Moonshot Research <> Publius

Moonshot Research <> Publius

May 5, 2022
0:00 Intro • 0:35 Beanstalk's Historic Performance • 3:45 Comparison to Terra • 10:09 Successes of Beanstalk • 14:10 The Exploit • 18:46 Response to The Exploit • 26:21 The Path Forward • 31:51 Closing Questions
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Yeah. We also put it back on hopefully as Oh, perfect. Okay. Oh, testing. Testing. How are you doing? Something good. Yeah, I. Something great. I'm great. And then I'll pass for the. Now that we're docked, I can log in from my cell phone. So no emulator necessary? Yeah, well, hopefully it's maybe what we need from you is talk about the variability of being prior to its growth and exploit.

And maybe within that you can talk about how most credit staples have failed and maybe why you think being is different for sure. So if you look at the history of previous algo staples, all of them, I can't say all of them per se, but non collateralized stablecoins the vast majority of them have failed very shortly after launch and in particular have never really completed one macro cycle after launch.

And how you want to define a macro cycle is somewhat arbitrary, but I'll define it such that, you know, our statement is generally correct. So, so generally wide. And one of the I guess you could make the argument that even though Beanstalk had had a fair launch and only launch with 100 being supply, that that didn't prevent there being crazy volatility in the early days.

And in fact, the price went up to $4 and as low as $0.24 six weeks or so after the launch. But the alternative was that if you look at like a model like USD that had a deterministic minting schedule at the beginning, the the price started very high and then got lower and lower and lower and lower and lower and lower, lower and lower and lower and lower and lower.

And so in the case of Beanstalk, while it did go higher and lower and lower and lower, then it went higher and higher and higher. And, you know, there was a oscillation ultimately, and that oscillation was new and there was a proof of concept that being demonstrated from decreasing the the volatility in its oscillations above and below peg and in its nine month history.

That was the the that was one of the major proof of concepts for being beanstalk. Now as a credit based stablecoin or a lending lending based debt based stablecoin that the health of the protocol, the the pod rate, the debt level of the protocol is one of the main indicators of the health of the system. And so in practice, it wasn't just the decrease in volatility as you were highlighting, it was also the fact that the debt level of the system ultimately started to decrease and from a macro perspective, if we define a macro cycle as in the case of Beanstalk, a deleveraging in the two or three weeks prior to the attack, the first

ever major de-leveraging and beanstalk and any ever non collateralized credit based system on chain in a decentralized fashion. That happened for the first time. And that was an incredible proof of concept for being stuck. And I think to a large extent, that's why we're also here, right? Because being stuck did demonstrate a very strong proof of concept where in the couple of weeks prior to the attack, the price was oscillating above and below a dollar and tended to be above a dollar.

More often than not. And the par rate was starting to decrease dramatically. So that's the the state of being stuck from an economics perspective prior to the attack. And we're happy to get into all the differences between some of the other credit based or algo stablecoins out there. But that's that's the high level. Yeah. Understood. And see how that sort of is a difference compared to what we've seen in the past, particularly from just credit base tables.

I think maybe what you're going up against then is the Terra Luna ecosystem. And I think we've seen probably greater stability from them. How would you compare yourselves? Well, I wouldn't say yourself that's not a fan of the personification of decentralized technology, but that that is just semantics. But to juxtapose Bienstock and Kara as protocols, the there are couple really important similarities that first set the scene.

The first is Terra is in our opinion and you could make the argument that after their move to collateralized the protocol that Bitcoin this is no longer the case. Maybe, maybe not. But Terra is the only other protocol other than stock that has a solution to the collateral problem because they use protocol native collateral. Luna And the value of Luna can grow infinitely as demand for terra grows.

And so in theory that is a solution to the collateral problem. And Bienstock also provides a solution to the collateral problem by using credit. Now, Luna most similarly mimics equity in the protocol, but it doesn't quite look like stock. It's it's from an economics perspective, closer to POD because it has a lot of speculative upside in the growth of the protocol.

However, one of the main differences between being stock or beans and terra for USD is that because all of the upside in the system in Luna or excuse me, in the Terra ecosystem, all of that excess demand for us t goes to Luna because of the the nature of the fact that the collateral of the system, the thing that creates stability for the system, is the value of Luna.

