RFC: Blacklist Mitigation

[hellofromguy]

RFC: Blacklist Mitigation + Stableswap Well Function

Authors

Guy, Ben Weintraub, Brendan Sanderson, Brean

Summary

• Implement a stableswap Well function with a variable A parameter (that increases as the L2SR increases and decreases as the L2SR decreases);
• Deploy BEAN:[stablecoin] stableswap Wells on Basin;
• Whitelist the Well LP tokens in the Silo (with gauge points TBD); and
• Implement a blacklist mitigation system that detects if a Well is blacklisted by a centralized custodian and "freezes" the Beans in the Well.

Problem

Although trading against ETH and stETH is favorable in terms of decentralization and censorship resistance, the Bean price is subject to extreme volatility as a result of having nearly all liquid Beans trading against these assets.

The opportunities for Bean liquidity providers to receive Stalk and Seed rewards is currently limited. A wider variety of options increases utility for Silo Depositors, particularly with the introduction of Generalized Convert (#716).

If centralized stablecoin LP pairs are whitelisted in the Silo without any additional changes, Beanstalk could be significantly harmed if a centralized custodian blacklists the Well. While there is no way to avoid the risk associated with centralized custodians outright, the risk to the overall health of Beanstalk can be minimized at the cost of risk to the health of individual Depositors.

Solution

Introduce a blacklist mitigation system that detects if a Well is blacklisted by a centralized custodian. Upon detection, freeze Deposits of the given LP token (such that they cannot be Withdrawn) and consider the Beans in the Well burnt.

Context

Consider an example where a BEAN:USDC Well is whitelisted in the Silo and 10% of the Bean supply is in the Well.

If the Well is blacklisted, the USDC in the Well is no longer transferable. Without any changes to Beanstalk, at this point BEANUSDC Well LP Depositors have the ability to and may potentially Withdraw and sell up to 10% of the Bean supply into other liquidity pools. The damage to Beanstalk would be proportional to the Bean supply in the Well.

LP Depositors take on the risk associated with the non-Bean assets in the Well they are providing liquidity in. Therefore, it is acceptable for the risk of a blacklisting event to be primarily held by individual Depositors rather than Beanstalk itself.

By freezing the LP Deposits and considering the Beans in the Well burnt, the Bean supply scales down an amount proportional to the percentage of the Bean supply that was in the Well.

Specification

TBD.