Beanstalk FAQ
Unofficial Beanstalk FAQ
You’re reading the old FAQ!
Updated FAQ here:
What is Beanstalk?
Beanstalk is a protocol that issues a decentralized credit-based stablecoin called $BEAN. The value of 1 $BEAN is algorithmically pegged to $1.00 US Dollar.
Why do we need $BEAN? Why is it different from other stablecoins?
USDC and USDT are reliant upon Coinbase and Tether. Regulation, mismanagement, or a host of other problems could cause these centralized systems to fail. Other stablecoins like DAI need collateral in order to be used. Beanstalk doesn’t need any collateral, and it’s completely decentralized.
Beanstalk, if successful, will dominate the $100B+ potential stablecoin market and become used in a variety of other protocols and DeFi applications.
Simply buying and staking $BEAN will enable anyone in the world to have a high-yield interest account on US Dollars not controlled by a centralized institution.
How does Beanstalk work?
Beanstalk is an Ethereum protocol that rewards users for taking certain actions to keep the stablecoin ($BEAN) at its $1.00 USD peg. When the price goes below the peg, Beanstalk issues debt (called pods) that you can buy at a one-time fixed interest rate. When it rises above the peg, Beanstalk prints more $BEAN’s which lowers the price. Those new $BEAN’s pay back the debt and reward people who have staked their $BEAN’s. There’s a link to the whitepaper at the bottom of this document which explains the protocol dynamics in detail.
How can I make money with Beanstalk?
A great way to get started is by staking $BEAN’s into Beanstalk to start immediately earning interest. The other way is by buying bonds that Beanstalk is offering which at the time of this writing (10/18) have an interest rate of over 1,500%.
That sounds too good to be true. How am I getting a 1,500% return?
Because Beanstalk is quite new, the protocol has to increase the reward to make it “worth it” for those who are taking a risk buying bonds from a new protocol. The interest rate will continue to rise until it’s high enough that people feel comfortable lending to the protocol. Over time as the protocol matures and users perceive less risk the interest rate will fall significantly.
So should I lend debt (sow) or stake $BEAN’s (silo)?
From a strict returns perspective, you can make a lot more by “sow”-ing or buying debt from the protocol. However, because the protocol is so new it’s hard to give a confident estimate of how long the debt could take to be paid back. It could be 2 weeks, or it could be 2 months or longer. The interest rate is an “illiquidity premium” and that’s why it’s so high. If you _really_ want to sell your bonds, you can do so OTC in the Beans discord, but there isn’t a decentralized way to do so at the moment. So it’s not “true” illiquidity, but that’s why the rate is so much higher.
Staking returns are about 70-100% APY right now based on by back of the napkin math and are poised to be much higher as Beanstalk ends it’s current debt cycle. When you stake, you have 24-hour liquidity and your returns compound as you earn more stalk (governance token for Beanstalk) and seeds (which turn into more Stalk). Eventually, stalk and seeds will be ERC20 tradeable.
I’m in. How do I sow and Silo?
Go to http://bean.money and connect your wallet.
To “sow” (buy bonds from Beanstalk) at what is at the time of this writing a ~1,600% interest rate, enter the amount of ETH you want to sow in the “sow” field. Beanstalk will automatically calculate how many “pods” you get. When you press sow, you’ll get that amount of pods at the latest spot in the pod line. Debt is paid out on a first in first out basis. You can view your amount of sown pods under Analytics.
-To Silo or LP and start earning interest, stalks, and seeds navigate to the Silo and deposit ETH or Beans in the Silo.
How is Beanstalk different from ESD, DSD, Basis Cash?
ESD was really cool and innovative. Some rules they implemented that were positive inspirations for Beanstallk: In order to receive interest from supply growth, you had to either lend ESD to the protocol, or lock your ESD in the DAO. They also had a lockup period for removal from the DAO. This is a similar core mechanism to Beanstalk. DSD made marginal improvements on ESD, but made the epoch time 1 hour instead of 1 day. This was a significantly better UX and a more accurate price sampling method, which allowed DSD to steal some market share from ESD. In practice, they also had a lot of economic issues.
1. Bootstrap: They both set a fixed epoch TWAP price for a fixed number of epochs, which created a fixed initial supply schedule. While both projects did successfully complete debt cycles, the bootstap greatly increased the supply over real demand for the currency, which ultimately set them up for failure. Beanstalk has no pre-defined mint schedule, and tries to only mint enough Beans to meet demand.
2. Supply increase size: Similar to Basis Cash, both ESD and DSD minted supply based on the price*total supply. For DSD, they did that amount divided by 24, to compensate for the 24x increase in epoch frequency, but in practice is was the same formula. Using total supply and ignoring the liquidity pool (which is the source of the price) resulted in massive over-inflation during epochs where P >>> 1. When TWAP > 1 for a Season, Beanstalk increases the supply by the time weghted average shortage of Beans in the liquidity pool over that Season.
3. Debt market: The rate of return for burning ESD/DSD was predefined based on the debt level of the protocol at the time of burning. In general, any sort of pre-defined reward schedule is bound to be inefficient. Additionally, the debt schedule did not factor in price or demand for debt at all. Beanstalk does not predefine an interest rate for Sowing (burning) Beans, but instead lets the market set the rate. Every Season, Beanstalk measures the TWAP, debt level, and changing demand for Pods (debt) and adjusts the Weather up or down accordingly. This is a reactive process designed to quickly adjust to market conditions. 3.a. Burning ESD/DSD raised the debt level, which increased the rate of return for future burners. This created a tragedy of the commons problem, where my burning tokens right now actually gives other people who wait a higher interest rate. This disincentivized efficient token burining. Beanstalk uses a FIFO Harvest (redemption) schedule, which incentivized Sowing Beans (burning) in an efficient manner: any time the interest rate is sufficiently high such that a Bean holder thinks it is a good time to Sow, they are incentivized to Sow as fast as possible, so as to be as close to the front of the line as possible.
4. Withdrawing from the DAO: When P < 1, there was no incentive to leave your ESD/DSD deposited in the DAO. Beanstalk uses the Stalk system to create opportunity cost for leaving the Silo. Upon deposit, you receive 1 Stalk and 1 Seed for each Bean you deposit. Every Season, each Seed yields an additional 1/10000 Stalk. In practice, if you withdraw assets from the Silo, and then redeposit them, you will own less of the Silo than you did before because you have forfeited all the Stalk that has grown from Seeds while your assets were deposited. This creates a significant incentive to leave your assets deposited, even when there is no sign of short term inflation.
More Questions?
Join the Beanstalk Discord: http://discord.gg/y4cJNv5DTM
Or ask me questions directly on Twitter: https://twitter.com/bean_merchant