Beanstalk is designed from first principles to issue capital-efficient, decentralized stablecoins that are accessible to anyone with an internet connection.
Today’s predominant stablecoins suffer from one or more fundamental issues, primarily centralization and non-competitive carrying costs.
Centralized stablecoins are currently the most widely used stablecoins by market capitalization. The businesses that issue these stablecoins are subject to external oversight and governmental coercion, and have the unilateral power to freeze their stablecoins.
Beanstalk, on the other hand, is governed by a DAO and uses an on-chain price oracle to determine the price of a dollar. The yield-bearing governance token, known as Stalk, becomes more distributed over time. Beanstalk is highly resistant to censorship by design such that anyone, anywhere can access low-volatility assets in a fully permissionless manner.
Real economic activity built on DeFi requires low-volatility assets for users to hold and transact with. However, borrowing rates of low-volatility on-chain assets exceed those of the off-chain assets to which they are pegged. This is due primarily to collateral requirements — there is an opportunity cost associated with locking up collateral to issue stablecoins.
These collateralized stablecoins suffer from what’s known as negative carry—a condition in which the cost of holding an asset exceeds the yield earned while holding it. In other words, holding the collateral has an inherent inflation-adjusted cost, whether explicit in the form of an interest rate on a loan, or implicit in the form of an opportunity cost to lend it out to borrowers. Issuance and use of collateralized stablecoins is greatly inhibited by non-competitive carrying costs.
Instead, Beanstalk utilizes a credit-based model to create endogenous value. By relying on its own creditworthiness to expand supply and maintain Bean price stability, rather than collateral, Beanstalk creates a scalable, capital-efficient alternative. Furthermore, because Beans require no collateral and Bean seigniorage is partially distributed to Bean holders in the Silo, Beans have positive carry.
Beanstalk is designed to incentivize all capital entering the protocol to continuously maintain exposure to the Bean stablecoin, and in doing so, participate in the growth of Beanstalk. Volatility and yield are baked into the Bean token itself—when the Bean price is too high, Beanstalk mints new Beans and distributes them to various ecosystem participants in a deterministic fashion. This seigniorage is the positive carry that the Beanstalk economy is based on.