Nasjaq Podcast w/ Publius

December 2, 2021
Other Recording



yo welcome back so this is my first podcast with an anon founder he's the founder of beans.money or bean protocol and beans is an algorithmic stablecoin his name is publius and he uses a voice modification system so this is going to be a crypto podcast but this is really important because if you've ever used crypto you've used usdc and usdc is backed by us dollars and this means that they actually have a supply limit so they are capped at the total number of us dollars that they have in their treasury and this is a problem because one it's limiting the supply of usdc on the market but two the company that runs this they're a good company but they're also centralized so we need a decentralized stablecoin so this is a problem because if the supply of usdc is limited that means that the interest rates on borrowing usdc is really high so for example i took out a rarifuse loan and the interest rate was 50 so that's like crazy it's over a year so like i've made it back it's fine but that's not sustainable for the average person so beans is an algorithmic stable coin that solves this so anyways the way that beans work is that instead of being backed by collateral like a us dollar they're algorithmically stable based on a credit and debt cycle and so what this means is that if the price of beans goes above one then they print more beans and this increases the supply of beans and then if it goes down there's also incentives for it to go back up and since their supply is increasing faster than usdc can increase their supply this means that they can have lower interest rate loans if you need to take out loans so they can have interest rates on loans for like less than 0.1 percent is the overall goal essentially the reason that i'm really interested in beans like one it is a cool staple coin but two the returns are insane right now like i said they mint beans when the price of beans is above one and the way that they do that is that they incentivize people to buy pods now pods turn into beans in the future and when you buy pods you go to the back of the pod line so it's a first in first out protocol and so the reason that i bought pods and i'm genuinely i'm not showing my bags like i think the protocol is going to work with or without my podcast and i'm just bullish on it essentially what happens is that when the price of beans goes above one they print more beans and your pods harvest the interesting thing is that when you put one dollar of beans into buying pods right now the weather is how many more pods you get per dollar so right now the weather is two thousand two hundred and eighty percent that means that for every one dollar you put in you get 22.8 pods so this is nuts because you can buy all these pods and then when they harvest the pods are beans and then it's worth one dollar so you're essentially getting you're getting a 22x return on your money the main question is when are these going to harvest i believe that they will harvest pretty soon the main limiting factor is like demand on beans and the devs are working on setting up some integrations with protocols that are going to help them harvest faster but anyways that's enough explaining this was kind of a long intro but this is a cool crypto podcast hopefully that gives you like some context for where we're coming from thanks for tuning in and enjoy the podcast here's publius thank you for being here beans is really interesting i have i have some beans and i needed to learn some more about it well thank you for having us we're excited to be here to chat a little bit about beans and beanstalk so first off publius is isn't that the pseudonym of alexander hamilton when he was writing yes so the federalist papers specifically are a series of incredibly important arguments that were published to the general public under the pseudonym puglias arguing specifically to for the states to ratify the constitution and it also contains a lot of discussion on the bill of rights and yes we are heavily inspired by and just to clarify it's not just alexander hamilton although he is certainly our main inspiration but the pseudonym also was used by john jay and james madison while they were also participating in writing the federalist papers together as a group so those are some incredible american patriots and we are heavily inspired by both their their thoughts and their way of leading the discourse no i love that i think um drawing inspiration from the founding fodders fathers is just a really good i don't know metaphor analogy to creating you know the the true decentralized currency of of crypto i think that's awesome and a little nugget is that uh the epigraph in our white paper is also an alexander hamilton quote so we're we're big fans what was it it's it's here i have it right here a national debt if it is not excessive will be to us a national blessing it will be powerful cement of our union that's great letter to robert morris from alexander hamilton also just for everybody listening publius this is my first anonymous podcast so publish is just using a voice decoder or or i don't know exactly how to call it but but yeah okay look so beans as far as i understand is trying to become or as what beans is trying to become the stable coin of decentralized finance and so first off i just want to like briefly give an overview of usdc and then going to die can you talk about usdc and maybe what what was good about it but also some of the shortcomings sure the starting place is what is usdc and when you're talking about usdc you also have to talk about tether so in general the whole world runs on u.s dollars today that that is not just transactions that are taking place inside the united states or denominated by u.s company um global trade in general the vast majority of it is denominated in dollars even if it's two countries that don't operate in dollars they denominate their their trade in dollars and this demand for dollars doesn't just play out in the physical world it also plays out in the digital world in the cryptocurrency world and so as useful as technology like bitcoin and ethereum and other blockchain networks is and in spite of all of the incredible innovations that they facilitate or help facilitate for the time being there remains an immense amount of demand for u.s dollars and so even though you can transact for example on the ethereum blockchain using ethereum or ether we should say which is the currency of the blockchain or using any other ethereum based currency to date there is the most amount of demand for using us dollars on the ethereum network so you asked about usdc which is the second largest stable coin by market cap and then there's tether which is the largest stable coin by market cap and both usdc and tether are run by companies and the general model for these companies is they say okay you want a us dollars on the block but dollars exist here in the physical world not on the blockchain and so what we'll do is you can take your dollars in the physical world you can leave them with us you can trust us to hold on to your dollars in the physical world and we will issue on the ethereum blockchain or potentially another blockchain one uh usdc or one tab and they the companies are basically testing or asserting that they will hold on to your capital and because every dollar that they issue on the blockchain they say they will not issue it unless they have a dollar in their bank account underlying that dollar there's a reasonable expectation that that coin should be worth a dollar and the way that it in practice is worth a dollar is if the price is too high or too low there are arbitrage opportunities where if the price is below a dollar you could buy the usdc on the market for 98 cents go back to the issuer of usdc circle and give them the token that you just bought for 98 cents and they'll in theory give you back one dollar in the real world and the same thing works if the price is too high in the other direction and from this arbitrage opportunity on constability so in general usdc and tether are the two largest usd stable coins to date and for our earlier discussion um the vast majority of stable coins in general are usd stable points because of the immense amount of demand for u.s dollars and this collateralized model a centralized collateralized model where you're trusting uh one company to hold on to the the collateral has worked in the sense that they are the most successful stable coin to date there's over 100 billion dollars of uh tether and and tens of billions of usdc and accordingly they're certainly adding a lot of value currently to the crypto space the the problems are obviously that you have to trust a centralized party which is against the ethos of cryptocurrency and decentralization in general but then there's