beanstalk is the beanstalk doesn't have any expenditures except for I guess the cost of the sunrise function. And so it's $100 an hour or 100 beans an hour and it's time to write, publish like you'd like.

You've got a budget that you'll have to mint for like so that there's that. But well, I would make the argument that that's not a prerequisite and the protocol could certainly run without that. In the early days, it seems that the Dow values subsidizing contributions to the protocol, but there's no reason to expect that to be the case in perpetuity in the same way that the government has perpetual expenditures.

And so would really push back on that and really make the point that Beanstalk has a fixed cost and the cost is 100 beans an hour to maintain itself and that that stays constant independent of scale. And so you have well, it's certainly true that you need, uh, you need the ability to remove beans from the supply and remove money from the supply in order to create stability and passive.

But to argue with that and as we all know, the Beanstalk white paper references, if it cannot find lenders to remove beans, and that's why that it will fail. So that's that goes without saying. But the concept is the problem that's being solved is not one of every year or every day there's a massive amount of revenue that needs to be covered for in perpetuity.

There's no tax that needs to be levied here. In general, it's purely a question of at the market level, what is the supply and demand for beans and how does that affect the price at the moment? And that's it. Hmm. I'm trying to process a lot of these of the questions. I mean, well, let me push back on that a little bit.

I mean, you would probably think that there's, uh, that having more of this kind of circuit based real economic activity in the back would stabilize the price, right? I mean, I don't think we disagree on that. Right. Well, the certainly create demand, natural demand that is sustainable, right. Where you're not going to have just people coming in for the senior rich.

That's correct. Now, that doesn't necessarily mean that that will create stability. There's there needs to be other things in place to create the actual stability in an autonomous fashion. But agree that the pre-Iraq with it to long term sustainability are those organic economic systems. Certainly. Okay. So I mean, I think we're very broadly in agreement there, can cut down on all these things.

Um, let me hand it back to you. I'm trying to put together a thought and just requires, I think, a few seconds, but I would I'll try something. My, my mind is a gathering of at you know they there's, there's obviously there was a I don't know what you I don't know if you saw this little graph Publius that Peter the team showed that the Bitcoin conference where he was saying that, you know the like it was showing the uniform forms of money.

There's like monies that are stores of value have lower velocity, but they have the of promise high stores of value. But money's with high velocity. They're a low store of value. And you know, I would think that, you know, one of my takeaways was that for any money, for any form of money to actually be treated as money, it first has to prove the store of value argument and then and then it moves on to other things like higher velocity, curious, like, you know, if if you want one question, if you saw what he was saying there in the in and what he was getting at and whether you have an agreement or disagreement with

his framing, I didn't see that. But the comment would be that I think bienstock and this is one of the things that makes it hard to put into a typical box is that it sort of breaks that barrier between a medium of exchange and a store of value because of the state of being in the silo whereby someone can be I own a being, but I own it in the form of a deposited LP token.

And so my being is actually serving that amount. But it's an economic function, it's providing liquidity and so my actual ownership of beans may go up and down over time. It's, it is serving as a medium of exchange. There's a velocity in the underlying beans. But at the same time, from the user perspective, they're being is just, you know, it's sitting in a bank account.

So and it's a store of value for them at the same time that it's serving a medium of exchange and not sure not haven't really thought about it in this context before. It's an interesting framing, but I think that to some extent beans are or potentially both. But they're a store of value in a unique way because it presumes there's stability, right?

When you typically think of store values, you assume that the value is going to go up, although I guess technically that's not implied in the name. But most store values are supposed to go up in value and be protected from all sorts of conditions for us. In the case of beans, they're meant to be stable in value. Sinatra How that affects things.

But yeah, let me try another let maybe try another framing, right? Like you said, you live I think we've talked about the impossibility trilemma before, right. I think I've heard you mentioned that. I'm guessing you're familiar with that concept. Certainly. Yes. So, so, you know, I mean, it feels like I have heard your argument on calls that like, you know, because being kind of goes up and down and it's not held to a tight pegged.

