🎙️

S1E6: Publius on Terra

Date
May 13, 2022
Timestamps
0:00 Intro • 1:41 Important PSA for those impacted by Terra and Luna collapse • 2:54 What happened to Terra and Luna? • 4:37 What is a reflexive system? • 5:23 What is the problem with the Luna and Terra model? • 7:30 What is a very loose timeline of events that happened? • 9:15 What could have caused the potential collapse of the Luna/Terra system? • 11:12 How did Anchor deposits impact the collapse and death spiral? • 14:00 Was there a fragility issue with the model prior to the collapse? • 14:55 Was this a run on the bank and if so, is there a stablecoin system that can limit a run on the bank? • 15:58 What does the bid for Luna mean? The increase of supply of Luna results in a decrease in the price of Luna, how? • 17:41 Why is buying Luna an uphill battle when there is supply expansion of it? • 18:18 Luna and Terra were below peg and it is difficult to incentivize investors to help increase the price to peg. How does Bean incentivize increasing the price when it is below peg? • 18:32 When Bean is below peg, how do Pods and the Weather (ie interest rate) incentivize lending to Beanstalk? • 19:01 How does Bean handle the price when it is below peg compared to the UST and Luna system? • 19:54 How does the first in, first out nature of the Pod Line provide more stability on a run on the bank than the Terra and Luna structure? • 20:37 Why isn’t there a bid from Luna and how does reflexivity exacerbate this? • 21:35 How does Beanstalk’s anti-reflexivity in terms of lending, linear interest rate growth, and game theory limit a run on the bank? • 23:27 Explain how the buyers, sellers, Weather, and price of Beans may operate at Beanstalk during a potential bank run. • 24:30 First in, first out return schedule strengthens Beanstalk anti-reflexivity.
Type
The Bean Pod
🎙️
S1E6: Publius on Terra

Recording

Notes

The core peg maintenance for UST was quite simple, just a mint and burn model.

  • When UST price is <1, you can burn 1 UST for $1 worth of LUNA. This creates buy pressure on UST as people buy it to burn it for LUNA and capture that arbitrage, which drives the price back up to $1
    • and vice versa when the price is too high (when UST price >1

This system is reflexive — the implicit assumption underlying this is that even if there is not a bid for UST at $1 (people are only willing to pay under $1 for UST), there will be some bid for LUNA. So long as there is a bid for LUNA, this will work.

  • However, the problem is that there was a limit on how much UST could be converted to LUNA at any given point in time.
  • So instead of always offering that promise that 1 UST <> $1 of LUNA will be convertible, once that threshold/limit is reached, UST holders had to face a decision, either:
    • Wait until the conversion is possible once demand falls under the limit
    • Sell their UST at a discount

The role of Anchor

  • The growth of UST was fueled by Anchor — the vast majority of UST was in Anchor, receiving a fixed yield for depositing in Anchor. That yield was heavily subsidized by LUNA holders, because $1 of demand for UST created more than $1 of value of LUNA holders, that created a nice incentive to subsidize the holding of UST
  • Anchor was pretty inorganic in terms of the demand for UST that it generated, because the yields were subsidized and unsustainable
  • Over the past couple of months, people became more and more aware of the unsustainability of that Anchor yield

The role of recent proposed changes to the protocol

  • Key Change #1: the Terra team changed the structure of their market — primarily they wanted to change the collateral backing the ecosystem to partially Bitcoin. This signaled that they had less faith in LUNA alone being able to support the ecosystem
  • Key Change #2: the Terra team proposed to change the Anchor yield from a fixed 20% to a variable yield, which changed dramatically the risk/return profile of the system
  • These 2 changes combined to form a perfect storm that someone took advantage of

So what started the death spiral?

  • The majority of peg maintenance via conversion from UST <> LUNA was done by a very small # of parties. Most people didn’t worry about doing this and just assumed that someone was doing the arbitrage to help maintain peg
  • This death spiral/bank run was started by just a small depegging of the UST price on Curve coupled with a dumping of UST on Binance
    • That excess supply created enough demand for UST <> LUNA conversion that it reached the threshold for conversions (remember — there was a limit on how much UST could be converted to LUNA at any given point in time)
      • Because of the de-peg, that meant at that point there was no bid for UST at $1 (the price was under $1)
      • Thus, the only way to re-peg was to do the UST <> LUNA convert / arb.
      • Unfortunately, because the conversion threshold was reached, this could not be done
      • Thus, people became really really nervous, and large outflows from Anchor started happening
        • At that time, well over 50% of UST supply was in Anchor. It was a massive proportion.
        • All these people who took their UST out of Anchor was faced with the decision described above:
          • Wait until the conversion is possible once demand falls under the limit
          • Sell their UST at a discount
      • Huge amounts of people chose option 2: Sell their UST at a discount. This led to a death spiral / a run on UST
  • Thus, the UST <> LUNA convertibility being limited by a threshold meant that the market could not quickly clear the UST supply into LUNA supply and led to huge outflows from Anchor and UST. This then led to a huge run on the LUNA price. LUNA falling made UST even more shaky and made it less and less attractive to hold UST, which led to more outflows from UST. And so the death spiral proceeded in rapid fashion — even though it was all started by one small run on the bank

Commentary on LUNA supply

  • This system is reflexive — the implicit assumption underlying this is that even if there is not a bid for UST at $1 (people are only willing to pay under $1 for UST), there will be some bid for LUNA. So long as there is a bid for LUNA, this will work.
  • Because of the way the peg maintenance works, the question is: is there always going to be a bid for LUNA. or will the price of LUNA just converge to 0?
  • When you burn 1 UST, you get $1 equivalent of LUNA. The lower the price of LUNA, the more LUNA is burned (e.g. if LUNA is worth $1, then burning 1 UST would give you1 LUNA. if LUNA is worth $0.01, then burning1 UST would give you 100 LUNA).
    • As the LUNA price continues to go downward, the more LUNA is minted.
    • As more UST is burned to mint LUNA, the total supply of LUNA just increases even more, because the price of LUNA is lower.
    • This causes an exponential amount of sell pressure since as the LUNA price is dropping, the amount of LUNA that is being minted and sold is increasing
      • Thus if you want to take a long position on LUNA you have to be able to buy huge amounts of LUNA and create huge amounts of buy pressure to prop the price up, while also fighting the exponential increase in LUNA supply
    • This is how the incentive system breaks down. This is why at the current moment, there is not a bid for LUNA. The efficient behavior here is to let LUNA crash and not buy in the face of infinite inflation in the short term
      • The value of the collateral (LUNA) tends to disappear when the ecosystem needs the collateral the most

What are the differences between Beanstalk and a system like LUNA/Terra?