also an economic problem which uh we will talk about in a bit as we get to beanstalk and why beanstalk is uh significantly better than usdc or tether or dye but the the genera the first generation stablecoin which is epitomized by usdc and tether is simply that model we claim you know the company we claim we will hold your dollars in a bank account and we will issue one dollar on the blockchain for each dollar of collateral that we have in practice that a centralization risk has played itself out we're now and obviously it's much discussed but uh the assets backing both of those coins are no longer just cash now it's been changed to a mix of different assets separate from commenting on the validity of changing what class what are their assets sorry no that's it's fair so the short answer is various forms of government debt commercial paper which is obviously riskier than government debt but from from and it's important to understand why why this is happening why they don't just hold the dollars ultimately it's because these are businesses and in today's environment with incredibly low interest rates if they are holding 100 billion dollars in a bank account right now due to the fact that the interest rate environment is so low they're basically not earning any money on that 100 billion dollars and specifically in order to attract more people to usdc for example these companies that issue the stable points want to offer some sort of native interest rate so now not only are you holding usdc you can earn passive interest by staking them or depositing them somewhere it's like 30 right it depends on where you're lending it or where you're staking it but in general the lending or borrowing costs for usd stable coins is often in the double digits so not sure if it gets as high as 30 on a regular basis but it is regularly in the double digits and the idea basically being that in order to pay out those returns especially if the returns are native to the protocol you actually do need to earn some sort of interest on the underlying capital so from a competition perspective like if you look coinbase i'm actually not sure on the exact status of this but they recently just talked about offering passive deposit accounts for your usdc and wanted to offer you like i am making this up because i don't remember but one to five percent on your usdc and so in order to pay those returns and pay the bills these companies are highly incentivized not to just hold a hundred billion dollars in a bank account yeah there's a significant amount of risk introduced from the fact that we are you know any use of usdc or tether is trusting a centralized actor hold on to this money and manage it in a response and actually make good investments that aren't going to blow up so like for example let's just like worst case if the market goes down are you saying that usdc could go down as well or what would happen in that case so that would be unlikely in our estimation it's impossible to say with certainty in that anytime you don't have one-to-one actual us dollar collateralization there is some aspect of risk introduced but in general in order to assess that risk it would be determined by the actual assets that they are holding and my understanding is that they are generally very risk-averse with the assets that they diversified into but that's sort of not the point the point is that in general that model a requires a centralized actor to operate it which is very much antithetical to the ethos of cryptocurrency but then there's an economics problem that gets introduced here as well where there just isn't enough dollars that these companies can secure in a bank account to issue enough stable coins to meet demand and so and we'll talk about die and how die is another attempt but in general in addition to the centralization which dai also suffers from to some extent there's also a fundamental economic issue here which is that there is simply not enough demand i'm sorry not enough supply of usd stable coins to meet demand for them and that is why there is such a high borrowing rate or landing rate on usd stable points right now the fact that you can lend out your stable points for 10 or 20 percent a year is the evidence that there isn't enough supply and specifically the supply not being able to be met by the current stable coin models is one of the main reasons why other than borrowing and lending there's not a ton of use of stable coins in d5 right now any time if you tell me you know you can all lend you some money but at 50 a year or 10 percent a year crazy high rates compared to the risk-free rate of return these days that in practice makes making any sort of bet much less cost effective yeah so so i just want to say like that was my experience i loaned some of my estate owned to rari and then took out a loan on uscc and the the loan percent was like 40 and i didn't realize that this was because there was a lack of supply so you're saying that over time like right now it might be 40 but in in a few months or so it could even be like 60 because the supply just isn't there and we can't have enough usdc correct and in general the model behind minting more usdc or minting more tether is incredibly difficult to do at the scale of trillions of dollars because it's very hard to bring that many dollars into your bank account period because so they have to vacuum up all those dollars to do to do that so that's that's just not going to be feasible i think so then sorry go ahead no i was just going to say given the low interest rate environment that makes it even harder like there's no you can't even leave your dollars in a bank account and earn interest on them if they're just sitting there so how does this get in to die how did dye try to solve this so guy um didn't necessarily and it's hard to speak on intent but they didn't solve the economics problem but they did for a time solve the centralization problem and it's actually pretty tragic and we'll also explain the specifics but dai was forced to capitulate to compete with usdc and tether and ultimately has had to sacrifice their decentralization in order to compete economically and so even though dye was issued and created as a decentralized stable coin in practice today that is not the case so the mechanics of dye are similar to usdc and tether but fundamentally different because they exist on chain so unlike this usdc model where you take a dollar give it to circle the company that issues usdc and they give you one usdc on the blockchain die is this open source software that allows anybody with an ethereum wallet to deposit assets into a cdp a collateralized debt position and so if i have a hundred thousand dollars of ethereum i can deposit those hundred thousand dollars of ethereum in a cdp and then i can mint up to two-thirds i don't know if that's still the the rate we'll talk about the economic competition in a sense i'm not the most up-to-date on the current it's it's the old it's the old model so that's fine except exactly the current settings of the dye ecosystem but if i deposited 100k worth of aetherium into a cdp i could mint up to two-thirds of that value in die if if uh if ethereum let's say like i mean recently it went from 3000 to 4500 or 4700 whatever it's at now if it goes up can you take out more dye correct so the only rule enforced by the cdp is that the value of your collateral cannot fall below hundred and fifty percent again this the numbers might have changed a little bit cannot fall below 150 percent of the value of your collateral so if your collateral doubles you could in theory meant double the die but if instead the value of each went from 3 000 down to 2 000 and now it dips to 199.99 so the value of your collateral exceeds uh the value of your die at that point the protocol would be under water if that makes sense where it has now issued more dye than the collateral it has kept against that guy so what happens to the die price at that point so well the cdps are individual cdps so any specific position may be over collateralized or under collateralized at any given time but the die price in theory should remain at at or above a dollar because there is a guarantee that the rule that your collateral must always be a hundred and fifty percent of the value of the dye you have minted against the cdp is enforceable in a decentralized fashion and so if i minted the maximum amount of uh dye that i could mint against my three thousand you know three thousand dollar eat my hundred thousand dollars of three thousand e and it goes down even a fraction of a percent so i'm now below the 150 threshold anybody anybody on ethereum can now come in and close out my cdp and therefore keep in mind your collateral is worth 149 of your deposit if someone else so it's under collateralized if someone closes it out they basically get to keep