Therefore, you know, it's not necessarily violating that. But I mean, to do that, to do the naked eye, it does feel like that, you know, being is saying, hey, there is a solution to the impossibility trilemma that you can have, you know, all three things provided you are maintaining a loose ish peg ground around a particular dollar value.

And, and that kind of challenges, you know, some, some literature we've seen in the past, particularly the crises that we've seen countries go through that that had a pegged exchange rate in Latin America and also in East Asia. So so just curious to hear like your response to that, Like, you know, does being solve the impossibility trilemma or within that, does it make a choice that makes the system actually come together well, so just to stated the the impossibility trilemma typically states that there are three things that you can only choose to of the free movement of capital, the ability to set your own monetary policy and the ability to maintain a fixed exchange rate.

And so certainly with regards to the former principle, the free mobility of capital, BIENSTOCK says yes, please, there's no limitations on the mobility of capital in general other than you can make the argument the withdrawal free. But there's no real mobility limit to the mobility of capital. Now, I think when it comes to the other two, bienstock actually makes trade offs in both.

It has monetary autonomy, but it only has monetary autonomy in the sense that the monetary policy of bienstock is autonomous. It's not monetary autonomy in that sense that Bienstock can do whatever it wants, if that makes sense. And so the stock is very much subject to the market conditions in terms of its actions. It's just the, the, the, the way that it does, it is autonomous, It's not deterministic, but it is responsive to the market and would make the argument that in fact Bienstock doesn't choose its own monetary policy whatsoever other than the rule based on which it iterates on top of to choose the correct interest rate at the time of the correct, whether

the time. And then as you were talking about, actually when it comes to the fixed exchange rate, Bienstock obviously doesn't make any hard guarantees on the value of a dollar and there is no convertibility. And therefore, if people are only able to sell their beans for $0.99 or $0.98 or $0.80, bienstock makes no guarantees or even takes issue with that other than trying to return the price to its peg as quickly as possible.

So things that other than the free capital mobility, he would make the argument that bienstock Bienstock sort of makes a tradeoff on both the latter two in a way that that over a longer period of time solves the the stability problem. But I guess maybe you could make the argument the main the main tradeoff is in monetary autonomy.

But I think there is also, as you were pointing out, a soft tradeoff on the fixed exchange rate as well. Yeah, no, I like that. I think that's yeah, I mean, I'm standing at the triangle right now and I'm just thinking that, yeah, we're probably you know, we definitely have free capital flow. We're closer to the fixed exchange rate and we have rules, but not necessarily the sovereign monetary policy.

And I guess that's for me, you know, frankly, like that's kind of, you know, always been the challenge for me as someone who loves economics and finance, like we love to we love the sciences, we love the scientific method, but there is no real first principle like the gravitational constant or the second law of thermodynamics in economics. It's it's a whole lot of theories and assertions because we've until now, never really had a laboratory that was giving us so much real time data, letting us form and test a variety of hypotheses and, and, you know, doing things that were just previously completely not doable.

And, you know, being is kind of one of those really fascinating experiments that's just spitting out insights faster than anything I've seen. I think Manny's back, Manny, I've always been here. Now, I would say yes. You know, I hate to spoil the mood, but I'm not sure that that would be the right metaphor to think it's right in the sense that which one trilemma We've talked about a bunch of things.

Can you turn one or so There's there's many types of trauma but the monetary policy trilemma, I mean the model that that describes, it's like a small open economy, right, in the international markets. But one of the things that being a small open economy has is that, you know, there's economic activity within its borders that has to be denominated in that international currency.

Right. And the way that I think of crypto markets in general, it's less like that and more like the era of, you know, a free private nowadays, for instance, in China or the US or Canada or Scotland. Right. So I think the so yeah, I mean that would be one of the reasons that I wouldn't use that as the model.