  • In Beanstalk, the first-in-first-out (FIFO) pod mechanism makes Beanstalk antifragile against bank runs. This “Debt” model is way more robust than the LUNA “conversion” model
    • Terra depends on there always being a bid for LUNA (we have explained above why sometimes there can be situations where there won’t be a bid given the exponential death spiral / supply expansion)
    • Meanwhile, Bean relies on the fact that there will always be a bid for someone to buy Pods.
    • The incentive structure of buying Beans to sow Pods is way more robust that the incentive structure of holding LUNA
    • Let’s say Bean crashes to $0.20. The weather would be the same. And now you have even more incentive to buy Bean because you can get it cheaply and get the same weather (or higher) as was available when Bean was $1. And you can basically get 5x your value because the beans are 5x cheaper now. That means as the the price of Bean goes down, the attractiveness of buying Beans gets more and more attractive (whereas LUNA gets less and less attractive because of the threshold limit on UST <> LUNA conversion)
      • In LUNA’s case, when LUNA drops it rapidly descends into a death spiral. For LUNA/UST holders there is that decision point where you either hold or sell while you can
      • Meanwhile, in Bean, buying Beans to sow pods is super attractive when Bean loses peg because you can get the Beans for cheaper and secure an earlier place in the pod line
        • The FIFO nature of pods makes people way more incentivized to buy as well. And the only way to get pods is to hold Beans
    • Pods are also way less friction than the Terra system because you can very easily evaluate the risk/return on pods and price the risk given you lock in a place in line; whereas in Terra you not only have to buy the UST first (which is uncertain), you then have to hope that you will be able to burn it for LUNA given the threshold/limit on this conversion (another point of uncertainty)

Additionally, Beanstalk has the Stalk system and convert which help to make the system even more robust

  • In an ecosystem with a mint and burn system like Terra, all the upside for holding the currency goes to the speculators (the LUNA holders), and there isn’t really any protocol-native utility for holding the stablecoin itself (UST)
    • All the demand for UST was in Anchor which had no stickiness/incentive for UST holders to stay
    • Anchor was completely subsidized for LUNA holders. It was unsustainable, and it was necessitated because there isn’t really any protocol-native utility for holding the stablecoin itself (UST), so it was used to create some utility
    • And the increasing amounts of UST going into Anchor did not create any further stickiness. It was just a bunch of money there that could leave and had no incentive to stay

Meanwhile, the Silo in Beanstalk is super sticky. Through the Silo and the Stalk system, Beanstalk creates a super sticky effect to prevent against bank runs.

  • When you deposit Beans in the Silo, you get seeds and stalk which gives you governance rights and share of future Bean mints. And the seeds give you even more stalk over time as you stay in the Silo (”grown stalk”)
    • This creates protocol native utility for holding the stablecoin
  • If you want to withdraw Beans from the Silo, you have to burn the corresponding seeds and stalk and grown stalk. This creates an opportunity cost around the behavior of withdrawing Beans from the Silo and depositing later. This disincentivizes bank runs
  • Also, the grown stalk you have relative to the total grown stalk of everyone in the Silo creates another sticky effect. If others withdraw, you get a bigger share of total grown stalk, which entitles you to a bigger share of Bean seigniorage from future Bean mints. So that creates even more reason to not withdraw, which disincentivizes bank runs

Additionally, Beanstalk has the convert system which adds to the antifragility

  • BIP-7 introduced a convert functionality, which is an extremely powerful tool to stop bank run
  • BIP-7 (convert) allows depositors in the Silo to participate directly in peg maintenance and maximize their yield by doing so
    • When Price of Bean >1, the convert functionality allows Silo Members to Convert Deposited Beans to Deposited LP Tokens without a loss of grown stalk
      • So this incentivizes people to sell their Beans when price is too high, and not only sell them, but sell them into liquidity and provide liquidity to the system
    • Convert also allows the vice versa to happen (i.e. when Price of Bean <1, Silo Members can convert Deposited LP to Deposited Beans without a loss of grown stalk)
      • If Beans are trading too low (p<1) on an AMM or DEX, that means there are too many Beans in the pool relative to the non-Bean liquidity — so the convert functionality allows people to remove the excess Bean portion of their LP and just turn them into Beans in the Silo
    • The convert functionality has thus dramatically reduced upside and downside in the ecosystem, but even more importantly, has contributed to the quick rise in the liquidity:supply ratio as the Bean supply has increased.
      • What that means is that even though there is more and more demand and Bean supply has started to grow faster and faster, the liquidity trading against Beans is growing significantly faster than the Bean supply.
      • So the system gets more liquid as the supply grows. This really points to longer term sustainability
        • You would think that the limit to which we can bring liquidity is 1 (aka each Bean can trade at $1 at a maximum of 1 non-Bean value of liquidity in the pools, assuming all liquidity is in LP tokens)
          • However, If we make stalk liquid, and have stalk trade against ETH or something else non-Beanstalk native, we can actually achieve having more liquidity in the system than Beans to sell
            • In this case, if people start to withdraw from the Silo, this will burn stalk which will decrease the supply of stalk, which could add even more support to the value of stalk and Beans (yet another anti-reflexive measure)
    • The convert functionality makes it so returning to peg is yield maximizing behavior
  • For all these reasons (FIFO pods, Stalk system, convert functionality), that means when you have a bank run — if the price goes below $1, instead of selling, people should be instead incentivized to buy Beans below $1 to maximize stalk returns and future yield

In comparison, how does Anchor affect UST health and peg?

  • In the Anchor system, people take LUNA, burn it for UST, then deposit the UST into Anchor
    • The only thing that changes here is that UST price goes up and LUNA price goes up
    • So long as the UST is able to redeem itself for LUNA, this isn’t a problem.
    • However, in extreme situations like Bean stalks, the UST <> LUNA redemption is no longer possible because of the threshold/limit.
    • What that means is that all Anchor is doing is accumulating huge amounts of UST that are just sitting in Anchor, and then when bank run happens, there is basically no choice for all this UST to leave the system in a sustainable way (it can’t be redeemed for LUNA because of the limit), which leads to mass selling and a death spiral

Meanwhile, in Beanstalk, the convert system is always willing to increase liquidity in exchange for less future Bean mints.