the excess and so the idea being there's a really efficient market for closing out under collateralized cdps and accordingly the collateral never falls close to a hundred percent so it's always over collateralized and accordingly the value of die should never fall below a dollar because you know that the collateral is always is always at least a dollar the problem is you may say well well well shouldn't you know because because there's actually a hundred and fifth cents of collateral under each die shouldn't the price actually tend towards a dollar fifty not a dollar and in practice that was the case and so dye introduced a stability fee or basically when you take out a cdep and i may be incorrect stating that they introduced it specifically to deal with this problem so don't quote me on that but the purpose of the stability fee we're just focused on being accurate so we try not to misspeak but with regards to that that stability fee that was basically introduced as a cost to to borrowing die and so now any time that you're borrowing die from a cdp there's built in because of the stability fee a cost of doing business so and this is a different cost of doing business you know strictly speaking than the shortage of supply from usdc or tether this is a stability fee that is introduced purely to make the over collateralized economics work so on the one hand the over collateralized model does work and there is like there are billions of die die is a huge huge success but and this is a big but the requirement to only collateralize aetheria which is highly highly volatile um what was sub-optimal for something like die because if you have an 80 crash in the price of ethereum that can result in a major unwinding of debt positions and ultimately it's pretty inefficient and so die over time basically made the decision to accept in the cdp other collateral than just ethereum so whereas a theory is kind of the gold standard or we should say ether is a gold standard asset in terms of decentralization on the ethereum network because the the decentralization of control of ether is is basically solely dependent on the ownership distribution of ether and the miners of the ethereum network and at this point of time in time both of those are incredibly decentralized whereas dye has started to accept as collateral usdc which is not decentralized totally centralized and on the one hand the fact that the usdc is much much much less volatile means that you can mint more than 150 you know you don't need to have everything collateralized at 150 percent which is again why i said i'm not sure what their current tap on minting is because i'm not up to date on on the specifics but the idea is that because they decided to accept usdc it's no longer a decentralized assets fundamentally have they accepted other assets in addition to either and usdc i i would be making it up if i gave you a list of the assets so i will refrain from making it up but the short answer is i believe that they have have have expanded it to more than just ethereum and usdc okay and so because they're accepting usdc they're essentially tying themselves to the same problems of usdc are there are first are there more is there is there a larger supply of dye or uscc there's a larger supply of usdc okay okay is uscc like growing or is dye growing and maybe going to overtake it anytime soon or or everybody's just using because personally i use uscc i just think it's very easy eventually i'll use beans but exactly exactly so they're both growing very rapidly in the grand scheme of thing in general both of these assets are major parts of the d5 ecosystem at this point in time and accordingly demand for both of those assets and tether is going up a lot as d5 continues to grow which has certainly happened over the past year with regards to your question of will dye overtake usdc it's sort of impossible to imagine that taking place because they need usdc for the collateral well not just that they are dependent on usdc it comes from the fact that why did they have to move to usdc the reason is there wasn't enough ethereum that could be locked up to create the necessary die and so in the same way that usdc needs more dollars maker the issuer of die they needed more collateral and so they added a bunch of other collateral options i don't remember exactly which are the other ones like you had been asking but the idea being i think comp token was added and a bunch of others with the idea being that more collateral options will potentially increase the supply of dye but we're coming to and this is a great segue into why why have we gone gone and made beanstalk it's because fundamentally any model that relies on collateral doesn't work and whether that's because of the shortage of collateral leading to a shortage of supply or whether that's because of over collateralization which then creates a stability fee which then also now you have a high cost of use in both of those instances the models for stable coins was insufficient for d5 and even though they've been widely used and adopted in a ton of different capacities they're not good enough and there are a ton of opportunities and doors that will be opened if the economics issue of a shortage of supply so high cost to use if that is fixed and so just at a macro level before we get into beanstalk i say to you you know you have this cool idea for something that you want to use money for and earn a return but the cost of using that money for a year is 15 whether your bet was profitable or not is a totally different calculus if your borrowing cost is 15 versus 1 or 0.1 and in general what we hope beanstalk will do over the next couple of years is offer dollars on the blockchain with very low borrowing and specifically the way beanstalk is able to do this is by not using collateral of any sort and so by ditching the collateralized model there is a way and it's not like current um this is a state that beanstalk grows into over time but there is a way to have dollars on the ethereum blockchain with an unlimited supply so it could meet it can expand to meet demand in real time with near zero built-in cost to use or to borrow so so right now i think there's there's around four million beans that have been or at least pods that have been harvested is that the total bean supply and then what would like the rate for borrowing those be that that would be pretty high right so uh peenstock has a two-sided market so pods that that term you just asked about pods are the debt asset of beanstalk and pods harvesting are when pods become uh redeemable for one being each so the way that let lending works and a decentralized credit market is is one of the main supports underlying beanstalk the way it works is if anyone lends beans to beanstalk they get pods and pods are harvested so they can be redeemed for one pin each on a first in first out basis so thus far four million it's a little more than that four million pods have been harvested which means that to date beanstalk has paid off over four million dollars of debt if that makes sense so it is the weather is not the borrow rate but but so okay so instead of asking about like the supply and the borrowing let's just let's just talk about beans in general so people so like what i did was i put in a theory and then i guess that was kind of like buying beans which were pods and then over time those pods are harvesting and so when i spent the ethereum it put me in the back of the line which was i think my first one right now is at like 11.2 million and then my bigger ones i guess are at like 30 million and then those harvest and they harvest because people are supplying credit which then helps bring the price above the peg and then you can create new beans and then the pods will start harvesting can we kind of talk about that system absolutely so to clarify and it's it's a key distinction which is lenders so pod holders are not lending to beanstalk with the expectation that they will get paid back because more people lend to beanstalk in the future it's kind of a ponzi scheme like be good yeah i was concerned about that we you know if beanstalk paid out old investors with new investors money fundamentally that's a problem so that's not exactly the way the model works good indeed it is good so instead beanstalk has a two-sided market there's a market for lenders like yourself and then there's a market for depositors so one of the main uses for beans today before beanstalk has kind of proven itself has proven that it can keep the price of one before it's been adopted across d5 the only real use for your beans today is to deposit them in the silo which is the beanstalk dao the decentralized autonomous organization that is responsible for governing beanstalk and basically if you deposit your beans in the dow that looks a lot like a passive deposit