And if you don't use that as your model right, and you think of it, can you expand on that a little bit more? What's the problem with using this as the model that it's only covered small economies? You know, not that it covers small economies, but that you have economic activity, that just denominated in that currency. Right? And so the value of that economy, so the nominal value of it will change as you change your monetary policy.

But the actual long run production cover of that economy, the real production is relatively stable over the long term plus its own kind of separate logic. And so what you basically do as you move around kind of exchange rates, as you try to guide that a little bit. But the problem with that is that I would say so let's say in China today, right?

And I'm paying or holding savings or whatever, I can't people in China don't hold like arbitrary currencies, right? They have to hold the Chinese yuan. And that's kind of the this is an artifact of the territorial system. And so protocols, I don't think have that. And so that that's why I was saying that this is more analogous to a system of competing private companies that are competing directly with each other for users whose wallet can have any kind of arbitrary percentage of any of these currencies.

Right. Most of us don't hold a bunch of foreign currencies in our in our wallets in our day to day lives. But can't both be true, right? Can't both be true? Can it be that this is more more similar to a private money than a public money, but at the same time, from a monetary policy or a macro perspective, the same framework applies?

I, I mean, I think I would disagree there. I would say that I think the more useful model is thinking about private currency issuance. Right? Sure. And when we talk about private currency issuance, though, that would be something like bank notes or something along those lines, correct? Yeah, I would say it's it's you know, it's but there's other types of like contracts that you could be talking about.

Sure. But as a symbol. As a symbol form of private money, you have a base credit based money, and then you have some sort of private private issuance on top of that right now. Ultimately, the private money becomes used as currency instead of the public money that underlies it to some extent. Or sometimes there's no public money underlying it, sometimes as collateral underlying it.

Right. So the issuer of the money is is is in this case, not a government, but it's still a private entity. Right. Right, right. I think that's right. But that doesn't change the core economics of of the system. And I would make the argument that in the in the private money model, in basically all cases, you have some sort of collateralization, right.

Where you either have deposits in the bank or you have some sort of gold in the bank or other metals or valuables. And then there is lending against those valuable assets. Whereas in the more modern monetary world where you have fiat money issued by governments that are that don't hold any collateral, particularly over the past 50 years, I think that given that being stock doesn't have any collateral whatsoever, it's a very reasonable framework to try to compare it to whether, you know, whether you think that the private money example is also a useful framework.

I think it's very hard to push back on that. And we tend to think about the use of beings as more similar to the use of private money than the use of public money per say. But but from a peg maintenance perspective, don't want to discount the the fact that this really is a macro macroeconomic problem that has been solved here and not not a private money problem, if that makes sense.

But I mean, I wasn't trying to say that. I guess what I'm trying to do is I think the sort of tradeoff that you're facing is different than than the one implied by the monetary tradeoff. One. And can you be more specific in how that is? Yeah. So I think in what I would think of as like private money issuance, you have you have tradeoffs here between maintaining you do have kind of the redeemable mobility aspect of it, right?

So the peg maintenance as well as kind of flexibility in issuance. But I think it's determined by a different set of constraints. And so it's your while I'm so I'm not aware. So so here's why. So in the in the in the public money you're right you know. Right. But we're getting so much here. So just play with me here.

You're totally on the money. Yeah. Yeah. So so I think in the in the public money example that that framework you could have actually let me let me put it the other way. For most private money, the peg maintenance aspect is actually really important for public money. That's not necessarily exactly exactly. But public money actually cares about inflation.

The presumption in public money is that the public money is the public money 100%. Right. So then the question here is, I mean, this is getting back to what you and we were talking about, which is like, how important is the peg aspect of it? Right? So in most if I were to launch a, you know, digital money from scratch, the peg to me seems like, you know, you either go full on for the pager, you don't, right.

It's actually really hard to, to thread the needle on these and I think it's because you have to default to one framework or the other. If you want to go for the floating value framework and you must have some body of economic activity that's like monetize, which is why I was saying, you know, you, you have to acquire or at least have plans on acquiring kind of economic activity.

