Guides and Reviews15 March

Beanstalk: make stablecoins stable!


Hey, Gem Hunter! Have you heard of the credit-based stablecoin protocol? No? What have you ever heard of... okay, toxicity off. We'll tell you all about it. Make some tea, and let's go, yuhhhh.

- The basics of Beanstalk

1) Beanstalk issues the Bean Stablecoin

2) Beanstalk offers Bean holders a variety of passive and active ways to generate returns on the protocol

3) Beanstalk has no collateral requirements

4) Beanstalk uses credit instead of collateral to maintain price stability

A new type of stablecoin

Stablecoins are an asset that pegs their market value to some external benchmark (such as the US dollar). Current stablecoins have two fundamental problems: centralisation and collateral requirements.

What should we do?! Let's break down how Beanstalk works

Beanstalk issues three tokens of the ERC-20 standard:

1) Beans - The Beanstalk stablecoin

2) Stalk - reward earning governance token

3) Seeds - accumulates 1/10000 Stalk every season

Seasons are Beanstalk's native timekeeping mechanism. Each season lasts ∼1 hour

Beanstalk consists of three interrelated parts:

1) The decentralised price oracle

2) The Silo - a decentralised governance mechanism

3) The Field - decentralised credit facility

1. Decentralised price oracle

To create a decentralised price oracle, Beanstalk uses 2 Uniswap liquidity pools - USDC:ETH and BEAN:ETH. When the ratios of the two pools are identical, the price of 1 Bean is assumed to be $1. Beanstalk calculates the average price over time for 1 Bean during each season.

2. Silo: a decentralized governance mechanism 

Beanstalk uses the Silo, the Beanstalk DAO,  to create a robust decentralised governance mechanism.

Stalk holders can make and vote on proposals to improve Beanstalk and receive a share of the profits in the form of newly minted Beans.

The high yield on deposits and the diverse community of Stalk holders create a robust decentralised governance mechanism.

3. Field: a decentralised lending mechanism

The faster Beanstalk can attract creditors, the more stable the price of the Bean token will be.

1) Whenever Beanstalk is ready to issue debt, Soil appears on the Field.

2) Soil is the pre-approved amount of Beans that can be borrowed from the Beanstalk protocol.

3) Any Beans not in Silo can be borrowed from Beanstalk in exchange for Pods.

Pods are Beanstalk’s debt asset. Bean loans have a fixed interest rate and an unknown repayment date.

The weather is the interest rate that determines the number of Pods exchanged from 1 sown Bean.

How does Beanstalk create stability?

Beanstalk requires diverse participants, including depositors (Silo), lenders (Bean Farmers), and arbitrageurs. Beanstalk aligns the incentives of each participant to achieve a stable price and create a decentralised community. Beanstalk's native financial incentives consistently increase sustainable and stable liquidity.

At the beginning of each season, Beanstalk evaluates the oracle price and debt level and dynamically adjusts the supply of the Beanstalk.

To prevent inorganic growth, if the price of Bean is too high and the debt level is too low for a certain number of seasons, Beanstalk sells Bean directly through Uniswap to bring the price of Bean back to $1.

Uh, I think that's enough beans. Why don't you DYOR the project yourself? Here's a link.   

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