Therefore, the protocol needs to, in all instances, prioritize the value of Luna effectively. That's how you maximize stability. Whereas in the case of being stock, the fact that only half of the market in the field are the speculators, that would be the lenders to the protocol. And then there's another side of the market, which is the silo, which is the stockholders, the depositors, the being holders.

This is where you get the fundamental difference between an ecosystem like Terra and an ecosystem like Beanstalk, where beans have positive carry. No one wants to hold Terra until anchor came out. No one was holding Terra and the short answer is that people want to hold beans. And we were seeing that in practice because of the protocol native yield, because just by holding your beans in the silo, you can participate in the senior edge of beans stock, unlike in the case of the Luna ecosystem or the Terra ecosystem, where from holding us to you cannot participate in the senior edge of the ecosystem.

That's where the main fundamental difference comes from. And ultimately I do want to give a lot of credit to them because they they did provide a really innovative solution to the collateral problem. But in the long run, think that beans have much higher utility due to the fact that they have protocol. Native yield. So why do you think that Luna Terra has had such tremendous market cap growth and traction within the DEFI and what, three ecosystem?

Well, there's a lot of reasons why A they have had to date prior to being stock the best product on the market and there's something to be said for that. And furthermore, they have created product market fit through anchor protocol, which you could argue is somewhat artificial because the yield from anchor is subsidized largely by Luna holders, but nonetheless there is product market fit there.

So a lot of kudos to them. But in the long run, think that if in particular, if you juxtapose the position of their ecosystem where based on their actions of trying to re collateralize the ecosystem item with Bitcoin and lower the fixed yield of anchor protocol, they clearly don't view their model as sustainable. Given the current structure and the nature of the demand for the protocol.

That doesn't really seem like product market fit or a long term sustainable solution to the collateral problem being stuck is designed by first principles to be able to grow and survive and sustain in all situations. And while that may not come to fruition in practice, it is, in our opinion, the best bet at a stablecoin to actually solve the collateral problem in the long run.

And so that's the, you know, Pinchuk, it's a lot newer. It's a couple of years younger than Terra, but in the long run we'll see how the market values them relative to one another. Under said, you know, I want to transition to the traction you were getting and then ultimately the exploit that happened just a few weeks back.

And so maybe we can talk a little bit about traction and it will I do. So if anyone in the audience has a question about being stock mechanics, just feel free to raise your hand. We'll bring you up on stage and make sure we clarify exactly how that works. So yeah, I guess maybe before we dive into the exploit, can you talk a little bit about what worked well from your protocol and then maybe also where you found the shortcomings and where you are sort of instituting being improvement protocols or tips to to change what you had originally outlined?

Okay. Sure. So the again, not a fan of the your protocol as much as we appreciate the credit sell side the bienstock protocol means you know it's it's all good to Tucker we just really do believe in decentralization so what was working there were a lot of things that were working and as you highlighted, it was a lot of the bienstock improvement proposals that the Dow, the Dow ultimately implemented, voted on and implemented that resulted in the long term success of Bienstock.

It can't be understated that the original the original implementation of Bienstock would not have succeeded. It was far, far too imperfect to have succeeded. And so it was because of the various and prior to the attack, I think there were 17 bits proposed or 18 bits proposed. I think it started in zero. So yeah, 18 bits proposed that the vast majority of which were approved and implemented and those were all very conducive to the long term success of Bienstock and most notably were things like that seven that introduced convert, the nine that improved the efficiency of the soil model tremendously, the 12 that introduced the silent white list.

There were a bunch of really notable, notable steps along the way that created a variety of different additional features to the protocol that resulted in its success prior to the attack. And the success could be demonstrated in its liquidity in the price of a bean, in the amount of beans that were being minted in the liquidity to bean supply ratio in the pod rate across the board, bean stock was really starting to demonstrate a very strong economic model prior to the attack, and it was the vast majority of that was from the various bets that the Dow ultimately made under said.

So it sounds like the beanstalk Dow proposed made the improvements that made the growth possible. So maybe we could talk about it in two stages. How are you thinking about the long term potential, the protocol? What do you see as the potential upside in beanstalk? Maybe three weeks ago when those bits were implemented and it was growing, you know, millions of dollars a day?

And then what happened was the well, are you asking what happened or what was happening before? Oh, I'm guessing how you thought about it as it was growing and then what happened with the exploit. So we'll start with the first, which is what do we think about the potential and and honestly don't think that the potential for the long term success of Beanstalk has changed in the grand scheme of things as a result of the attack.