You know I would just say that economic activity doesn't have to be monetized per se as much as it has to be existence. Like what would it mean to monetize the economic activity? Perhaps I'm a thunderstorm. So for example, let's say you did a partnership with some sort of, um, I don't know, some, one of these NFT Metaverse gaming projects.

And you said, well, you know, we're going to use being like the currency that is used in the markets where people trade all these goods from these RPG that would be monetizable activity, monetizing being just kind of great. So then we're in agreement. Yeah, I think so. I think and so fundamentally then the question becomes how likely is it that being start to be used in in the metaverse and in as the main medium of exchange and liquidity pools and to facilitate all sorts of other cool protocols in Defi?

And we would make the argument that the positive pair of beings make them by a wide margin. The most attractive currency to use in addition to their stability is the stability of being the fact that you get paid just for using and holding the beans. That's that's very much new. And we think that that's a meaningful pitch to to other protocols to consider integrating beans in their protocols.

I mean, it's a meaningful pitch to users to potentially start to use beans and but on that on that point, I think like I you know and this is this will be slightly more technical from I mean, those who've been in bean that they'll get it. But as for me to use a bean as you know some medium of exchange, I have to pull the bean out of the silo.

Right. And then not necessarily one and you could just send the bean. So then it's basically what interest bearing money that is just transacting, is that correct? So in theory you'd actually send the deposited bean, which would have some stock on top of it. Now if you sent the bean the deposited without the stock, that in theory would probably be worth less than a dollar because in order to withdraw the bean and sell it for a dollar, you'd need to acquire stock.

But the concept is there's no reason why that complexity can't be abstracted and people can just start sending yield bearing beans in the silo and have the stock sophistication abstracted or. Interesting. Interesting. So so, okay. Let me ask you another just a different way. And right, like because I think I think I do agree that like at least fundamentally we're trying to solve we're trying to say that, you know, high cutting costs are the problem.

If we can lower carrying costs, then velocity can increase. So like something like a Viva usdc or yearn vault usdc, you know, like, I mean, that's like a fund well tradable token that kind of serves as an interest bearing. I would make the argument this is actually where the negative carry of USD comes from. The only way to earn interest on your USD.

See, is to go and lend it out in other protocols and to do all sorts of other stuff with it. The concept is beans, just having beans in the silo. That's the base layer. Then on top of that, you can go out and earn all sorts of other yield from other protocols within the silo by using your beans within those protocols.

But at the base layer you can just collect yield positive carry from holding your beans in the silo or providing liquidity and earn higher care. So the the UCC in a urine vault example, there's no reason you can have beans in the silo in a urine vault, earning even more interest if that makes sense. But at a base layer, the fact that you have other protocols built on top of other stable points that provide yield that that has no no effect on the fact that at their core layers, these collateralized stablecoins have negative carry no matter how you slice it.

Yeah, I know. I get that. I get that. I mean it's you know it's quite a bit to wrap your head out. You know, when the first time I started coming across your white paper and all the different terminology, it's it's a it's a bit of a trip, you know, just thinking through the all the mechanics and one one thing I'll take you back to and I mean, you know, Manny, if you've got something, feel free to change it.

But but one thing I am curious about, like in the early, early stages of being when your price bumped to $4 and then and then down to $0.24, you you know what? What, like are there things you could have done differently at launch that that wouldn't have caused that? Like if you were launching Bean today, what could have avoided that spike up to $4 and then that dropped to $0.24.

So there's a lot to be said for that question. Ask me in particular if Beanstalk was unchanged since it launched. There's no, no doubt in my mind that the Bean would have been unable to maintain its price at the pack. It was really the biggest haul of all. The pipes that were went live prior to the attack that really facilitated the long term success of the protocol, and that stands for our Beanstalk improvement proposal.

So Beanstalk, you know, proposes changes to the protocol which get voted on by the community, which then get implemented. Sorry, continue. Obvious. No, go ahead. Appreciate that clarification and ensure the and we can highlight the seven which introduced conversions within the silo and BIP nine which really got these soil supply parameters nicely set as the two main improvements to the model itself.