  • E.g. if Bean is 100 beans above the peg — it’s willing to allow someone to sell that extra 100 beans and sell them into liquidity
  • This creates a super liquid growth mechanism. The growth of Beans directly translates into liquidity, and Bean supply only grows when there is no demand to convert Beans into liquidity
  • Also, convert reduces sell pressure.
    • If we have individuals who have been converting over time and suddenly wants to exit Beanstalk — then by virtue of converting, half of what they are withdrawing has already been sold (from when they entered a LP position). So this reduces sell pressure by half
  • It is important to acknowledge that if the people who convert their LP into Beans to return to peg — if those people start to lose faith, then potentially you can have a larger depegging, as the convert support will no longer be there (be we will still have support from the pod and stalk systems)

Conclusion

  • There can never be a “guarantee” that no matter what this is safe
    • Instead, what Beanstalk can optimize for is to reduce the time between oscillations from when the price goes too high or too low
    • Beanstalk is fundamentally designed to incentivize users to recognize that buying below peg and selling above peg is the efficient behavior
    • Beanstalk makes no promise about stability, but does believe that if the incentives are correctly aligned, it is likely that peg can be returned in an efficient and quick fashion whenever peg is lost
      • Beanstalk is also designed to constantly oscillate just above and right below peg
      • Transcript