If anything, it just as the stakes have been raised, the profile of Beanstalk has been raised dramatically. However, the long term goal of the protocol, you know, nothing has changed from that perspective. So the hope is that a positive carry stablecoin will really unlock the potential for Defi in a real variety of different ways that are unclear at the moment.

And the comparison we like to give is in the same way that smartphones. It was unclear how that platform really revolutionized everyday life. We hope that a positive Keri Stablecoin will have a similar effect on finance across the board. So that's we view Beanstalk as a primitive. And what that primitive will facilitate is, is unclear to us, to be honest, but have very high hopes for the ability for Beanstalk to be a positive force for expediting the adoption of cryptocurrency and DEFI technology.

It's across the board because of its positive caring nature and all of the cool things that that opens up. Amazing. So then let's talk about the exploit. What happened, how to work? How did Beanstalk end up victim to one of the top defi exploits in history? Well, top it depends how you look at it, my friend. But yeah.

Or bottom or bottom they're the the most valuable. Yeah. Fucking crazy. So what happened on Saturday, April 16th, the attacker proposed to BIPs that 18 and 19 that looked or were nearly identical and the the the bips the only difference was the address that they referenced and they've 18 referenced an address that at that point in time had no history whatsoever.

And the 19 references in the theorem address that had been registered on Etherscan as a contract called net bip 18 dot sole, I believe, and an 18 that saw proposed donating 250,000 beams to the Ukraine. And in short, the it looked it was sort of a Trojan horse attack in the sense that it looked like the the proposer made a mistake with that 18 in reference to the wrong address.

And then re proposed bip 18 as of 19 but referenced the contract they had made, which was already that 18 and 24 hours later because there was a 24 hour holding period between when bips are proposed and when they can be committed via a supermajority, a two thirds supermajority of stock. The attacker then borrowed $1,000,000,000 in a flash loan, used that billion dollars, deposited all of it in the silo to acquire more than a two thirds majority of stock and then committed BIP 80.

And simultaneously they deployed using create two, which is an imperium opcode. They deployed the malicious code to facilitate the attack in to the to the address that was previously blank referenced by BIP 18. And so at no point prior to the actual attack was the malicious code on chain. And there was this sleight of hand or Trojan horse, depending on how you want to think about it, that they used to socially engineer the the, the deception, that there was nothing malicious going on.

And then they borrowed the billion dollars to attack the protocol and steal everyone's assets. Thank you for running through that. I think Kid Court's might have had a great analogy for this. I don't know if I can bring you on stage to give your take, but maybe we could get the 25 second version of how you described it in office courts.

Are you talking about the bank? Yeah, the bank analogy. Yeah. Yeah. I mean, I, I always thought of it like, imagine somehow you were able to get, you know, $1,000,000,000,000 loan or something and could buy all the shares of Bank of America in, you know, one emergency shareholder meeting and have a vote to give all the depositors money to yourself and then were able to sell those shares back somehow and pay back whoever lent you the trillion dollars.

You know, it's obviously imperfect, but I think it captures at least the sentiment of what was going on, surely, and also highlights probably some of the challenges with with on chain governance. And, you know, I think there were some pretty intense, I guess, Twitters discord messages that came out that morning. So your protocol is growing. You have, you know, essentially $150 million between what you have in Usdc and Stablecoin liquidity and then being native liquidity, you wake up, that's wiped out Publius.

What's going through your head? I mean, you know, panic might be the the description, the best description. You know, it's it requires very little verification, if that makes sense, to to verify that the protocol was attacked and that it had no money left. And at that point, you know, if you know how blockchains work, you know, there's nothing to do, Right?

The damage is done. And so it's just one of those horrible, horrible feelings of being totally helpless, basically. And yeah, it's a horrible, horrible feeling under said. It makes sense even more given your belief in the protocol. So you have 70, 77, $78 billion wiped out. The community's in panic. What do you do next? Why not? Well, not just in panic, accusing us of taking their money.

These are you know, these are the people that we our energy has been derived from for months and months and months, you know, like have them accusing us of taking their money and thinking that and believing that. I mean, what a horrible layer to that as well. You know. Is that why you ultimately made that decision to dox yourselves?