But if we go back to products market fit and utility for beans in practice, when when the price went to $4 and there was a massive amount of beans supply being minted, all of the all the beans were being deposited in the silo turned compounding interest because there were no pots at the time. Normally half of all bean mints go to pay pods and a half go to the silo.

But there were no pods pay off. And so all these beans were being deposited in the silo, but they couldn't be sold because at the time, the only way to sell your beans would be to withdraw them and then sell them. And the conversions that were introduced in BIP seven to convert your deposited beans into deposited LP tokens without having to withdraw your assets from the silo that would have offered the opportunity to sell your deposited beans into deposited LP tokens, which would have greatly limited the price pump to $4, would have limited the volatility on the upside and the downside most likely.

But it is worth noting that that that that pump was a function of a huge amount of demand that came in from crypto. Twitter Beanstalk went viral on crypto, Twitter. And if we go back to the inorganic demand problem, there is something to be said for all of that. Demand was pretty inorganic and it's hard to imagine no matter what the specific rules were, that Beanstalk would have had much success at limiting the pump and dump, given its very small supply and the amount of capital that came in at the time, which was like two and a half million bean supply and something like $25 million came in over that those couple days.

So crazy, crazy volatility makes sense in those instances no matter what. Got it. So so one of the things I want to just try to zoom in a bit on is this notion of real economic activity. I like, you know, what is that? What does that even mean that, you know, like we do understand that when I go to my corner shop to buy coffee, that is real economic activity.

But then is is buying an index fund, real economic activity is providing liquidity on a curve, real economic activity. And again, I say that from the lens that, you know, the only economic activity that is currently happening with bean is that I'm when in my case, if I think of myself, you know, as a both as a silo depositor and as a board purchaser, I am providing liquidity with the hope of getting greater returns.

So, I mean, the economic activity that I'm currently going through is literally just providing liquidity, is that we would put forward Manning's definition of real economic activity, which is there's some sort of risk associated with that economic activity. You have to put capital to work and there'll be risk that you don't receive the capital in return. Think that that generally applies to providing liquidity, right?

I think that the the capital barriers and liquidity pools is real economic activity under that definition because there's the opportunity, there's there's, there's the chance that the amount of beans that you have or non beans that you have under the token changes dramatically. The value of the token for the LP token changes dramatically. So I think that that that would satisfy Manning's definition and we're certainly not going to make the argument that providing liquidity is not.

But curious for what Manning said, I totally agree with you. So I mean, the other way to think about is that you're using the tokens to market, make money, providing liquidity for that. So that's definitely it's definitely an economic activity. The reason I don't mean too much on that one is that that part of the argument, even though I think it's really important, it's just because it's so hard to publicly give a definition of this that people don't start picking.

It's a little bit like the definition of pornography, you know, And when you see it, you know, and when it's not real, um, but, you know, I guess it's a funny guy. You're a funny guy. I know. So, yeah, I mean, so the other so you can have real economic activity, which is really kind of as I mentioned before, it's kind of facilitating all these markets.

So I think, um, you know, as previous mentioned, you know, it's a young protocol, right? We're not it's not an established currency. So if I'm forward looking, what I'm looking forward to is um, kind of the it's integration into just a broader range of digital market activity that's on chain. That's, that's, I think it's its value proposition. We're talking about product market fit.

The product is not actually the token itself. It's a set of rules that go with this. And one of the things that I continue to admire is that these rules have cohered in a way that have not for other protocols. But I think, you know, I say as I, I think probably the way that I would summarize their differences probably is that, um, I think that's like a necessary condition.

Um, and then there's other necessary conditions and, you know, there's a path to get there. And I think maybe our disagreement is just that the way in which you sort of get there. But yeah, I would say yeah. So that's a long way of saying I do think on chain market activity is real economic activity and I think that's that.

