Bean, $BEAN

Description

The Beanstalk protocol is a permissionless fiat stablecoin protocol issuing the $BEAN token, a stablecoin that is pegged to the USD and backed by credit instead of collateral.

$BEAN holds its peg based on the algorithmic control of its supply. This happens by either minting new $BEAN or issuing a native, debt token (the so-called 'Pods') in exchange for $BEAN. The debt tokens are issued via Beanstalk's own credit facility (known as the Field). Thereby, the debt tokens are issued when $BEAN tokens are lent to the protocol by creditors.

For a more extensive explanation of $BEAN, the Beanstalk protocol, its background story, and its relevant risks have a look at our in-depth article.

Main Stability Mechanism

The protocol algorithmically balances the supply for $BEAN by either borrowing & burning $BEAN via debt-tokens from creditors in the case of $BEAN trading below its peg or repaying debt with newly minted $BEAN tokens to lower the supply in the case of $BEAN trading above its peg.

The debt tokens are issued with a fixed interest rate calculated by the protocol (known as the Temperature) and don’t have a maturity date. The interest rate fluctuates based on the current price of $BEAN, the debt level of the protocol, and the change in demand for the debt token. The quantity of debt tokens being issued is a function of the $BEAN price and the interest rate. Both, the amount of debt tokens and their interest rate is continuously adjusted every hour by the protocol.

Newly minted $BEAN are distributed by the protocol as follows:

• 1/3 goes to the creditors of the protocol to repay the debt + interest

• 1/3 goes to governance participants of the protocol

• 1/3 goes into a fundraising contract to reimburse the victims of the hack

Additional Stability Mechanisms

• Direct $BEAN → BEAN:3CRV LP token Conversion: Enable the conversion between both tokens when deposited in the protocol for governance participation to react on price deviations directly.
• Direct market operation on Curve: Enables the minting of new $BEAN tokens directly in Curve pools to balance extraordinary demand for $BEAN.

Governance

• Based on Stalk, a non-transferable governance token earned by depositing $BEAN or whitelisted LP token in the governance contract
• Execution via 5-of-9 multi-sig wallet controlled by community members

Risks

• The 5-of-9 multi-sig governance is based on anonymous community members.
• There exists no max. cap of $BEAN supply and it's only driven by its demand.
• The peg of $BEAN relies on the protocol's ability to always attract enough creditors, and the risk is held by existing creditors.
• There is no enforceable claim for creditors since the debt tokens have no maturity and thus, the redeemability of $BEAN is not guaranteed.
• The community could enforce changes to the protocol which are economically unfavorable for $BEAN holders or creditors.
• The anonymous multi-sig holders can’t be forced to follow the votes of the DAO.
• Stalk, the government token, is not capped and someone could acquire an arbitrarily high amount to take over control of the governance. However, the multi-sig holders could intervene.
• Currently, $BEANs liquidity entirely relies on the BEAN:3CRV Pool, and hence, its security is dependent on the technical & economic success of Curve.
• The frontend is closed-sourced and could be censored.