Thread by @rektdiomedes

Thread: An Idiot’s Guide To @BeanstalkFarms

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Alright my good frogs + frens … here is a thread and some #FrenchChart on a very fascinating protocol called ‘Beanstalk’ :)

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@BeanstalkFarms is a stablecoin protocol on ETH L1 that has been around since last fall…

Its stablecoin, $BEAN, currently has a market cap of $50M as per @coingecko.

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‘Beanstalk’ is not an off-chain backed stablecoin like $USDC, nor an on-chain collateral-backed one like $DAI or $MAI, nor a partially-collateralized one like $FRAX.

It is more similar to...(cont)

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...$LUNA and $UST, and also somewhat reminiscent of $TOMB. Its exact mechanisms are unique though, and imo should be taken on their own, as it is clear the devs put a lot of thought into how everything works, and the protocol has been quite successful so far.

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Some people dislike stablecoins that use these type of mechanisms, but @BeanstalkFarms team member Publius does a good job of explaining why such stablecoins are needed within the defi space in this video, which is well worth watching:



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Some other gigabrains have done an incredible job breaking down the math and other complexities within the protocol, so I am going to instead try to explain it in the most simple, dumbed-down terms imaginable.

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I’m also going to do so within this aesthetically pleasant framework of a “Farm” that the Beanstalk protocol has developed :)

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We begin at Beanstalk Farm, where a small colony of hard-working stablecoin-farmers work hard to keep the $BEAN stablecoin always at $1, while growing its use and utility within the world of defi.

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Near Beanstalk farm are two local markets – Uniswap and Curve – where $BEANS are traded.

If they wish to do so, Beanstalk farmers can combine $BEANS with $ETH at Uniswap market or w/3CRV at Curve Market to build an ‘LP token’.

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Back at Beanstalk Farm, these ‘LP Tokens’, as well as plain regular $BEANS, can be ‘staked’ inside “The Silo”.

In return for staking them, farmers receive another ERC-20 token called $STALK, and an in-protocol only commodity called ‘Seeds’ (which slowly grow into $STALK).

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Owning this $STALK earns farmers a proportional share of the $BEAN rewards that are given out when $BEAN is over its $1 peg.

Owning $STALK also gives governance rights.

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One important note – if you unstake from “The Silo” (which you can only do after 7 hours fyi (soon to be 4)) - you lose all your $STALK and ‘Seeds’.

This incentivizes people to keep staking (liquidity provisioning) long-term.

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Indeed it's somewhat reminiscent of the $esGMX mechanism that @gmx_io uses, but even more explicitly rewards farmers who LP long-term.

So, again, ‘The Silo’ is one half of what constitutes ‘Beanstalk Farm’ – and it deals with Liquidity Provisioning and Governance.

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The other half of ‘Beanstalk Farm’ is ‘The Field’, which revolves around keeping the $1 peg for $BEAN.

Here farmers can “sow” $BEAN into the field (i.e. ‘planting’, or ‘lending’ it to the protocol, or ‘burning’ it out of circulation, depending on your preferred metaphor).

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They do this in exchange for ‘Pods’, which his another in-protocol commodity (non-ERC-20) token.

‘Pods’ become harvestable when $BEAN is over peg.

‘The Weather’ that affects the field is what determines how many ‘Pods’ you receive for ‘sowing’ $BEANS’.

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When $BEAN is below peg, ‘The Weather’ incentivizes people to ‘Sow’ (plant/lend/burn) $BEAN, as apr’s are super high.

To round back to where we came, this increased incentivization to ‘Sow’ (plant/burn) $BEAN is what pushes up the price when it is below peg, as...(cont.)

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...people will buy it to in turn ‘Sow’ it for the future rewards via ‘Pod’.

Indeed the best way to understand ‘Pods’ is that its like an IOU for future $BEANS.

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Also, there is an OTC Market for ‘Pods’ built into the @BeanstalkFarms protocol, so you can sell them/buy them/etc based on your time preference/desires.

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So, again… when $BEAN is above peg, new $BEAN is minted.

This new $BEAN is given out 50/50 to ‘The Field’ (aka the ‘Pod’ holders) and ‘The Silo’ (aka liquidity provisioners).

All of these mechanisms take place within ‘Seasons’ (like ‘Epochs’) that last one hour each.

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And that is how ‘Beanstalk Farm’ keeps the $BEAN stablecoin at $1, while allowing it to keep growing in market cap so the good people of defi can benefit.

The easiest way to get started with @BeanstalkFarms is to provide liquidity in ‘The Silo’...

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Again you can either single-stake $BEAN or build a $BEAN / $ETH LP Pair at Uniswap or a $BEAN-3CRV LP Pair at Curve, and stake those LP tokens instead.

This should be very familiar to most defi participants.

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Then, as you become more and more familiar and comfortable with how @BeanstalkFarms works, you can consider jumping into ‘The Field’ as well :)

If you still feel confused, there’s a bunch of amazing threads and videos on @BeanStalk that will help explain everything, below.

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I do not currently hold any $BEAN (bc to be frank I have done basically nothing on ETH L1 as a somewhat latecomer to defi), however I really like their protocol and was extremely impressed with the interview with Publius mentioned above.

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As a huge history and macroeconomic nerd I especially appreciate the fact that they started their whitepaper with the following Alexander Hamilton quote:

“A national debt if it is not excessive will be to us a national blessing; it will be cement of our union.”

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Click the below tweet to continue the thread:

https://twitter.com/rektdiomedes/status/1512289780666552320

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