account in a bank you take your beans you deposit them in the bank and you earn interest every hour that the season excuse me every season which in beanstalk is one hour where the bean supply has increased so if the bean supply increase and you are deposited in the silo you earn interest every hour that the supply increases and what causes the supply to increase so the supply increases when the time weighted average price of one bean over the previous season was more than a dollar so in other words if there was too much demand for beans such that the price was above average above a dollar for an hour being stock will increase the bean supply by the time weighted average shortage of beans in the bean eat liquidity pool on unison so when we talk about decentralization building beanstalk in a decentralized fashion is something we were willing to take on a lot of cost to do so one example of that is the the price oracle for the bean price is not being usdc or being tether because that would allow the centralized operators of usdc or tether to potentially have a kill switch or they could just say we are no longer allowing our tokens to go to this uniswap pool instead beanstalk derives the price for one bean by comparing the ratio of beans to ethereum in the bean eath pool with usdc to ethereum in the usdc eat pool and so the price is derived from a proportion what is the rate of beans to eat over the rate of usdc to eat and therefore we can come to a highly honest price on a bean without any exposure to any operator of a dollar wait so how does that mitigate exposure though because it sounds like in that formula usdc is still in the formula yeah great question so the mitigation comes from what can they actually do to stop beanstalk so a more simple version of the oracle might be we're just going to compare the number of beans in the us in start in the bean usdc pool which doesn't currently exist but if there's an equal number of beans and usdc in the pool that means the price is one um the problem with that is that circle at any point in time could ban they could blacklist the address of the uniswap being ustc pool um at that point in time the pool becomes sort of dead or useless and the whole system could collapse and everybody loses their money i guess it depends on how the system it would depend on a lot of different factors but there would most likely be a lot of money lost in such an instance instead beanstalk trades or beanstalk uses the bean eath pool which as we talked about eat as kind of the gold standard of decentralized assets on the ethereum blockchain and then compares itself against the usdce uh uniswap pool oh and the idea being that even though usdc is in the formula um the only value it serves in the formula is indicating what is actually a dollar these are in the liquidity pools and then when you so what happens let's say if usdc like fails or something can you put together a proposal to use another stable coin or what what what happens in that scenario the short answer is yes the oracle has been created in a way that is incredibly modular so in addition to moving off of being eth and usd eats or adding potentially another stable point to that oracle in theory you could do a lot of other usd stable coins the main problem that has to be solved from an oracle perspective is the answer to the question what is the current price of one us dollar which is a non-trivial thing to answer on the blockchain without trusting someone to tell you what the price of a dollar is and accordingly the way beanstalk goes about it is instead let's take um a sample price of a us dollar from somewhere that is highly highly highly likely to always very closely track the price of one us dollar because of the usdc arbitrage we talked about at the beginning of the podcast and therefore beanstalk assumes that the price of usdc is equal to one us dollar would you ever have multiple let's just say like like tracking it against usdc maybe it has like a 0.7 weight and then die with like a 0.3 weight or something like that would you ever track multiple dollar-backed current in general that is certainly possible and it's something we would consider and have considered when creating beanstalk which is so attempting to solve an incredibly complex problem with potentially infinite variables if you want to make it so the minds like the the idea behind our strategy has been to make things as simple as humanly possible so we have tried to remove any additional complexity and only leave the complexity that is required to create a decentralized stable form so with regards to you know moderate modifications to for example the oracle each dipole and a being you know some sort of weighting there as you suggested i'm not sure exactly what what that would look like necessarily there's a lot of flexibility but at this point in in time that sort of complexity would probably do more harm than good yeah and accordingly you know we like to describe being stuck as currently being in sort of an infant stage where it's making all sorts of crazy facial expressions and it looks alive and it's you can like it's it's real you feel it you hold it but you still need to give it some neck support you still need to give it support where it needs support because ultimately it's not a full-fledged adult yet that can support itself out sorry go ahead oh i was just going to end by saying from that perspective those types of tweaks can be made in the future but they're probably not right at this stage of the game and so i was going to say that one example of maybe neck holding would be the new bip2 weather adjustment that's coming out down the pipe but before we talk about adjusting the weather and how this impacts harvesting and all this so we discussed the the price oracle and then also the harvesting or like the the pod sewing and then also the siloing so those are kind of like the three components right was there anything else that you wanted to like touch on there could you just repeat the three the three ways that you laid out i couldn't i couldn't yeah just the the decentralized price or oracle and then we also discussed like the pods harvesting and then there's also the siloing so to me that's kind of those are like the three aspects of being protocol that we needed to discuss and i was just wondering if there was anything else you wanted to add to those i think that's generally fair if you think about three parts of beanstalk you can definitely break them down and think there's the oracle there's the silo and there's the field and the silo being where people can deposit either beans or lp tokens for the being eth pool and passive interest every time the bean supply increases or in the field where you can not deposit but you can lend beans to being stuck which is like what you said you did where just to lay out that transaction the beans are lent to be in stock beanstalk burns those beans so there's a decrease in the bean supply and then issues pods and the pods are added at the end of the pod line so right now there are about 45 million pods outstanding which means that after you said you were around 30 million at the end of your pods that means that after you lend to beanstalk another 15 million beans of debt have been issued by the protocol and this is a nice time to highlight that beanstalk incentivizes at all points in time for people to lend to beanstalk in an efficient capacity meaning if right now i think that it is a sufficiently high or attractive interest rate weather which is what the interest rate is called in beanstalk such that i am incentivized to lend beans to beanstalk right now or in your case you said you lent ethereum beanstalk use that if you're into buy beans and then burn the beans it's the same transaction and it gave me for one bean that i lent and that was burned it gave me an extra 16 beans because the weather was 1600 correct i just want to point that out yes so if you burn if you lend one bean to be in stock today you go to the back of the line but you get a huge multiplier on your beans when your beans get paid out in the future so right now that weather has actually gone up further so now for every being you lend to beanstalk you get 21 pods i i as soon as the weather crossed 2000 i i sent out a meme where like the guy is on the back of the bus and it's like the cartoon and he's like chuckling he's like i'm in danger and i was like my wallet's in danger i'm about to buy more beans because i was waiting until i crossed 2000 to buy more so i still need to do that but yeah it is and that is the perfect little anecdote where that is the behavior beanstalk tries to create where as soon as you say oh this weather is high enough such that i want to lend to beanstalk you want to do it right now because if you wait even a couple minutes or a couple hours uh the pod line