Thread by @The_ReadingApe

Beanstalk is a decentralized credit-based stablecoin protocol and we're going to focus exclusively on the dynamic peg mechanism of @BeanstalkFarms.

How does the stablecoin $BEAN maintain its price? To understand that, we have to talk about riding a bicycle 🚲

@BeanstalkFarms When you're riding a bicycle 🚲, you're never really in a balance all the time. You're always making adjustments like tilting the handle and shifting your body weight. An experienced rider will make these adjustments subconsciously and the bicycle appears to be balanced.

@BeanstalkFarms But it is really just these 3 steps repeated continuously:

1⃣ Bicycle tilts to one side
2⃣ Make adjustments to tilt it back
3⃣ Balanced for a short while

It's 1⃣ -> 2⃣ -> 3⃣ -> 1⃣ ... repeated Ad Infinitum

@BeanstalkFarms Before we start explaining the price peg mechanism for Beanstalk, let's refresh our memories with some of the terminologies used in the protocol:

@BeanstalkFarms Beanstalk does almost the same thing to maintain the price peg of @BEAN to $1.

There are 4 adjustments that it can make to the system:

1⃣ Increase the Bean supply
2⃣ Increase the Soil supply
3⃣ Change the Weather
4⃣ Sell Beans on Uniswap

@BeanstalkFarms @bean At the beginning of each Season, the Beanstalk price oracle is called up to check the price of $BEAN.

If the $Bean price is too low:
🔸 Soil supply increases
🔸 Weather increases

People are incentivised to sow more Beans to get Pods, supply drops and the $BEAN price goes up.

@BeanstalkFarms @bean People are incentivised to sow Beans immediately because Pods ripen on a First In First Out (FIFO) basis. There is a Pods queue line where the Pods in front of the line has to ripen first.

Hence the sooner the Beans are sowed, the faster Pods ripen, the higher your returns.

@BeanstalkFarms @bean If the $BEAN price is too high:
🔸 Bean supply increases
🔸 Weather decreases

To increase Bean supply, new Beans are minted with 50% going to Silo Members and 50% going to Pod Harvests.

@BeanstalkFarms @bean Beans are distributed to the Silo Members based on the amount of Stalk held by the Members as a percentage of the total outstanding Stalk.

As the Beans supply increases, the price of $BEAN falls, and the price peg is restored.

@BeanstalkFarms @bean In order to prevent extreme inflation, there is an event called the Season of Plenty.

This happens when:
🔸 Price of $Bean > $1
🔸 Debt level < 5% for 24 consecutive Seasons

Beanstalk will mint enough Beans and sell them on Uniswap for $ETH

@BeanstalkFarms @bean Doing so will bring down the price of $BEAN back to $1. $ETH will be rewarded to Stalk Holders and they can be claimed immediately.

We've done up an infographic to wrap up the entire mechanism in one cool chart below:

@BeanstalkFarms @bean There is a soon-to-end NFT project built on top of Beanstalk - BeaNFT Genesis Collection.

🔸 Up to the top 10 sows in a Season are eligible for an NFT
🔸 NFT has different rarity levels based on the unique Sow transactions made
🔸 Starts at Season 1200 and ends in 1800

@BeanstalkFarms @bean The NFT has utility as well:

🔸 Grants exclusive access to a Discord channel
🔸 NFT holders will have voting power over BeaNFT fee distribution
🔸 More details can be found here:
medium.com/@BeanstalkFarm…

@BeanstalkFarms @bean This wraps up our thread today. There are nuances not mentioned here but interested readers can pull up a copy of Beanstalk's whitepaper here: bean.money/About/beanstal…

You can also join their Discord here: discord.com/invite/y4cJNv5…

@BeanstalkFarms @bean To view the long-form article that this thread is derived from, you can read our substack article here:
thereadingape.substack.com/p/beanstalk-dy…

@BeanstalkFarms @bean Like our work?

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Stay strong, apes 🦍💪

~ End Thread