        welcome to the beanpod a podcast about decentralized finance and the beanstalk protocol i'm your host rex before we get started we always want to remind everyone that on this podcast we are very optimistic about decentralized finance in general and beanstalk in particular with that being said three things first always do your own research before you invest in anything especially what we talk about here on the show second while you're doing that research try to find as many well-developed opposing viewpoints as possible to get the best overall picture and third never ever invest money that you can't afford to lose or at least be without for a while and with that on with the show on this special episode of the pod we're going to be talking about one of the largest events in the history of cryptocurrency the pegging and collapse of the terrace stablecoin system and its sister coin luna this week amidst volatility in both crypto and traditional markets tara left its peg and as publius will describe began a series of events that resulted in billions of dollars of losses for investors we'll be talking about what happened why it happened how the situation relates to beanstalk and what the beanstalk team has learned from watching the process play out two other quick notes as we get started first this is the first episode being released after publius voluntarily revealed their identities in mid-april because of that you'll be hearing two of the three founders and both speaking without voice modulators so sorry to all of you darth vader fans out there second and on a far more serious note we the pod want to extend our sympathy to those that have lost fortunes due to the terran luna collapse we've heard of a number of individuals potentially attempting to suicide and we genuinely hope that anyone listening now that's struggling will reach out for help professionals at organizations such as the national suicide prevention hotline are available 24 7 if you're in need of someone to talk with and their number is 1-800-273-8255 all right we're in the studio today with two of the three founders of beanstalk collectively known as publius all right so publius obviously a lot of things going on in the crypto markets in general biggest story recently being tara luna um the you know for lack of a better way to put it the the falling apart or destruction of that system huge financial implications lots of technical implications pretty complicated story i was wondering if you would be willing to kind of just talk through a few different ideas around what happened so what happened in general to the tara and luna system what the implications were for them what beanstalk does to to perform differently than the tara luna system and and what makes our system different from that and then maybe what some what are some things that we've learned by watching this experience happen thanks for having us back rex and yes it's been a uh a painful week in crypto and markets at large but particularly in crypto and uh it's always unfortunate to see the dramatic loss of wealth that comes with some of these crashes or all of these crashes and ultimately as you said rex there's a lot of different important lessons that can be learned for anyone working on a stable coin in general certainly but as it applies to beanstalk in particular as well so let's start with what what actually happened let's lay the scene the growth of ust was fueled by anc as we've spoken about before and while the core peg maintenance model whereby you can convert ust to luna for a dollars worth of luna when the price is too low and vice versa when the price is too high you can convert a dollars worth of luna into one ust that model is quite simple it's a basic mint and burn model and the reflexive nature of that system was particularly and why is that system reflexive let's just state so in practice what is uh the ability to exchange when the price of ust is too low for a dollar's worth of luna what is the implicit assumption being made there it's that even if there's not a bid for ust at a dollar people are only willing to pay under a dollar there will be some bid for luna and in particular if there's not a bid for ust at a dollar it doesn't matter where the bid is for luna it just matters that there is a bid in practice where if you have usd you can either sell your ust on the market for a dollar or convert it into luna and sell your luna for a dollar's worth of luna however if we if we go go into a little bit of the problem and the problem with the model and practice was that there was a limit on how much the ust could be converted into luna at any given point in time and so instead of always offering that promise of you can convert one ust into a dollar's worth of luna that as soon as that threshold was reached now the holders of usd need to make a decision as to whether they want to wait until they can convert for a dollars worth of luna recognizing that there's a a an excess amount of demand to convert beyond the threshold or sell their ust at a discount and if we if we take a little bit of a step in towards the actual state of their ecosystem at the time the vast majority of ust was in anchor protocol and receiving a fixed yield for depositing the ust and anchor that that yield was heavily subsidized by luna holders in practice because a dollar of demand for ust someone buying one ust created more than one dollar of value for luna holders that created a nice incentive to to subsidize the holding of ust in whatever way possible now anchor was pretty inorganic in terms of the demand for ust that it generated because the yields were subsidized and unsustainable and so the people that were participating in the system over the past couple of months became more and more aware of that potential unsustainability of the subsidies pertaining to the yield on anchor and so that was what a lot of the discussion has been over the past couple months of whether the anchor yield is actually sustainable and the response from uh the and we're not so in tune with the the timeline of events or who actually did this so we'll be somewhat vague so as to not be uh incorrect uh the the powers that be at in their ecosystem uh made a couple of uh changes uh to the or proposed making a couple changes that leads to the structure of the of their market primarily they were going to change the collateral backing the ecosystem to a partially bitcoin collateralization which is uh interesting because bitcoin is is decentralized however it signaled a very clear move away from the faith that they had in uh luna to function as collateral and so that heightened at least in theory would have heightened the awareness of everyone that the people running the ship are not confident in the current structure of the model so there's a substantive change in the model where they started to collateralize the system with btc and then in addition to that and they did both back to back and that ended up creating sort of this perfect storm uh because the two things were happening at the time the move to btc collateral and they decided to to lower the anchor yield from a fixed 20 percent perpetually to a variable yield and that did change dramatically the risk return profile of the system so you combine the two and that basically created a a potential perfect storm which it appears that someone took advantage of and if we if we start to break down how what it appears actually happened the and why this led to a collapse on the system there's a couple different parts here the first is that the majority of peg maintenance from conversion was done by a very select uh few parties and so in practice all of the people that were in anchor protocol they had some sort of expectation that there was just peg maintenance being done and they they didn't even necessarily need to worry about it per se and the concept was that this run on the bank that ended up being a massive run on the bank that still seems to be ongoing was actually started by a small depegging of the ust price on curve coupled with a dumping of ust on binance and in short that excess supply uh created a enough desired conversions from ust to luna to to reach the the threshold effectively the throttle limit and so if we restate the state of their model at that point you either need you you need there to be bid for ust effectively and you need there to be bid for ust at a dollar and what happened in practice was there wasn't a bid at a dollar in size to recoup the ust price back to a dollar without the ability to convert ust and size to luna and therefore people started to get very nervous and given the the undertones that people were in general already nervous about the sustainability of the anchor yield uh there started to be large outflows from the system from anchor and at the time the deposits in anchor relative to the total ust supply were massive it represented uh well over 50 percent uh i don't know the actual numbers so that's why we're keeping it conservative but a massive proportion of the total supply of ust at the time was in anchor and as you had these outflows from anchor protocol the people that were withdrawing from the protocol then had a choice of whether to sell their ust for below a dollar because it was trading below a dollar or to wait to convert whenever the the gates were back opened effectively and very quickly people started to in mass decide to take the former option and sell their ust at a steeper and steeper discount and thus began the run on ust and of note because you have this convertibility throttle that was limited there was this expectation of infinite future supply on luna and there wasn't an opportunity for the market to quickly clear that ust supply into luna supply and instead there was an opportunity for the lunar market to clear in expectation of all of this ust supply to clear and so that throttle limit in practice ended up being very helpful and protective to the luna holders at the cost of the ust holders and so in practice ins simultaneously you had the collapse of the ust price with the beginning of the collapse of the luna price and given the expected amount of outflows from anchor that started to build up that needed to either be sold at a discount or converted to luna there ended up being a huge run on the luna price as well and the only uncertain piece here is what happened to the bitcoin collateral that they they started to accumulate and that's on remains unclear at this moment because of the uh opacity of the process surrounding that uh that mechanism and that contributes to how people just had faith in in that the system was working and very quickly lost faith so then once you had a a large series of outflows from the the luna market and that started to crash the attraction of holding ust became less and less attractive and therefore that price started to collapse further and thus began the the death spiral that we've seen over the past couple of days so that has played out in rapid fashion in rapid speed and it was all really started by one small run on the bank and you could make the argument that it wasn't the small run on the bank it was actually the strip the state of the protocol prior to the uh the economic attack if you want to brand it that way or just uh you know