I mean, I thought that as a as a bison, it was an incredibly bold move or was the only way forward for being stuck on the plane. So we had to make a decision whether to run away or whether to fight for being stuck and didn't think there was really much of a decision to be made. You know, it's like we're willing to die for this shit.

Like this is this is it. I'll jump in here and just say Never for a moment did I think that. And no, I didn't have anyone else ask me. Even that I can remember. So just throwing that out there probably before you even, you know, before you made the decision to dox yourself, it was like this happened. But like obviously there's no there was no way that it just a character thing.

I just knew it wasn't the case. Well, I think dumpling is part of the core team. You might have known him a little bit better than the rest of the community for for which he was sort of full, full in on. So I don't know, maybe, maybe get out of this usually. Go ahead. It was full. Full and on to me as well.

Absolutely. 100% for Anonymous. Understood. Understood Well, made their point. We did talk every day. Don't put Oh, no, I knew you quite well, but I knew you as I knew you was Publius like this. I mean, that's really ultimately, candidly, that's how I knew, you know, like a tough crowd. This is voice modulator Publius forever on the audience.

That's that sort of wondering, okay, so you're at rock bottom. Your community is accusing you of stealing their money and just losing it. And you could have run away. You're you are fully in on you decide you dox yourself. What did the next day look like? What did the path forward look like? Well, before we're skipping ahead. So we we had kind of a call, the three of us and, you know, before we decided to go ahead with the docs, we're just kind of like, you know, basically, does anyone want to speak now or forever hold your peace type of thing?

Because once we do this, then, you know, this is a big commitment fact. It's not just the docs, right? It was the docs and saying, we're not going anywhere. We're going to work on Bienstock. This is you know, it was just it was a lot. And so, yeah, I mean, I mean, Grant following up on that, it's just like I remember being in the discord at the time and the, you know, people were seeing red, understandably so, right?

We all got robbed. It hurt everyone. And, you know, people were making threats and it must have been not right. We had hacked. Yeah, yeah, yeah. And I guess I guess I wonder or one of the things I was thinking about is you had such an easy out, you know, you were a non founders. It would have been really easy to spin something else up.

I mean, you would have had to found, you know, find a bunch of different words. I don't know what you would have called it, like maybe the shed or something and whatever would have ended up being. But there was an easy opportunity to fork and leave, and that must've been on the table. What did that discussion look like internally?

I mean, it was definitely talked about, of course. Yeah. Elegant solution, right? Like that's the that's the kind of the, the simplest way forward. But didn't didn't really feel that was appropriate, you know, at least for us to do so. And I also was going to do that. So be it. But from our perspective, it's like Beanstalk is is not just a protocol, it's a community.

And to tell the community to go take a hike, you know, basically go fuck yourselves. We'll find a new community. I mean, we're not forced, you know, like this, the communities, everything and the response from the community over the hours after the attack, not just dump, but lots and lots of people, words of support and letting us know Beanstalk is worth fighting for and they're not going anywhere.

Like, I don't know, it just it needed to be discussed, obviously, because that's the most obvious thing to do. And we're not we're not the type of people that aren't going to evaluate every option honestly and realistically. But at the same time, it's like that just would have been wrong. It would have been wrong. It would have been, yeah.

So, yeah, you know, in the spirit of continuing to try to do the right thing, as hard as that is generally, and you don't see it off on crypto, you know, And so it's a I think that's why the decision fascinates me so much because you guys had a choice between loyalty to the idea or loyalty the idea and the community.

And, you know, you're, you're choosing the harder path here and you're very aware of it and Yeah, and so that's why I just wanted to hear how it went down for you. I don't know, man. Everything is hard. You're giving us too much credit. So no matter what would have happened, it would have been hard. But this just felt like this felt right.

Maybe. Maybe building on that a little bit, can you can you talk a little bit about the path forward? Sure. So orange only the plan was to do the barn race, which is a pretty elegant structure, to be honest, to try to attract some capital into the barn. Right. And to recapitalize the stock. But there's been a significant amount of doubt or more constant terms for the barn raised was more of a rat race to some extent, or everyone had to buy in and then participate and didn't do everything.

It's much easier for people to participate in one class. And so the concept is to have the down vote to ratify terms for an ATC deal effectively in lieu of the barn, raise. Yeah. What what shape is that taking? How are how are the conversations progressing and maybe for, you know, newer community members or people that are listening for the first time, maybe just dive in a little bit into what an OTC deal looks like and what it means in this context.