I would think it's I'm not sure since I haven't seen the road map, but I think that's part of your broader road map. Now what will we zoom out if we go back to it, as we were talking about, about the ability to spend your being within the silo, there's no reason why there can't be a whole economy built within the silo on top of yield bearing beans and Uber within the silo effectively, you know, and pick your favorite pick your favorite example of modern economy.

There is no reason why that system won't run better on positive carry be. There's no reason. And so that's the goal. The goal is for the entire the entirety of the positive carrier ecosystem here to create not just similar products to what exists today. And in the in the world, but to enable all sorts of other caution that isn't currently possible.

And I would just add, like I mean, we see that with like companies that, you know, I mean, I run into companies lately, I ran into a few that, you know, are talking about here like is an integrated system. You spend, you earn points, will give you these rewards and you know as in there's a lot of systems that are thinking about hey, human you have some networked, it's in a bunch of different places, but you use it to buy stuff, spend stuff.

And along the way there are some rewards that you could accrue. So so I yeah, I do agree. I mean, what I would just say is like, not only is that not hard to imagine, but some version of that is happening, like, you know, companies that are trying to give you points for or even credit cards that give you points for purchasing something.

In some ways they are doing that in some ways they are, you know, incentivizing that economic activity. So, you know, I do agree that, you know, like, you know, if it works for long enough, you know, it's going to inspire that kind of confidence where people are going to start building more types of, I would say applications and protocols on top of that.

But could I ask you a question really quickly? Yes, certainly. And I mean, we're almost out of time. We have 5 minutes. But yes. Are there no questions from the audience that. Kevin. Oh, no, I we weren't planning many. Your question is, are there any other questions what what a guy. What a true gentleman. No, but, you know, if I'm listening in, I said, Yeah, well, okay, let's do that.

I mean, if I absolutely I mean I think a little bit running commentary supposed to be half of the. Yeah. With myself. Yeah. Yeah. Okay, let's, let's do that. Let's do guys earlier we weren't planning on that. But yeah, if someone wants to come up as a question or a comment, now's the time while we wait for people to raise their hand.

Mandy, maybe you could tell us a bit about what to the extent it's shareable, what you working on and when do we get to benefit from the wisdom of Buttonwood? Well, yes, we are building the web through bond markets, So if you just look back at financial history, you get a series of things right you you get the creation of commodities markets, right?

So you can think of Uniswap as one of those and you get margin lending in the form of of a and compound rate, which used to be the old banking houses in Europe. The next big development and then goes along that list is really the creation of long term liquidation pre debt. And that's kind of the thing that we're building.

So we launched an Alpha back in December. We're going to be doing our kind of true launch probably in the first one or two weeks of June. There's a new website coming later this month and then following the launch of the these kind of collateralized fixed rate liquidation free markets, there's also going to be an auction system that's built on top tops, the double sided auctions to really allow people to, you know, create liquidity and find a clearing price for assets that might, you know, have expiration dates.

And you have to it's a good way of bootstrapping. I think liquidity for brand assets. So we're rolling out an auction protocol after that. And then, you know, there's we've heard rumors that there's a stablecoin coming. You know, there might or might not be. We'll see what it looks like if it does look like anything. But yeah, we're working on a whole bunch of stuff along those lines.

Amazing that I'm really excited for what you're doing and you know what you're building. I think the most fun part for me has been just learning about the different Legos that are out there and then thinking about, well, first, initially just figuring out how they work, hence the fascination with Beanstalk. And then once that's figured out and thinking about how the different Legos work together.

So. AUDIENCE One more call. You've got a question. If you've got a comment, now's the time. Otherwise, in about a minute, we're going to end. This has been a really, really amazing discussion. I hope to do this in person with part of you someday because I got to learn a lot. And yeah, I, I love the I love the different, I would say, experiences both of you have had and the conversation that that resulted as a result of your very different experiences.

Absolutely. No, this was a lot of fun. So thanks. Thanks for having me, guys. We'll have you guys over when when we start doing our activities on our side. Awesome. Total pleasure as well. I thank you guys very much. Thank you. All righty. Thank you, guys. Signing off now.