the the state function the system functioning normally because in theory you should be able to accept a decentralized stablecoin should be able to accept arbitrary amounts of supply and demand and react to it and the amount of ust that was sold on the market to start this bank run was very small in comparison to the total supply of ust and that goes to show the fragility of the system in practice so that's sort of what happened as as we understand it there did seem to be a more sophisticated economic trade that somebody made to try to profit off of uh setting this up and starting the bank run uh that is a fascinating thing to look at but perhaps not the most relevant for this discussion to us there's really a couple different things to talk about at this point one is what are the differences between beanstalk and a system like luna or tara and maybe even more high level is a stable coin is this possible is it possible to create a non-collateralized stablecoin and you in practice ust was was collateralized by luna which was a reflexive collateral which created helped exacerbate this run on the bank but the question is is it possible to to have a system that's resilient to run on banks and doesn't prevent run on banks runs on banks but instead limits them and makes it inefficient for people to participate in the run on the bank and that is the more interesting question to us so so many different ways to take it publish did you have anything you wanted to to add on what happened to tara and luna over the past couple of days or uh you know feel free to comment on anything we've said thus far yeah um you know i think you did a very good job there on kind of giving a good overview of the situation and what happened and you know how we kind of ended up in this place we're in um you know kind of would love to touch a little bit more on what you said in regards to you know kind of the system assumes that there's always gonna be a bid for luna so the question becomes like is there going to be a bid always going to be a bid for luna and you know currently is there a bid for luna and you know kind of why is the price continuing to just kind of fly downward um you know does that mean that there will eventually not be a bid will the price just converge to zero and thinking about it right you look at the number of luna that's minted per each ust burned when you burn a ust you get a dollar equivalent of luna so if luna is you know one cent for each ust you burn you get a hundred luna if luna is one dollar for each ust you burn you get one luna so the lower the price of that luna goes the more luna is burned and essentially what you're seeing right now is you know the current luna supply is you know i think it's around uh 50 billion at this point and kind of what's happening is you know the luna price continues to go downward and as more ust is burned to mint luna the luna that total supply of luna just increases even more because the price of luna's lower and that just causes kind of an exponential amount of buy pressure as you know as the lunar price is dropping the amount of luna that's you know being minted and sold is increasing so if you're someone who's looking to take the other side of the luna bet you either have to be able to somehow buy the price of luna back up so to stop this you know huge amount of you know supply expansion or you have to be willing to kind of fight you know an upward battle of an ever increasing supply of luna being minted now if you are that participant that you know wants to take a hold of luna and wants to kind of help stabilize the price it's not looking like a great bet for you right now because you know you stabilize the price there's still going to be billions and billions of more limbs of luna minted and this is kind of where the incentive system breaks down a little bit to where you look at how bean responds in a similar situation right bean kind of relies on the fact that there's always going to be a bid for someone to you know buy pots to buy the price back up and you look at kind of how the incentive structure around you know sowing beans into pot is versus the incentive structure around accumulating luna and you know kind of with pods being crashes to 20 cents right you have this weather and the weather is the exact same it was at peg so to the system it's still willing to issue the same amount of pods but you're now able to get that at an 80 discount because you're buying that bean at 20 cents and the weather is the same so you know kind of where we're seeing with luna you know the luna price drops and instantly more and more luna is being created and you know minted just you know in salt and it's kind of happens really quickly really fast on the bean side of things bean drops at 20 instead of having all of this you know kind of cell pressure coming from luna and crashing the you know kind of reflexive collateral we actually just have this weather that slowly starts to increment and you know it starts where it is let's say it's at five thousand you know it increments three percent a season assuming no one's willing to buy that uh you know kind of sow that soil and it's a lot more stable in the fact that it takes some time for the weather to increase it's not just gonna infinitely go to infinity and we're just gonna see you know the pod rate go to infinity and so it's a lot more kind of stable in the fact that it doesn't just quickly you know if if you're the person who's sewing beans there is an incentive to sew now and you know with the luna thing it's like do you hold the luna peg now or do you let it go to zero and it's like if you let it go to zero you're going to get a lot more loot and a lot more cheaper price on the bead side of things if you use soybeans now you're going to guarantee your place in the pod line and sure the weather might increase and tomorrow you might be able to get a better deal in the sense that pods are technically cheaper but now you'll be able to secure your spot in when you are redeemed and so you know it kind of helps to alleviate the uh the downside of that kind of problem with the luna price just kind of tumbling down to zero agree with with everything you just said there puglius and would add on to it and we're we're starting to get into how beanstalk's model differs substantively and you hinted or got at one of the most substantive points but you asked a great question which was somewhat rhetorical is there a bid for luna and right now the answer seems to be no but the question is why isn't there a bid for luna it's because everyone understands that there's a massive inflow of luna supply coming because of this ust overhang as you just explained and so the efficient behavior is not to buy luna instead to wait until it goes much lower and all of the cell pressure clears and the price may go to zero before then whereas and that's where the reflexivity comes in the collateral backing the system the value of the collateral tends to disappear at the exact same time that the the system needs the value of the collateral most and that's where this reflexivity has really become the death sentence for for their ecosystem however as publius you were saying in beanstalk the key difference here is the fact that debt isn't functional the collateral if you want to think of it that way even though it's not collateral in any capacity but the the asset class backing the system the lenders that are cr providing that bid for beans if you will uh when when there is excess supply uh they are uh incentivized to bid for beans not for luna but bid for beans as soon as possible and that is because of the first in first out harvest schedule of pods that you were talking about and in practice the game theory around the behavior the efficient behavior for what to do when there's a bankrupt because again it's really important to state state again and again beanstalk cannot prevent a bank run it doesn't make any attempts to prevent a bank run if people want to sell their beans in mass for whatever reason so be it however what the system is designed to do is to limit the growth of the bank runs further and to make it such that at some point the bank runs will stop and the system will return to an equilibrium at a dollar and that is substantively different from the reflexive nature of the terra ecosystem whereby once you enter these bank runs there is no anti-reflexivity native to the ecosystem from an economic perspective because as publius was describing the efficient behavior right now to do is to let the luna price continue to crash and buy it lower because you have this expectation of infinite inflation in the short term so in the case of beanstalk the fact that the interest rate isn't going up very quickly however you have this first in first out harvest schedule combined with the fact that the only way to participate in the pods is to hold beans so there's two there's two potential people here right there's the people that are considering leaving having the run on the bank uh and there is something to be said for maybe the capital has already left the silo we'll talk about i'm sure the incentives to stay in the silo and not leave the bank uh at any time or when the bank run is happening but let's say that this is a liquid bean holder that may sell their beans or lend their beans to the protocol this first and first out incentive structure is very powerful in the sense that they can sell their beans at a discount or they can lend their beans to the protocol for the weather then you have the other side of the market you have the people that are interested in buying the beans and as you were describing uh buying the beans at 25 cents or at 20 cents adds a multiplier on top of the weather so if the weather is a 50x and you're buying the beans at 20 cents that's another 5x you're actually getting a 250x in terms of your dollars spent towards pods received and that's the nature of the anti-reflexivity of the system as the price goes lower the real multiple on capital for participating and lending to the system increases dramatically the lower the price goes and that primarily affects the bid of the system such that as the price gets lower and lower the risk return profile of placing that bid gets more and more attractive not less and less attractive and that's really where the primary anti-reflexivity comes from from a model perspective it is this first in first out harvest schedule and the incentive structure that comes from having debt not be party pasu having no collateral be paripasta or treated as equal as as is the case of luna but instead have this first in first down mechanism where people are incentivized for catching the knife during the bank run and getting in line faster because uh that will ensure that they get paid back faster on their interest and uh when we're talking about a 50x return times five there's obviously significant risk associated with any potential 250x return goes without saying but the main point here is the the return goes up dramatically as the system enters a bank run whereas if you look at the risk return profile of luna right now that is not the case the efficient thing to do is to let the system uh play out because there's no incentive to being the bid right now if you're a bid right now that