may grow and therefore the time until you get paid back will also grow so you're incentivized to lend immediately and so what mechanisms make it or help it harvest faster is is this do we need more people in the silo earning that passive like whatever the apy on that is or how what makes it harvest faster so the rate that pods harvest are determined by the shortage of beans in the bean eath pool each season and there is only a shortage when the price is on average above one and so in practice you know what being stuck with what wants to have happen in order to pay off more pods is beanstalk needs there to be certain seasons where the price is above one and anytime there's a season where the price is above one beanstalk can pay off pods so currently and you say well why would the price be above one the price would be above one because there is demand for beans so in general going back to how pods are not harvested because more people are lending beans to beanstalk there is a second side here which is the silo as you suggested so at scale the bean price may be too high because another protocol integrated beans and there was lots of demand for it or there may be a million other reasons that cause short-term demand for beans but today again still in an infant stage the main use case for beans other than sowing them in the field is to deposit them in the silo and so an increase in in depositors in the silo would be one of the things that would cause a decrease or sorry a payment of pods a harvest of pods but in general over the next couple of months as the price of one beam continues to hang out plus or minus a dollar our expectation is that beans will start to be integrated with other protocols and at that point in time would be when we expect there to be a major uptick in utility and therefore demand for beans so the general idea here is people are lending beans to beanstalk with the expectation that the uses for beans will grow in the future if that makes sense so you're not lending to beans expecting there to be more lenders you're lending beans expecting there to be more uses of beans and utility for beans and demand for beans in the future so so what are some of those use cases for beans like obviously you can just kind of say like okay it's whatever usdc does but what what are the use cases for beans that you see maybe short term like coming coming up soon sure so step one in becoming the ubiquitous stable point of defy is to start to have various trading pairs against being um and to potentially also be able to borrow and lend out the being token and so in terms of direct integration over the next couple of months you should expect there to be the launch of like a bean lending pool we're still in in the stages of picking and to some extent anyone could do it today because spin is in erc20 but we're still in the stages of picking where we want being to kind of be borrowable reloadable first and it's important is rari is rari one of the options for this like could could could you could you borrow beans on rarity or something basically everything is is being considered and i'm not gonna comment on very specifically just because a lot of details there that we wouldn't want to necessarily misspeak on but in general beans can be used in any lending protocol okay sorry i just hit my microphone yeah i'll get i should be good yeah yeah i can hear you again go ahead yeah i can hear you again uh so so then yeah so we were just talking about the use cases for beans no yeah i think that was the end so if you want to ask another question okay sorry i got a little you know i got confused hitting my microphone apologies yeah yeah that's all good so in the future so bip2 i believe is what it's called is going to reduce the weather because previously the weather has been increasing or just staying at like zero increase it hasn't been it hasn't had any like negative impact to the weather in the protocol can we just talk about bip2 and and what what that does and why that's good sure so being stock doesn't set the weather or it doesn't set like here is in a predefined way what the weather will be instead beanstalk is generally a reactive system and so beanstalk looks at based on every at the top of every hour bean stock looks at the previous hour looks at the price the time weighted average price it looks at the debt level so the current debt level of beanstalk and it looks at the change in demand for soil the change in demand for debt change in demand for pods these are all different they're more or less the same for the purposes of this conversation and adjust the bean supply as we said if the price is too high increase the supply if the price is too low increase the soil so increase the amount of debt bean stock is willing to issue increase the number of tokens bean stuff is willing to burn and in addition to increasing or decrease increasing the bean supply increases in the soil supply but then every season beanstalk can also change the weather so right now the weather is let's call it 2000 at the top of the next hour beanstalk can change the weather as much as three percent so we can lower the weather three percent or it can raise it three percent it can lower it one percent it can raise it one percent or it can keep it flat the way that that is determined is based on again the price the debt level and the change in demand for soil so there are three variables there the price can be one of the debt level can be one of four different options excessively low reasonably low reasonably high or excessively high so two times four is eight there are eight different options and then there are three different types of states for demand for soil decreasing steady or increasing so 2 times 4 times 3 is 24 so there are 24 unique cases that beanstalk handles and changes the weather in each of those 24 cases anywhere from minus three to plus three and go ahead what what was the sorry what was the second one it was uh so there's debt level and then there's because soil is the debt right that's how much pods are the debt what is soil soil is the willingness to issue debt so if you like when you lent beans to beanstalk you sowed them and you sowed them in soil so today beanstalk isn't willing to issue an infinite amount of debt it's willing to issue a specific amount of debt and the debt that it is willing to issue is defined by the soil so for every soil outstanding beanstalk is willing to borrow one bean from anyone who wants to lend it to beanstalk so right now the soil is almost six million so beanstalk is willing to accept another six million beans and burn them in issue pods if that makes sense okay so they would do a max of like six times 20 pods is the max that you can buy right now correct so 120 million pods if you had six million beans um which today would be pretty hard to get access to because there's only 25 million beans or so circulating if so if somebody did that i mean that would harvest uh lot of beans right exactly exactly right and so the only way this is the way that the system ultimately works is that the next person like as there's demand for beans whether that's to lend to beans to use beans to deposit them in a silo if that raises the price above one that moves bean stock into a state where it is starting to increase the supply again okay beanstalk increases the supply until the price goes back below one and then it stops increasing the supply so when people when people use beans like let's say on other protocols there's demand for beans that reduces the available amount of soil the only thing that reduces the available amount of soil is a protein being lent to beanstalk okay otherwise the beanstalk remains willing to issue the debt and to answer where we started this on kind of what is the point of bit two where we're changing the weather potentially is four of those 24 cases so four out of the 24 we are modifying the weather changes to be slightly more negative so what that means is in four cases and we can say specifically those cases are when the debt is too high when the price is too high and when uh demand for soil is increasing or steady so there's net positive demand for soil so price is high debt level is too high which is where we're at right now so that's like these are current changes i mean they're going to affect the current state of beanstalk in those specific instances in those seasons where there is increasing demand for soil and the price is too high beanstalk will be a little bit more aggressive in lowering the weather and lowering the interest rate and the reason for the changes is in general beanstalk and the parameters for beanstalk have been said in a relatively conservative manner and specifically going back to beanstalk was in sort of an infant stage part of the conservative nature was in a conservative setting of those 24 