So you’ve made the decision to explore the world of Beanstalk, good on you anon, I have a story to tell.

So what exactly is Beanstalk? Its aim is to become a permissionless, decentralized Fiat issuer native to the EVM, created by the EVM, and it is in its infancy. Why is there a need for such a protocol? Well, let’s take a look at who currently issues Fiat currency. Ah yes, the Central Banking Cartel of course. Do you also find it a tad weird that we get told through our text books and academia that Sovereign Governments the world over NEED to BORROW money from a central bank (private enterprise), only to return said money with INTEREST back to the central bank? Why can’t the Government itself just issue its own Fiat? Well, ask Lincoln what happens when you issue your own $$! Money needs to be backed by gold or precious metals to have value! Right? Like the US Dollar! Right? Time to go and read up on the history of money if you haven’t yet done so, anon.

You can think of Beanstalk as a decentralised digital central bank native to the EVM that issues Beans. All of the different incentive mechanisms within Beanstalk are aimed at keeping Beans as close to 1 US Dollar as possible to try to limit the volatility of Beans. Why the US Dollar? Because it is the worlds reserve currency of course, meaning the majority of trade throughout the world is in US Dollars, so it makes sense for Beans to track US Dollars. The difference between Beanstalk and a central bank (one of many I might add) is that the seigniorage (newly issued Beans) goes to the participants (players, if you will) that deposit their Bean/LP tokens into the Silo, instead of the wealthy elite at the top of the financial system. This is a very blunt way of putting it, as the US Dollar and in turn the EuroDollar financial system is extremely complex and requires separate study. This brings us to the Silo, what is it?

The Silo is the Beanstalk DAO. Anyone can permissionlessly enter the Silo and become a member of the DAO by depositing whitelisted assets into the Silo to earn Stalk and Seeds. Stalk is the DAO’s governance account metric, and entitles you to a percentage of new Bean issuance. Seeds generate Stalk over time while the assets are deposited, Stalk and Seeds are Beanstalks way of incentivising players to keep their assets deposited, since if they remove their deposits (they can do so at any time they choose) the Stalk and Seeds are destroyed, including any additional Stalk and Seeds gained while the assets were deposited. This means Stalk is inflationary in nature, which also helps in decentralising the ownership percentage of the Bean supply, ensuring as time goes by and Beanstalk grows, large holders are subsequently diluted in their ownership of the protocol. This is a unique accounting mechanism to Beanstalk, I doubt you will find it used elsewhere.

You might be asking, why would anyone want a digital Fiat currency backed by nothing? Great question anon, now we’re getting somewhere. If a currency is backed by something and can be traded 1:1 for, say, an ounce of Gold, then there needs to be a warehouse full of said gold somewhere sitting there, idly by, ready for redemption. Sound familiar? Like other, more well known ‘stable’ coins like USDT or USDC? Or maybe you’ve heard of a more decentralised stable coin, like LUSD, or the more popular DAI? There are quite a few now, all limited in different ways. Want to use USDT or USDC? Be prepared to have your coins frozen should you use a protocol frowned upon by their respective issuers. What about DAI? Last I heard it was mostly ‘backed’ by USDC anyway. LUSD? Probably the most decentralised option, backed by ETH itself, but how will it scale? What happens if all the available ETH is used to mint LUSD? Then what? The problem with all these options is that it costs more to mint the stable coin than what it is actually valued at. Why should players need to lock up an asset in order to access the benefits of a stable coin? Or take on counter-party risk via a centralised entity?

So how does Bean fix this? Well, Beans are not ‘backed’ by anything except the confidence of its lenders (creditors), hence one could call it a ‘credit’ or ‘debt’ backed stable coin. As long as players are willing to buy Beans and then lend those Beans back to Beanstalk (provide credit) so it can burn them, in turn reducing the supply and putting upwards pressure on the price with less demand, Beanstalk should theoretically be able to cross back above its $1 soft peg. All it needs is organic demand.

Beanstalk’s credit facility is called the Field. The Field is where you can purchase Beanstalks debt if it is offering any. In order to purchase Beanstalks debt, there must be Soil available. Soil is only made available when the price of Bean is below $1, and the protocol determines how much Soil is available based on a number of differing factors such as how far below $1 1 Bean is, how quickly the last Seasons(one Season = one hour) debt offering was snapped up and a few others. This is Beanstalks main mechanism of keeping the price of Bean at $1 however there are multiple others. Any debt purchased comes in the form of Pods. The number of Pods you receive includes the interest rate at which you purchased the debt. So, if there were 100 Soil available at an interest rate of 1000%, and you purchased all of the debt available, you would receive 1000 Pods and it would cost you 100 Beans. These Pods mature into Beans on a first-in-first-out basis. So, should demand for Beans pick up after some time, and the Bean supply increases, Pod holders at the front of the Pod line will start to be paid out for their Pods by Beanstalk and its newly minted Beans. Some of the newly minted Beans go to Silo depositors, and some go to Pod holders. The interest rate on Pods is set autonomously by the protocol according to a set algorithm depending on demand for Pods.

Are you starting to get the picture yet anon? If Beanstalk gets its incentives right for all of its players, keeps its credit worthiness intact, and starts to pay off its current debt, then it creates a game where everyone is on the same side working to keep Bean stable. This is foreign to most Cryptocurrency enthusiasts and is why it flies over most peoples heads. I have listened to some of the smartest EVM players talk about Beanstalk and they have absolutely no idea about its value proposition.

Think it can’t happen? Let me take you back to September 2020. It was the peak of DeFi Summer when Beanstalk’s whitepaper went viral on Twitter and yield farming was all the rage. At first, degens thought they were early on the next ponzu, buying up Beans like mad men, pushing the price up to $4 with huge volume. No one really knew how the protocol worked or could even understand what was in the whitepaper with all its advanced math, they just thought early next ponzu make moon. This was back when your deposits were locked into the Silo for a period of time so couldn’t be withdrawn instantly. Due to the high price well above $1, the Beanstalk protocol minted and market sold as many Beans as it took to get price back to $1 (a function called Flood), shattering those that filled their bags at any price above. Players saw their bags shrink en masse and began lining up for the exit. As the exit door opened one player at a time the price started to dump and liquidity started drying up. By the time all the panic sellers had left, Bean was nearing the 24 cent mark.

Beanstalk started offering its debt, but no-one was interested. Then the buys started coming in, either by those in the know, or gamblers, or maybe even just curious noobs. Price started recovering. It wasn’t long before Bean was at $1. Then the second round of players entered the game. Beanstalk started printing Beans, a little at first, then a lot. APY had to be manually worked out since the UI wasn’t showing percentages. Word spread and players aped. After a while the early Pod buyers started taking their profits, only they weren’t just selling their Beans for ETH and leaving, they were selling half their Beans in to ETH, adding to the liquidity pool and depositing their LP tokens into the Silo. Liquidity for Beans started increasing even though price was taking a hit. Eventually once again Bean sat below $1, this time for a little longer. The interest on Pods began to climb. Buyers became exhausted and the Soil issued by Beanstalk swelled into the millions. Weeks went by without any substantial buys. Hope started to fade and deposits started being withdrawn.