Beanstalk's credit based stability model is a potential solution to the stablecoin carrying cost problem plaguing DeFi. Whereas other stablecoin protocols rely on collateral to issue stablecoins, which creates centralization and carrying costs, Beanstalk uses infinitely scalable decentralized credit to create a permissionless stablecoin, Bean, that has carrying costs competitive with off-chain fiat.
Beanstalk does not offer convertibility and therefore does not maintain a perfect peg, Bean Depositors receive positive-carry in the form of Bean seigniorage in exchange for accepting some price volatility. Historically, blockchain-based businesses have not been able to compete with off-chain businesses because of non-competitive carry costs for low-volatility blockchain-native assets. The transparent distribution of Bean seigniorage to users flips this dynamic on its head, enabling blockchain-based businesses to finally compete with off-chain businesses.
While Bean is an ERC-20 standard token, in order to receive Beanstalk-native passive interest, Beans must be Deposited in the Silo, directly or wrapped in whitelisted LP tokens. However, Silo Deposits have two qualities that make them non-fungible: the Stalk and Seeds per Bean Denominated Value (BDV) of each Deposit. The non-fungibility of Silo Deposits appears necessary to Beanstalk’s peg maintenance mechanism, but comes at the cost of composability.
Root is an Ethereum-native permissionless wrapper that implements the ERC-20 token standard to create fungibility and composability for Beanstalk Silo Deposits.
Root Holders share all value earned by Root pro rata across all Roots. The pro rata distribution creates a zero-fee shared collective farming option for passive Beanstalk Silo Depositors that (1) maximizes Beanstalk-native yield and (2) generates additional yield without creating significant risks to Beanstalk or Root.
Root is designed as a rent-free public good that can support many types of permissionless markets. Rent comes not only in the form of non-zero platform fees, but also in the requirement to use money with negative-carry costs. Instead of rent-based markets, markets denominated in Roots facilitate a new zero-fee, positive-carry market structure.
For instance, users may agree to take opposing sides of a bet on the winner of the Super Bowl, and by denominated the bet in Roots, continue to earn interest on their positions before settlement. With Beanstalk-native yield, Root markets can structurally outcompete many traditional markets (for instance, pricing a more competitive line than Vegas).