definitely is inefficient behavior from an individual perspective so that may be what the system wants you to do but it's inefficient to actually do whereas the first and first out harvest schedule really does create that behavioral incentive to act and that's the the core the core mechanism being stock as a credit-based system is this lending model and so that's the first thing that needs to be focused on but as we as we kind of work through how beanstalk works uh there's a couple other pieces uh there's two other main pieces we would say one is the stock system and two is convert that really work hand in hand with the lending structure to to to create uh an anti-fragile system so maybe before go ahead go ahead publish yeah so just yeah i guess before we go on one more point wanted to amend on there you know kind of we talked about how you know buying and sewing beans at 20 cents multiplies your return by 5x now in the core luna model that is technically still true for ust in the ust model if ust is 20 cents you should theoretically be able to redeem that ust for one dollar of luna and be able to sell for a 5x in a similar structure that we you know described with the sowing your beans so the question is you know why aren't we seeing that in practice you know if ust is 20 cents why aren't people buying that converting that at a dollar and this goes back to what police was saying about first off the throttle limit you know it kind of is akin to what we are seeing with esd to where there is no first in first out model you know kind of with esd there was the problem of if you buy debt there's no promise on when you'll be able to redeem your debt you can be the first person to die to buy debt and be the last person to be able to redeem it because there's no guarantee that when you buy your debt of when you'll be able to redeem it and we're seeing a similar thing with ust here because of the throttle if you were to buy ust at 20 cents you would be competing with all the bots in the system to be able to redeem that at some point and that kind of makes it a much more risky bet because you're buying ust and that's only the first half of the battle the second half of the battle is competing to redeem that into luna and then the second side of the coin is you know kind of the bid for luna we've talked about if you buy ust at 20 cents you have to then fight to basically be able to redeem that luna or ust into luna and then you have to be able to sell that luna and given price of luna is just spiraling downwards you know the market seems to be saying that they don't think that the price of luna is gonna be you know uh greater than 20 of its current price by the time you're able to buy ust redeem it and sell it so kind of not even 20 of its current price but but just 20 of the price that you'll get whenever you can redeem it which more reflects in my opinion the fact that there's an expectation you'll never be able to actually convert you'll just be throttle limited in perpetuity until luna is worthless and this really is a great point that you highlighted publius which is that beanstalk because of the first and first out harvest schedule allows people to lock in their price lock in their return it's a one-step thing you understand exactly what implied future market cap or market future supply you will be paid back at and you can lock it in and there's no second step there's no additional risk thereafter of whether you'll actually get paid back whether people will cut you in line in the case of esd whether you'll need to convert in the case of ust so you're totally right this is a key point that from a decision-making perspective people can actually price the risk people can say okay there's a risk i lose all my capital and never get paid back there is obviously a secondary market for pots which has been a game changer for the ecosystem but what from a lending perspective you may never get your capital back but if you do you know exactly what your return will be whereas in the case of ust this this ambiguities to whether you'll ever be able to convert and convert to luna and when you do whether there will be a bid on luna whatsoever that is what creates the additional friction and it's certainly a friction that was evident in esd as well very good point yeah i was just going to say you know i feel like we've kind of explored i mean i guess publius anything else you want to say and specifically to in regards to specifically the core peg maintenance mechanism of beanstalk versus terra and you know kind of the conversion model versus the debt model so the other thing that's important to note and and this does relate to now talking about the other side of the bean stock market which is the silo the dow the stock system is that the ecosystem in a mint and burn system like terra is such that all of the upside for holding the currency goes to the speculators goes to the luna holders and there's very little protocol native utility for holding the stable coin itself and if we think about how in theory there's nothing perhaps that would cause this type of run on the bank in their system if all of the demand for their ecosystem and for ust was truly organic and the result of high product market fit and stickiness you may not have a run on the bank but the reality is that all of the demand for ust or the vast majority of it was an anchor protocol which had no native stickiness whatsoever and no no incentives built in to stay whenever you had a de-pegging event and in fact the fixed apy made it very easy to price well what is my expected sell price on ust compared to my expected yield that i'm receiving and the fact that ust was depending aggressively changed the the calculus very easily for people to say yeah got to get out of here as quick as possible because the future upside for staying is not great enough and this is where the silo and we do give esd a lot of credit because they they facilitated the deposit of the stable coin in the dow but there was no stickiness that they had so whenever the price was below a dollar whenever you enter these runs on the bank scenarios if you will or even not a run on the bank but just that there was no senior edge it tended to create a run on the bank because there was no incentive to stay deposited in the dow and so beanstalk uses the stock system to create a highly sticky effect on user behavior to refrain from participating in bank runs so in practice how does it work when you deposit assets in the silo and you can deposit beans or lp tokens you receive stock and you receive seeds stock is the governance token and entitles you to participate in voting and it also entitles you to a portion of being senior rich so anytime the bean supply increases a portion of the bean supply goes to paying off debt and a portion of the bean supply goes to paying stockholders uh prior to the attack it was 50 50. after the attack it will be a third to old potholders a third to the new uh lenders that participated in this private uh or the recapitalization we should say and then a third to stockholders but the concept is just for holding beans or holding lp tokens that beans trade in you receive stock which entitles you to senior rich and the seeds that you receive upon deposit yield more stock over time in a linear fashion and so individually there's a there's an incentive structure where the whenever you withdraw your assets from the silo if you're participating in a run on the bank or you're just uh withdrawing your assets in any normal case scenario for whatever reason you have to forfeit all of the stock seeds and stock that has grown from seeds associated with the deposit and that creates an opportunity cost around the behavior of withdrawing from the silo and then redepositing your assets again at some point in the future because of all of the grown stock that you have to forfeit which you've received for staying deposit and the opportunity cost increases the longer an asset has been deposited in the silo now the there is this individual incentive that has shown at in the market to minimize people's participation in bank runs but it's really important to get into at the margin how at its current scale it probably doesn't have this effect but at a much larger scale particularly in a market where there's uh liquidity for stock you you would see this additional layer of anti-reflexivity play out which is the benefit your your grown stock the stock that you've received for being deposited in the silo or having assets deposited in the silo for a longer period of time that opportunity cost is can be evaluated in terms of opportunity cost relative to others for withdrawing and so the grown stock that you have relative to the total grown stock meaning your bonus compared to everyone else's bonus increases as people start to leave the silo because people start to forfeit all of their grown stock all of their bonus and therefore your bonus relative to everyone else's bonus or new participants in the system increases and so the concept is at the individual level as other people start to exit the system the stock system creates an incredibly sticky economic incentive to stay and to not withdraw your assets and participate in the bankrupt and we'll get into convert and how convert facilitates the participation of peg maintenance from these uh dow members but just before we even get to convert and and all of that think that the the the core because convert was introduced after beanstalk was launched so i think it kind of makes sense to talk about that after but just from a core mechanism design feel like the lending and first in first out harvest schedule we discussed and the stock system are the two primary pieces of the stability model that were a part of beanstalk prior to its uh deployment or at the time of deployment and then convert would be the one that was added after that so uh published do you have anything you wanted to add uh on the stock system yeah nothing specifically um you know at the beginning you highlighted that esd did not have any sort of long-term stock incentive but you know think it should also be mentioned that anchor did not either um if anker somehow had baked in some kind of you know long-term incentive to stay in during bank runs who knows maybe the you know the uh the magnitude of the sell-off from anchor might not have been as much you know kind of you look at the anchor deposits right you know it kind of maxed out at around you know 14 billion ust and instantly just spike downward um if we were seeing a case where long-term participants were you know maybe a little bit more wary to withdraw because of you know kind of the long-term you know some opportunity costs that they've gained from being a long-term participant we might not see as much of you know a withdrawal and sell-off as we did and you know kind of going back to the esd bank run this is exactly what we saw you know esd the price goes below one you're not not going to withdraw why would you stay deposited um and you know so you know kind of that that is what was sought to be solved with the stock system i also want to talk a little bit you know maybe taking a further step back and you know touching a little more and you discussed as why ust or in terra needed anchor at all and you know