Ignight Capital
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Ignight Capital

IGknight’s Roadmap 01: Beanstalk-Part 1

Igknight and The Beanstalk © 2022. Ignight Capital. all rights reserved.

May of 2022 has indeed been a volatile month. One of the biggest, most promising defi ecosystems, Terra, fell prey to an algorithmic death spiral. The process was brutal and devastating for the crypto community (we hope all of you are okay).

We have all learnt that models reliant on sentiment can collapse anytime and that demand can’t grow forever. We thought this would be the perfect time to break down the structure of other defi protocols/stablecoins and assess the risks involved with their models.

With hundreds of Decentralized Finance (Defi) promising juicy APR, the crypto world has been somewhat disarrayed by these so-called “Yield farms”. Yet, many of them have inevitable vulnerabilities in their structure and often lead the yield farmers into a gaping abyss…

… Which is exactly what happened to Beanstalk.

On April 17th, Beanstalk was exploited through a flash loan attack on the protocol’s governance mechanism. After this flash loan attack, Beanstalk tried to recapitalize about $77M by fundraising. This article is about what Beanstalk is, and how they are attempting to invigorate the protocol back to life.

About Beanstalk

Beanstalk is “a decentralized credit based stablecoin protocol”. Most stablecoins are backed by some sort of collateral. But $BEAN, which is the stable coin established by Beanstalk, doesn’t require collateral. So how do they keep their $BEANS stable? Let’s dig in

There are two ways to join the Beanstalk : Silo, and the Field.

Silo is the tool where you can receive the protocol’s governance token, $Stalk. If you mint $BEAN or $BEAN-LP Tokens, you receive $Stalk. With this $Stalk, you can join Beanstalk Farms(DAO of the Beanstalk) or get proportional distribution of $BEAN.

The Silo © 2022. Ignight Capital. all rights reserved.

Field is what pegs 1 $BEAN to $1. If $BEAN < $1, Beanstalk borrows $BEAN from users and burns it, so that $BEAN will go up. Or, if $BEAN > $1, Beanstalk mints new $BEAN, and repays to users who lent $BEAN. You can see the amount of the $BEAN to be borrowed and the interest rate in Field.

The Field © 2022. Ignight Capital. all rights reserved.

Every new minted Bean will be distributed to Silo and Field at a 50:50 ratio.

Interesting point of Beanstalk is the Field. Why? Before the flash loan attack the interest rate @ the field was mind-blowing 3,000%. To further grasp the understanding of what exactly happened, more terms need to be introduced.

  • Soil : The amount of the $BEAN that Beanstalk borrows.
  • Weather : The interest rate of the $BEAN if you lend.
  • Pod : If you lend $BEAN to Beanstalk, you will get Pod. When the times that Beanstalk repay it, you can change it to $BEAN

Here’s an example. If there’re 1,000 Soil with 500% weather, you can mint 1,000 $BEANS and get 5,000 Pods. When Beanstalk mint new $BEANS, you can exchange 5,000 Pods to 5,000 $BEANS.

Isn’t this strange? THERE IS NO MATURITY to this yield. Beanstalk repays $BEANS on a first in first out (FIFO) basis. Which means, nobody knows when the Pod you receive can be cashed out as $BEANS. Instead of maturity, Beanstalk suggests Pod Line, which simply translates into standing in a queue. That’s why Beanstalk’s interest rate was much higher than other protocols’ stable coin APR(actually, it’s hard to say that Beanstalk has higher APR since it does not have maturity). They are paying for your illiquidity.

About the attack

I’ll cover this shortly. If you want to deep dive into details, take a look at this article : https://medium.com/@nvy_0x/the-beanstalk-bean-exploit-b038f4d324ea

  1. Change ETH to $BEAN, and stake in Silo to get $Stalk. With this $Stalk, suggest BIP-18 & BIP-19, which seems like proposing a $250k donation to the Ukraine wallet address.
  2. Flashloan $1B of stable, and swap to $BEAN. Then, stake in Silo and get more than 70% of all $Stalk.
  3. With this $Stalk, exploiter execute emergency commit function on BIP-18
  4. BIP-18 looked like the proposal for Ukraine’s donation, but it was not. It sent all assets to the exploiter’s wallet.

So… any plans?

Until the on-chain governance attack on April 17, Beanstalk’s model was working exactly as designed. … This was an attack on Beanstalk’s governance model, not its economic design.”(https://bean.money/blog/path-forward)

Therefore, Beanstalk decided to recapitalize $77M, what they call a Barn Raise.

Beanstalk planned 2 periods : Bidding period & Sowing period

Bidding period

  • Schedule : 2022–05–9 4:00 pm UTC ~ 2022–05–16 3:59 pm UTC (7D)
  • Users can bid soil(lending quantity) and weather(interest rate). Weather should be 20% ~ 450%
  • There is a premium during the bidding period. Starts from 21%, decreasing 3% per day.
  • You can decrease your bidding weather, but you can’t increase weather or cancel bids.
  • If you change your bidding, the premium will be reset.
  • Your bidding will be auto-filled during the sowing period.
  • If you bid under 20% of weather, it will be auto-filled when it starts the sowing period.

Sowing period

  • Schedule : 2022–05–16 4:00 pm UTC ~ 2022–05–19 3:59 pm UTC
  • Weather will start at 20% and increase by 1% every 10 minutes, which will end after 3 days, or when soil reaches 0.
  • Users still can bid during this period.

After this Barn Raise, Beanstalk will be unpaused. Every new minted $BEAN will be distributed to Barn Raise, Silo, Field with 1:1:1 ratio.

Updates

Beanstalk Farm(DAO) announced the postponement of the Barn Raise on 2022–05–09. Instead, they announced that they will recapitalize by OTC commitment. they already raised about 15% of $77M by OTC negotiations, and will raise the left. Until the end of the OTC negotiations, Barn raise will be postponed. Below are terms for an OTC commitment.

  • Beanstalk will borrow up to $77M from lenders in exchange for debt at 500% weather
  • Lenders will receive a token that earns a pro rata share of one-third of new $BEAN mints until the debt is repaid
  • Beanstalk will Unpause after the audits with Halborn and Trail of Bits are complete

After these OTC negotiations, BR will be started with remaining Pods. Also Beanstalk announced a rough timeline.

  • May 2022 : audit, negotiations to recap
  • Jun 2022 : audit, negotiations finalize, Hold BR if necessary
  • July 2022 : Unpause Beanstalk

So, the details of Beanstalk have been outlined. Should you invest in it? Find out in our upcoming article!

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