weather cases and on the one hand that conservative initial initial parameters have been just from a history perspective incredibly great and beneficial and helped beanstalk aggressively raise the weather quickly enough such that it was able to return the price of one bean uh to a dollar after you know kind of its first major test after it went down to 0.2 correct and so we look at something like that and say the weather was set sufficiently conservatively and again conservative in this case means raising the weather fast enough so now beanstalk is going to be sl if if the bid passes and it looks it's going to pass and that's more than a majority currently voting for it all this will do is in those very specific scenarios when the price is too high and the demand for soil is increasing or steady in those cases beanstalk will be slightly less conservative slightly more aggressive and lower the weather a little bit more than it currently does so in practice this is actually a really small chain in the code itself it's changing a couple numbers it's not a functional change to the way beanstalk operates but what it is is an is a minor tweak to try to get beanstalk into an even stronger position heading into the future and sort of what this demonstrates is that the contract has been written and designed in a way such that a the general macro status of the system does not need to be regularly modified but the micro stuff in the system can be very easily lightly and cleanly slightly adjusted in order to make dean stock more likely to succeed and so part of having a protocol that is you know being stock is credit based which means that the stability for the bean price ultimately comes from the credit of beanstalk the protocol itself and so having a credit worthiness of the protocol is fundamental to that model so you don't want a protocol that every couple months or every couple years is going to totally change up its its mo because that will most likely significantly hurt its long-term ability to attract credit so one of the things that being stock does is it allows you to be nimble and make very clean light tweaks to certain parameters without actually changing the structure of beanstalk which obviously when we talk about building trust over a longer period of time is essential so by lowering the yeah i think it's great that you can modify these things that don't modify the protocol at a larger level by modifying the weather and making it lower is this kind of saying that you're confident that there are still people who will sew even at lower weathers and then also like if there's if the weather is lower that means everybody that sews gets less pods but but then like the person behind them will kind of harvest faster because the person before them got less pods so people start harvesting faster once they start harvesting yeah so the weather and how changes in the weather affect future demand for soil is a really fascinating question in general the way we think about this these weather changes is not that the weather itself is being changed instead it's one layer removed from that the changes to the weather are being changed and so it's very hard to say the weather will go down or will go up based on these changes all it is saying is the weather is more likely to go down than it currently is and so the specific course of the weather over the next couple weeks and months as beanstalk continues to grow assuming that this bit ultimately passes the weather over time is going to be different than it otherwise would have been without these weather changes but beyond that it's very hard to predict how how specifically that will manifest itself but just to say the weather changes are certainly an indication that you know in the fact that beanstalk can be slightly more aggressive is certainly both an indication of and a result from the fact that beanstalk is doing pretty well you know this is a move that is made by beanstalk not to project but just but to say things are going very well they can be going even better and so it's a really a good question of good better best now go ahead sir no go ahead weather changes right now are good but they can be certainly made better in the future and ultimately the hope is that at some point there will be a set of best weather changes that maybe never needs to be changed but given the novelty of beanstalk there's a ton of data that is going to have to continue to come in until any sort of final weather changes if that is ever a possibility will ultimately you know be doable would you say that beans just the protocol in general is doing better than you expected or or do you wish it was doing better or how how are you how what's your happiness level with this at post launch so the answer to this has to be in the context of like five weeks into the protocol beanstalk went through like a major major test which was a huge pump and dumped by people that didn't really understand beanstalk and we can talk about that in the context of this answer but the punch line is we are over the moon we we like we've put our heart and soul into beanstalk and worked for basically nine months close to full time to get it launched on mainnet and we honestly couldn't be happier um with the response from i mean the biggest thing is the community that is growing around peenstock and specifically the quality of the community members like just in the past 48 hours beanstalk hired two new developers one on the front end one on or the middle that are really high quality and one of the things that we were most concerned about was how to build a decentralized team around beanstalk given that we are anonymous and can't really leverage our own personal networks and the fact that there's been such a high quality of uh talent interested in spending their time on beanstalk has totally blown us away and we're very you know not to sell the project you know but we're i mean we we're very excited to continue to work on like it looks like we're gonna get to continue to work on beanstalk for another year at least and there's nothing that could you know there's nothing we would rather be doing than to have that opportunity so to ask about our our state of mind it is incredibly positive at this point in time nice i mean that's great to hear yeah and i mean the community is incredible there are so many so many people that i know that have been accounts now and are spreading the good word and it's like you can be a humble farmer and it just has the harvest moon it just has all these great components like where did you actually come up with relating it to a bean field you know it was a lightning in a bottle hard to say and in fact the moment the idea occurred like i said to myself at some point i'm gonna have to explain where this came from and i got nothing okay okay um it was an apropos metaphor and you know we just kind of ran with it no that makes sense and so speaking of like the team working nine months on this so i know that like ohm has p ohm and it like vests over time and they're incentivized as the dower however it structured the multisig wallet to to work on ohm same with climate they have like p clima how are i've heard that you guys don't have any pea beans or like pre beans is what that means how are you guys incentivized for this project sure so going back to we've really gone and taken on cost to make being stuck as decentralized as possible and larger than that to put beanstalk in the best position to succeed as possible we felt that it would be totally inappropriate to have some sort of team allocation or pre-mine or vc round or anything of the sort so beanstalk is not a senior rich token something like basis or basis cash where the only way to get access to the governance token or the token that is basically where you would expect people to price future growth of the protocol is to have been in in the early days and then it's basically if you were in early you make lots of money if not too bad and we really a were ethically opposed to that but b we think that the best way to get beanstalk up and running is to just have a good economic model and if the economic model works the rest will will sort itself out in the right way and so ultimately we did not take any sort of team allocation there was no pre-mined for band the first hundred beans were minted when the beanstalk contract was deployed and for reference there are 100 beans at least minted every hour to cover the cost of the sunrise function call which happens at the top of every hour and so the like even from genesis the inflation schedule was a hundred percent according to the normally functioning algorithm and any beans that publius owns have been purchased just like anybody else and so the team certainly has skin in the game we own beans and seeds and stock which is the governor's token uh just