why they needed a 20 fixed rate interest for their stablecoin and it goes back to some points publius brought up as we were discussing the peg maintenance mechanisms is that you know you receive no upside from being a ust holder in the supply of ust and when you go look at other stable coins out there like frax and you know an undercollateralized model it's still very collateralized you know die mim liquidy alchemics these collateralized staple coins they all kind of max out at a supply limit you know die has had a very hard time pushing above you know i think their max was like 9 billion but you know their supply is always going up and down frax is kind of stuck at you know believe it's somewhere between two and three billion you know mim is also kind of stuck between one to two billion and the problem is you know it's easy to scale up to you know around a billion or so and in that kind of billions range but to go to the next level you truly need some utility in order to just pump the supply up get more people holding the supply and anchor was tara's solution to this you know being an uncollateralized model they didn't need to attract more collateral which you know would argue that if there is a sufficient enough yield to be made you could potentially attract more collateral but you know they needed someone to be actually holding the ust and doing something with it and their solution was anchor this you know completely unnatural system that creates artificial demand and is subsidized you know by the holders of luna and in particular the thing to note here is that that growth was highly unsustainable in the sense that the demand for anchor to put ust in anchor didn't increase the state the sustainability of the system in any way meaning the liquidity in the system didn't necessarily scale uh for ust or for luna along with the demand for ust to sit in anchor doing nothing right so you had all of this ust effectively collecting dust that when it all wanted to run for the exits there was no liquidity to match it with and this was largely because anchor was not product market fit it was heavily subsidized and so as public said while it facilitated the growth of the ecosystem to higher peaks it also facilitated a much quicker unwinding of the system because there was there was no reason to stay deposited in anchor and the thought of how to add stickiness to anchor is certainly you know that might have had some effect unclear given all of the other problems whether that would have been enough but obviously uh lots of different places for improvement so the other thing to talk about that this lends naturally to is well how does liquidity for beans scale as the supply grows and this is where convert comes into play and in addition to the stickiness of the stock system and the natural anti-reflectivity of the lending system because of the first and first out harvest schedule the convert functionality that was introduced in bip seven is probably the most powerful tool to stop bank runs in a shorter period of time meaning the the first in first down harvest schedule and the soil system the lending model all of that is more of a long-term response it's a slow-moving system the weather doesn't increase uh particularly fast as publis was saying and so if the market needs the interest rate to increase dramatically to clear all the soil so be it and similarly the stock system uh while during a bank run it does have that nice anti-reflexivity that we mentioned the effectiveness of the stickiness really builds up over time and the longer assets are deposited in the silo the more meaningful the stickiness as opposed to convert it's kind of your hard and dirty bank run resistance and what what so first let's say what is convert convert is the ability for depositors in the silo that have deposited beans or deposited lp tokens to participate directly in peg maintenance and maximize their yield in doing so so when the price of a bean is too high any bean depositor can convert their deposited beans to deposited lp tokens with without a loss of stock in particular the grown stock so there's no opportunity cost associated with selling your beans when they're above a dollar and so in in essence beanstalk incentivizes people to sell their beans when the price is too high but not just sell their beans sell them into liquidity and then provide liquidity to the system and then vice versa when the price is too low beanstalk offers similar incentives to convert meaning no loss of grown stock for converting your deposited lp tokens into deposited beans when the price is too low and just as a caveat we would note uh there is one potential friction point here where uh under the current rules the there is a potential loss of stock when converting from lp to beans if the bean denominated value of the lp position has changed but think that that's something that via a bip can be changed to minimize such that there's no friction on downside converts whatsoever but nonetheless uh the ability to convert from lp to beans has in practice been highly efficient at uh reducing downside volatility to a large extent now how does that work in practice well the concept is that if you have beans trading too low on an exchange on a dex in an amm what that really means is that there's too many beans in the pool relative to the non-bean liquidity and so convert when the price is too low is just the ability for the people that have the lp tokens that are in part b instead of overweight beans to just remove the bean portion that's overweighted and leave them as deposited beans in the silo and so the concept is that when you have a bank run uh certainly the price may go below a dollar as we've said and we'll say many times again if people want to sell their beans below a dollar uh so be it there's nothing anyone can do to stop them but the concept is people should be incentivized to buy their beans below a dollar to maximize their stock returns effectively and maximize their future yield so certainly there's always this question of should we should i run for the exit should i participate in this bank run should i leave but if you're gonna stay beanstalk offers all of these different incentives to maximize your yield for staying and that the convert functionality has been really it's hard to understate the importance of it to beanstalk success since it was implemented in december it's dramatically reduced upside and downside volatility in the ecosystem but more importantly has contributed to the quick rise in the liquidity to supply ratio as the bean supply has increased and what that means is even though there's more demand for beans and the bean supply has started to grow faster and faster and faster the liquidity trading against beans the depth of liquidity is growing significantly faster than the bean supply so the system is getting more liquid not less liquid relative to the bean supply as it starts to grow and that we would point to as a real proof of concept in terms of potential longer term sustainability wear in theory you would say well there's a limit of one right each bean can only trade uh at a dollar at least of a maximum of one non-bean value of liquidity in the pools uh assuming that all of the assets in the silo and all the beans that are liquid are nlp tokens and that's the kind of the limit however if you introduce stock into the ecosystem liquid stock and now you have stock trading against eath or another acid as well the concept is you can actually have more liquidity in the system than beans to sell so there is a way to break through that 100 percent limit such that the system can be uh scaling down its liquidity in a variety of different ways as the system deleverages and if we go back to how people will be burning their stock during a bank run and the stock supply will decrease dramatically you can think that if there's a significant amount of non-bean stock native liquidity trading against stock the decrease in value of stock or the decrease in supply of stock excuse me will do something to counter the decrease in value of stock and the decrease in value of beans so another potential layer of anti-reflexivity is introduced there whenever stock goes liquid and this is all uh due to the the convert functionality within the silo whereby people can take their deposited assets and turn them into lp tokens when the take their depository beans and convert them when the price is too high and then when the price is too low do the reverse to to maintain the price at its peg buy the beans too low sell them too high and you can see how this is yield maximization behavior for users that believe in the long-term success of the system to participate it so publius gave a great overview of convert there so now to kind of take that and compare it to what we're getting with anchor from a system health perspective how is anchor impacting the ust you know kind of uh you know the peg health and stability in the long run so with ust what happens people take luna they burn that luna for ust and they deposit that ust into anchor how is the health of the ust peg changed because of that the ust supply has gone up and that's about it the lunar price has also gone up and now the question becomes you know what is that ust to you know kind of the ust peck is that positive is that negative and is that a risk and to kind of quantify that you know kind of so long as that ust can then go redeem itself for one dollar of luna and that's guaranteed that extra supply is not necessarily a problem however as we've seen with the luna model in the past few days there are instances where in extreme stress tests like bank runs that you can no longer take that ust and get a guaranteed one dollar value of luna that you can then sell and so what anchor has you know all it's doing is instead of helping to contribute to a long-term sustainable system for ust it's just maximizing supply people are just burning more and more ust the lunar price is going up great this is all this is all fantastic right until we look at how anchor reacts on the downside when luna's going down when the ust supply is going down we're seeing this extreme net supply this positive net supply sitting in anchor that has nowhere to go it can't be redeemed for luna because of the throttle limits because of the fact that the lunar price is crashing so the only thing you can do is sell it and you're selling it at a loss and now there's basically all this extra ust out there that's unable to leave the system in a sustainable way and now compare that to the convert system that puglia has just described the convert system is always willing to increase its liquidity in exchange for less future beam mints right let's say bean is a hundred dollars above 100 beans above the peg it's willing to take the extra 100 beans of liquidity meaning you know sell that and add liquidity with it which would i guess be 200 allow someone to do that no protocol but a lot totally totally but it's always willing to let someone do that to where now beanstalk will not mint those extra 100 beans but instead it will have you know 100 beans and 100 of some other non-bean asset in the liquidity pool so it's built to optimize around a healthy equilibrium of liquidity and supply it's always willing to sacrifice