So ensure it would be a negotiated deal. So OTC over the counter so effectively there would be some sort of negotiated price between the Dow and buyers. And OTC typically refers to larger buyers where for a for a price, the the lenders to the protocol would be able to participate in some some round. And I guess the determinant of fee may not be the the the best mythology or the most accurate but it reflects the nature of like a negotiated trade with the Dow, if that makes sense.

Yeah, I understand probably this and I guess, you know, I'm seeing that we're coming up. We have about 10 minutes up to the hour. So how would you sort of suggest that non-institutional investors, Dow community members think about participating in being rebid? And then after that, maybe we can open up to the audience if they have any questions?

Yeah, so this is one of the open questions and there's been a lot of expressed interest from the community in the ability to participate in the structure of the ATC terms or whatever you want to call them. And the there's been a couple options floated. It's unclear which option will will be the one going forward. One is for there to be like a juice box for the data all pooled together funds and contribute.

Another is for this just to be sort of an open thing that anyone can participate in at the same term. So that's all that will hopefully come into into shape over the next couple of days. Assuming that the Dow does ratified the terms and said let me just ask the community, does anyone have any questions right now? And as we're waiting on that Publius, could you just explain a little bit how the terms might work in sort of direct you know, if I'm an individual in the Dow, I send you an E, whatever it is.

What does that look like? Well, definitely don't send me an E, although I guess you guys can send me some. I'll I'll appreciate it. But the concept would be that this is actually one of the things that is clear, you know, because the protocol is not on at the moment. And so whereas normally when you enter the protocol, you immediately receive pods.

It's kind of unclear what you'd actually receive in this instance. And so don't don't really have a great answer for you at the moment, to be honest. Got it. Understood. Well, I know from the discord that we've had good chatter around getting a community raise juice box raised on my side. Any private deal. And we'll see how that plays out.

Perhaps we will host another Twitter space to talk more about it. I'm not currently seeing any questions from the audience. So, you know, I guess as we wait on that, I can just ask you maybe one or two closing questions. So Publius, before I switch to to my my closing, anything that we didn't talk about today regarding buying stock that you'd like to mention to this crowd, I think I would mention the the fact that after being targeted restarted, there's nothing in the in a macro sense that has been changed about the protocol.

So the hope is that upon restart and any size, the protocol really will be in a great position moving forward. So I feel like while the hope is to maximize the amount of capital being stock is able to recuperate in its recapitalization, we're excited about the prospects of being stock no matter what happens in the recapitalization, and we're excited about the future being stock and, you know, we're excited.

We feel like we made the right decision sticking by this thing. There's a future here. This is we're very excited and optimistic. Thank you for that. Well, well, maybe then I'll get a close up. So two questions for you. First, as you can choose one protocol, it can't be bienstock. What's your favorite defi protocol out there? Favorite defi protocol out there.

I'd shut out fiat down their ability to take loans against zero coupon bonds. It's almost like it was made for being stock and we're very excited about the potential integration there at some point. Very, very cool. Okay. Thank you for that one. And then this one's a little bit less related to crypto web3 and maybe poignant considering the background that you gave, if you could teach one college course and of course you want, what would you teach?

Token Economics No brainer. When I went back to Chicago the first time after my business failed, I tried desperately to get them to let me teach a class in token economics and token design, and they told me Now, But I really tried, understood, probably extremely relevant for the upcoming takeaway. I want. What skillset or qualifications do you have in token design?

And I'm like, you know, none, none at the moment, but I guess maybe now that will changed a little bit. But now I have, you know, now I have better things to do. Yeah, Senior Design and Token Design. Well, probably is. Thank you so much for your time. I see Kid Court's on. Might let me know if you have anything else to add or else, you know, we're grateful for you coming up here and hopefully we'll chat again soon with with some new progress in the barn raise and and beans reboot.

No, I have nothing that I think this was great And yeah, I'm really excited about the progress and I think we have some announcements in the pipeline that are coming up that the community is really, really going to love. And once we have those plans ironed out, more will put together something more official and hopefully see all you guys again in another Twitter space.

Awesome guys, take care. Thanks, Publius. Thanks. Change course for hosting. Thanks to everyone at this. Make sure to keep up with us and follow our all of our socials so we'll have more events next week. But thank you everyone for joining this space. Appreciate it. And so I.