like everybody else and we own pods just like everybody else but in general there is no special status there's no special allocation there's nothing at all and again just to restate our mindset is that if being stuck is successful you know we'll be sufficiently compensated and therefore why why cut corners um yep when you so so the stalk the stalk is essentially like like how fracs is a stable coin in fxs is the government token that goes up stock is also going up so currently stock is not liquid but in the near future it will become an erc20 token we're talking you know probably early 2022 and at that point in time the future price expectation future growth expectations and the bean supply can start to be priced not just in stock but in seeds the sort of the silo the dow has a unique structure where if you deposit a bean into the silo you receive one stock and two seeds and stock is the government's token that entitles you to a vote and it entitles you to your portion of future bean mints supply increases but seeds entitle you to 110 000 of a stock every season so and just to complete the rules in the silo if i withdraw my bean i have to forfeit all of my stock and all of my seeds and all of my stock from seeds from that one bean and so in practice we talked about how beanstalk is not a seniority model or doesn't employ a seniority model this is why there's no way to get governance tokens without depositing beans in the silo and they're like when you leave the silo you have to burn all of your governance tokens so there is no aspect of like put in money in a very early day and then at some point you get to take all of your capital off the table and still collect all the upside that's a spiny rich model with bean stock that is fundamentally not the case the only way to get stock and feeds is to deposit them in the silo or you can buy them on the open market but once they're liquid but fundamentally the fact that the only way to mint them is to buy beans and deposit them and more than that that the pricing of that whole ecosystem will enforce like an arbitrage there where you can't have the price of stock and seats run wild because anybody can buy a bean like deposit it and then sell the stock and seeds at a profit like there's all sorts of natural arbitrage that gets introduced there that ultimately should have a really symbiotic effect on the stability of the bean price okay i don't understa how is that a symbiotic effect on the bean price how does it help the bean price because it locks up beans so there's a couple ways first is let's say that you want to speculate on the future growth of beanstalk the way like the way to profit from that is to get stock and seeds so you can buy a bean and deposit it and then get your own stock and seeds or you can buy the stock and seeds on the open market if you deposit a bean and then you get stalking seeds can you sell them on the open market or correct for those it's just that you can't withdraw your bean unless you have the appropriate amount of stock and seeds to burn i to make the withdrawal and so in practice over time you should have assets that are in the silo that are kind of stuck there in perpetuity yep as the stock and seeds on top of them have been sold okay and that stabilizes the price is what you're saying of beans because it locks them up well it's symbiotic to the bean price and bean stability because and we have to add one detail here it's not final but the way we envision it is that stock and seeds will become liquid and natively incentivized pools just like the bean eath pool is incentivized by being stocked if you deposit one bean worth of the bean eat valpito in into the silo instead of one stock and two seeds you get one stock and four seeds so there's an incentive to deposit lp tokens instead of beans into the silo but the current idea is that stock and seeds will be implemented in a similar fashion in trading pools against bean and in practice what that means is even if you're not going to buy the bean and deposit the bean if you're going to buy stock and seeds on the open market from a feeder first that transaction buys beans and then buy stocking seeds and so the point is the whole ecosystem will be created in a way that is net positive in terms of demand for beans more demand that's the same thing that climate did with bct's or their base carbon tons every time you want to swap whatever for climate it has to go through a bct and that creates more demand for the carbon uh that's in their treasury so so i understand that okay that's good that it creates more demands for beans did you have something more to say there or no that was it okay what so one of the things is like right now when i look at the time to harvest for you know if you were harvesting right now it's i think it's ten thousand no no it's it's about one year it's maybe ten thousand seasons which turns into around one year or so and so this is more of a broader question like beyond just like the 10 000 seasons or one year but like if it takes a long time for people's pods to harvest and then people might just like not want their money locked up in that that because of the illiquidity so one question is like will this start happening a lot quicker and that that's obviously with the bean with the demand for beans but the second question is like more meta risks like what what are the risks to this protocol that that concern you that you're working against i don't know if you're talking but you might be on mute so with regards to that first question on the pod line getting long yes you're totally right and the one way that beanstalk fails and this is said explicitly in the white paper is if it can no longer attract creditors so if that is because the pod line is so long that nobody thinks no matter what the weather is it is attractive to lend to beanstalk if beanstalk can't attract creditors ultimately that that would be the kiss of death and so at the same time that is the battle or that is the main question that beanstalk is trying to solve which is like how can it set an interest rate in an efficient enough way that that never happens and so specifically to answer just the how does that never happen in beanstalk one really nice feature of the pod line as it currently works is that there is a even though sort of like a step function there is a continuous nature to the value that the lenders are valuing beanstalk so for example right now there are 45 million pods and like a 25 million supply of beans currently so if you lend to beanstalk right now your pots with the back of that line 45 million and half of all beans supply increases go to paying off pot harvest and half go to paying off stockholders in the silo and so if there are 45 million pods in order to lend to pennstock today i have to assume that 90 million beans are going to get minted at some point in the future and so if i lend some money to beanstalk if i lend money let's say 10 000. we'll put a 20x multiplier on that so that's not two hundred thousand dollars and then you double it because the pod line go to 45.2 um so 45.2 doubled is now 90.4 we're basically saying that the previous person went to beanstalk valuing bean stock at uh 90 plus 25 is 115 million the next lender will have to lend to beanstalk valuing it at 115.4 million and so even that's where the step comes right like a ten thousand dollar chunk increases the value that you're lending to beanstalk by you know currently a 40x but that is still a somewhat continuous valuation meaning that being stock doesn't go from being lent that at a 90 million dollar valuation for a 115 million dollar valuation to immediately being lend at a 200 million dollar valuation instead it's continuous and therefore the next lender does have some assurance that like someone just went to beanstalk like at the next best price and then to answer your larger question about sort of risk factors at this stage of the game right now as we said beanstalk is still an infinite stage the number one thing it needs and it's not like it needs it immediately but over the next year or so is growth to go from an infant stage to uh more of a toddler state to continue with a you know as you can tell we like to play analogies until they're dead yeah so if to get beanstalk into a toddler stage the number one thing that could happen between now and then is basically a major outflow in beans if suddenly two million beans were to be dumped in a couple hours that could potentially take the price back to you know 50 cents again for example if it were 2 million beans and it remains to be seen whether at this stage of the game beanstalk can successfully navigate another major debt cycle without first paying off all the debt from its first debt cycle so that doesn't mean the dips to 90 cents or even 80 cents aren't reasonable over the next couple of