supply for liquidity assuming there's a user willing to take that side of the bat and that's also an important fact you know and thank you publius for that clarification there is that you know if there isn't a farmer out there who wants to take that side of the liquidity that they don't have to and that's okay and that would be the case where now you have excess demand right no one's willing to sell their beans the price is too high and that's when minting really happens and so then the new senior ridge is getting distributed to all the stockholders and people then continuously can sell their new beans into lp within the silo and so this creates a very liquid growth mechanism right where the the growth of beans directly translates into liquidity and the bean supply only grows when there's no desire to sell beans into into liquidity yeah and just would say there's also this effect to where you know let's say we have a group of individuals who have been converting their beans over time right and now one of those individuals wants to exit right they exit and they have liquidity half of their being half of their half of what they're withdrawing is already sold they've already converted those earned beans into some non-bean asset and so the cell pressure from the individual leaving the system is only half of what it could have been if there was no convert functionality meaning they were just accruing more and more beans they're going to have to sell their entire position when they exit but now they only have to sell half their position whereas there's you know maybe a you know complimentary individual who when that individual leaves the system is willing to take their lp position and convert back to beans and so they kind of counteract each other to where long-term participants have that lp to buy back you know uh exiting supply from you know kind of participants leaving the system and participants leaving the system don't have to sell 100 of their position as they've already sold half of it in you know entering a liquidity position instead of a bean position correct whereas all of the ust that flowed out of anchor was straight ust and it was selling into very limited liquidity exactly right so it is important to acknowledge though even if the liquidity is at the limit of a hundred percent if you have you could have people that convert their lp into beans and return the peg but if those people start to lose faith that's when you can start to have potentially a larger depending if that makes sense the original with downside converters they start to leave the system that's when things start to get a little bit more of a tight crunch and then you'd expect the lending model to take uh take center stage so at a high level there is obviously when you get into these bank run scenarios the the obvious potential for further cascading scenarios where people sell but people leave the system and sell but the concept is from multiple different levels the the cell pressure and the nature of the cell pressure is designed to be as minimally effective to the health of the system as possible as a result of the convert so if the system has 10 billion beans in the supply trading against 10 billion non-beans of value it's at that 100 percent limit and now you have a billion or two billion beans sold on the market uh the system can just re uh due to convert the system can just reorient itself where now it has two two billion beans in the silo and then eight billion beans trading against eight billion dollars of liquidity in the silo so now you have additional beans again if those people that were converting they start to sell and leave the system that's where you do get into a more insidious negative feedback loop but as long as there's demand to convert the system should be able to sustain itself so there's lots of different layers to how beanstalk ultimately responds think that it is really important to note as we've been talking for almost an hour now about how beanstalk does respond in these types of scenarios that there is no silver bullet here and there is no guarantee ever that the system will be sustainable you you don't really necessarily get to that point where it's like oh this is this is safe no matter what instead instead beanstalk is designed to regularly oscillate the bean price above and below a dollar it's always going to be too high and too low that's how it's supposed to work and so the real question is just what does the time between oscillations look like how long between when it goes too high does it decrease below peg and when it goes too low how long until it goes back up and then the second question is what does the volatility look like on on the downside and on the upside and how much does the bean price actually change relative to its peg price and in short bean stock doesn't really care about either instead it's designed to incentivize users to recognize that if if the price is going to increase and decrease above and below peg again and again as more of the users have faith that buying below the peg and selling above the peg is the efficient behavior that that should over time decrease the oscillations and the volatility of the oscillations and increase the speed uh between oscillations or decrease the time between oscillations maybe it's a better way to say it so beanstalk makes no promises about stability it if anything is highly likely to sustain uh very volatile periods of time in its future that kind of goes without saying being a non-collateralized system however and it is a big however the concept is that if the incentives are sufficiently aligned for individual participants such that you can minimize the extent of the bank runs and stop them at some point and get people to lend to the protocol at some price the protocol should be able to return the bean price to its peg at some point and the more that it does it uh the more frequently it does it the more uh times over longer periods of time that it does it the more likely it is that people are gonna be comfortable buying low and selling high and that is going to decrease over longer periods of time the volatility and and and that's important it's important that people that are participating in beanstalk recognize it's not actually like a hard peg system of stability instead it's a system that is long pegs to stability and is designed to minimize volatility as much as possible but in fact welcomes it to a large extent completely that's a great point and i guess you know one final out of station on the convert side of things is you know kind of publius was talking to the potential of you know converters converting lp into beans and then selling you know we have been very reserved and the whole bean community is about kind of you know deciding what the incentives are to convert on the downside and you know to something publius brought up earlier you know currently there are situations where you would actually lose stock on that convert up and that we're considering changing but you know we don't want convert to be incentivized incentivized enough on the downside to the point where it's always an advantageous position to be converting because that's what causes those people who don't understand why convert matters to start converting and starts to we get into that case where people convert on the downside because they think it's strictly beneficial because the incentives are aligned for people to instantly convert and then just withdraw and sell um which is not necessarily the the system we want we want people who are why but let's say why it's because if if you make it such that as soon as the price is below one people are incentivized the system will pay you to buy it back instantly that imposes a higher cost to the system relative to allowing people to sell at 95 cents sell at 80 cents so when you have these runs on the bank the question is what is the extent of the incentives that need to be offered such that maybe people buy at 99 cents and convert maybe people converted 80 cents right so if the protocol is going to pay you infinitely amounts of money to convert in all cases that may not be advantageous because then that becomes a lot more gameable i think that's the main point completely and you know it goes back to the point we always bring up you know if x happens and you say you'll do y it can be manipulated by swing traders and the idea being that you know it's unclear each each silo depositor stockholder has their own kind of profile when they are comfortable converting and maybe they're not comfortable converting at all maybe their strategy is to withdraw when a certain price hits withdraw their liquidity and that is kind of the point of how we create this convert system that is not necessarily as gameable or as manipulatable as other systems have been um and i guess you know kind of one one final point to say on this is you know was listening to a bankless interview with italican you know they basically asked him about the stablecoin fiasco and he said you know um anyone can hire a market maker up to a certain size and a market maker you know with significant enough liquidity can maintain the peg of a stable coin and you know with beanstalk we're trying to solve that problem of creating a stable coin you know that is uncollateralized and doesn't require some larger you know kind of some large capital some large funds or whatever to be the main maintainers of the peg arbitrizing it arbitraging it on the upside and downside we're trying to create an incentivized system for everyone who is a stakeholder in the system to be actively participating together in helping to maintain the peg as it's in their best interest and they're actively getting yield in benefiting from that they're the people who are maintaining the peg and benefiting from the peg being maintained as aside from a bunch of people just holding the token and other parties who are just large stakeholders participating in peg maintenance you know you look at the case with ust right when ust was below one you know say some say there's a large market maker out there you know they buy and what is the upside to that buy the only upside is if they're able to consequently sell above one and make a profit or if they have some stake in the system such that they're incentivized to maintain long-term health that's capital inefficient because these people have to hold some stake in the system and have additional capital to help participate in peg maintenance right and that requires double the capital because you know you need a significant enough stake to be willing to put up you know some amount of capital to participate in peg maintenance and to be willing to put up more capital and peg maintenance requires you to have an even larger stake with beanstalk the capital you use to participate in peg maintenance is your stake they're the same thing by having a stake in the system you're able to participate in peg maintenance and to us that is what is more capital efficient and you know why we think bean stock has the potential to behave a lot better in the case of a large bank run and you know potentially has the potential to be resilient over a long term that's fantastic information insight thank you so much publius our pleasure thank you rex as always