months but like another major outflow before beanstalk can start to pay off more of its debt and create more of a positive uh feedback loop you know another major negative feedback loop would be a big problem at this stage of the game now it's important to comment that that is highly highly highly unlikely because of the underlying structure of the incentives in beanstalk so anyone that was gonna leave beanstalk should have already done it already it's what the incentives say so anyone that was going to withdraw their assets from the silo during the debt cycle should have done that already now that they're starting to earn interest again because the price has started to hang out above one sometimes it makes a lot less sense for them to withdraw and that the withdrawal data has shown that where basically over time the withdrawals if you kind of start at the big dump after that pump and dump in september have been continuously coming down and are now sort of close to zero so when we talk about outflows um outflows are close to zero which is very positive so the number one thing that could kill beanstalk at this stage of the game currently none of that is happening that's awesome so okay so so one of my last questions is is that marketing is super important for this and you have a community that's really strong but how are you working on marketing and growing it or how can we help i guess how can we help market and grow it yeah well i was gonna say the first thing is we're here talking to you jack so in general and i think this is something that everyone that's heard us talk for now over an hour well it will ring true is that we publius are not trying to sell beanstalk we are not comfortable selling beanstalk in any sort of uh stale seed sense and instead just want to talk about beanstalk and explain beanstalk and answer honestly how it works and we think that is compelling and the model demonstrating that it works is compelling enough and that obviously this is not to say that marketing and getting the message out there and bringing awareness to being stuck isn't incredibly important but it's something that we're going to hope over time our community leads more and more of the effort in and we're already starting to see that so we were connected to you jack through a member of our community and that gets us very excited that people that have exposure to beanstalk and have interest in beanstalk are leveraging their networks to to make make things happen so i've got a few friends harvesting exactly exactly so our attitude is that this i mean this is still very early days in about a week we're going to celebrate a hundred days of beanstalk which on the one hand is very very early for what we want to accomplish but on the other hand is a very very long time if you look at the history of other album stable coins and so we are we're excited with what has happened we're excited with what is to come and or at least on on that front our mindset is continuing to push high quality work high quality content transparent communications that's what we can do to put beanstalk in the best position to succeed in the long run i guess you know i i guess we didn't really talk about other algorithmic stable coins um do you think it's worth diving into that a little bit or we we could go all day on them um really we could i think we'll we'll maybe maybe part two or something maybe after absolutely after yeah maybe so so like i want to have the way that i think about my podcast is is kind of like you know joe rogan has like recurring guests and you get to know them over time and like see them grow and so i think like you know i see you grow like see the beans and everybody harvest maybe maybe when my first my 11 million pods or maybe my 30 million pods in line the harvest or something but yeah we should we should definitely do another and we can we can talk about more but what you were saying there about your vision about how you're moving forward maybe how maybe we should like tie this back to the usdc and die conversation how if if bean really just plays out like give me the the expansive vision and why this will overtake usdc or or what what exactly this this massive vision is okay so the number one problem is that for stable coins is that the cost to use them is too high and it is too high because there's not enough supply to meet demand to mint the stable coins such that the borrowing costs to use them go down in stock fundamentally changes this uh this relationship because beanstalk doesn't have collateral and so therefore beanstalk will be able to mint enough beans to meet demand for beings no matter how large demand gets and in practice what that means and the way it actually gets to the status over the course of you know many larger and micro cycles within this but ultimately if there is the right amount of supply of beans such that the price is won and all demand for beans is met so there's no excess demand driving the price above one there will be no new beans minted and if there are no new beans minted that means that there's no use in leaving your beans deposited in the silo or in a lending contract earning you know whatever percent you have to go elsewhere because there's no there's no inflation or return coming from being in the silo whereas currently at this stage of the game there is a high level of attraction to being in the silo right now it's paying out over a hundred percent per year based on like the trailing seven day average apy on our website but the idea is that once demand is met or filled there's no more return for staying in the silo and what that means in practice is that there's no underlying borrowing costs onto using beans and so over time what will happen um is that you will have beans being as a dollar that you can use anywhere you want in t5 but the carrying costs are going to approach zero and so in practice you'll have a dollar on ethereum that anything that has a positive expected value even if it's 50.1 is going to be profitable to do making your market in beans and the reason it is orders of magnitude better than ustc or tether or die separate from the decentralization aspect is this that you are going to have stable coins that are much cheaper to use than collateralized ones and it's as simple as that that that is a perfect summary right there i know we had touched on all of those things but that that was the perfect summary was there anything else that i should have asked or that you wanted to talk about well thank you jack for having us i think you did an amazing job and asked a ton of relevant questions and you know we're happy to do this when you're when your pods harvest or whenever you would like this has been a pleasure yeah yeah thank you for coming on where should people you know follow you on twitter and discord give give the shout outs so on twitter it is at beanstalk farms the website is bean.money and at the bottom of the website is links to anything you could possibly want and so that's probably the simplest way for anyone to inquire more okay and it also has a link to the white paper which is really fun to read i think that was a pretty funny meme when it was uh posted did you did you kind of know that would become a meme that the white paper was just so kind of nut did you kind of anticipate that well you know candidly jack we're not so the white paper wasn't written like that just for shits and giggles or frankly our hope is that over time beanstalk will be successful totally independent of public reliance on us is is is an area of centralization is a risk factor and is something that we certainly want over time to disappear entirely it's important to note that we are obviously committed to beanstalk and make like doing everything humanly possible in our power to make beanstalk a success but at the same time we have the humility to realize beanstalk has to succeed separate from publius and so the white paper was written a to include every rule built into the protocol so if someone read the white paper it can serve as an accurate description of the protocol and a complete description of the protocol and we've continued to update the white paper after each bit such that the white paper remains a current statement of how the system works that's perfect so that's yeah you're right you're right i have tried reading some some docs for things and it's it's not explanatory enough so i actually do appreciate how in-depth the white paper was it was just funny when i first read it um seeing all of it but yeah i do appreciate the details everyone tends to have that reaction of like what in god's name is going on here but if you spend enough time with it you know you warm up yep okay awesome this was great i will talk to you after the harvest moon you know incredible thank you so much for your time jeff we really appreciate it