Overview

Beethoven X is a DeFi protocol that leverages other DeFi projects to offer novel decentralized investment strategies. Built on Balancer V2, Beethoven X has become the first next-generation AMM to be deployed on Fantom. It is a community-driven project governed by the BEETS token currently deployed on Fantom and Optimism.

Beethoven X is the first official friendly fork of Balancer V2. The protocol is a DEX (Decentralized Exchange) that features innovative products such as weighted investment pools, stable pools, smart orders routing, and different strategies to allow users and protocols to earn yield on DeFi.

• Liquidity providers collect trading fees while their portfolio is continuously rebalanced in an automated manner.
• Traders can swap assets in a permissionless and DEX.

As a fork of Balancer, Beethoven X is a protocol with the following functionality: an automated portfolio manager, a liquidity provider, and a price sensor. Altogether, this provides the service of offering a DEX for DeFi users on EVM-compatible networks.

Balancer pools are characteristic because, contrary to the traditional constant function two-token pair Uniswap model, it allows for depositing liquidity in two or more tokens. Similar to Uniswap, the assets are deposited into the liquidity pool and traders can swap between them. 

The AMM (Automated Market Maker) is based on an N-dimensional invariant surface that generalizes the constant product formula described by Vitalik Buterin and that led to the inception of Uniswap.

Why the Protocol was Created

Originally, Balancer was created as an alternative AMM to Uniswap. Balancer’s AMM has key features that allow it to behave as a self-balancing weighted portfolio and price sensor. This allows for innovative features for users like the creation of price index funds, portfolio rebalancing strategies, novel ways to profit from arbitrage opportunities through flash swaps…

While the original Balancer developers arrived at the same conclusion as Uniswap’s implementation, they applied an invariant-based modeling approach described by Zargham et al to construct its AMM.

Roadmap

The team has met all requirements of their version 0.1:

• dApp Launch.
• Deployment of the first 5 balancer pools.
• Launch of the novel yield optimizer.
• BEETS TGE (token generation event).

Currently, the team seeks to expand its range of strategies to bring in extra revenue for token holders. Through the creation of innovative investment models and partnerships with other protocols, Beethoven X has the goal of becoming the number 1 DEX on the Fantom network. Besides this, it is also putting into practice its multichain strategy by deploying on Optimism. 

To meet those objectives, the next iteration in the roadmap will focus on:

• Improving the trading experience by introducing limit orders powered by Gelato.
• Create a more intuitive investment experience for index pools.
• Continue improving the portfolio so that it is easier to view:
  • Lifetime fees earned by the protocol
  • Accurate calculations of fees
  • Farming rewards
• Implement a bridge that facilitates the multichain experience and that acts as the entry point for new ecosystem participants.
• Continue improving the liquidity committee, whose main task is to maximize LP and protocol revenue. Its actions are also key for increasing the confidence of the community by keeping constant communication.
• Improved Discord experience and increased AMAs upon request.

Differences between Balancer V2 vs to V1

• Custom AMM formulas.
• Improved gas efficiency.
• Flash loans and flash swaps (arbitrage trading with no need to hold the tokens to start a trade).
• Internal user balances (like a personal wallet inside a vault).
• Community-governed protocol fees.
• Isolated pools.

Flash swaps allow arbitrageurs to execute profitable trades without having to initially hold the input tokens required to make an arbitrage trade. Every time a trader finds a price discrepancy between two pools, it can send the transaction by making a call to a batch swap and make a profit from arbitrage

Flash loans are a form of uncollateralized lending where the entire borrow and repayment process is encapsulated into a single transaction by which a user must borrow and repay the loan in a single block.

Team

Despite being an anonymous team, its members assure to have more than 80 years of combined experience in the technology and finance industries. The team’s vision is a commitment to let their work show what they are capable of building.

Full-time:
Dan – Dev
Skly – Dev
Franzs – Dev
Souvlaki – Finance & Governance
Vee – Design
Naly – Marketing & Biz Dev
Jedi – Marketing & Biz Dev

Part-time:

Tom – Finance

Groninge – Dev

Saf – Dev

Yogi – Breathwork

Josey – Social Science

For transparency, all transactions and vesting contracts are publicly visible:

• Wallets and vesting contracts: https://docs.beets.fi/token-contracts-and-wallets 
• Transactions: https://docs.beets.fi/transactions 

DeFi Subsector

Beethoven is a fork of Balancer and is a DEX. Because of that, its main competitors are other DEX platforms such Curve, Sushiswap, Kyberswap, Spookyswap, Fraxswap…

Balancer pools are the core building block for liquidity mining campaigns, DeFi indices, self-balancing portfolios… This is made possible due to the flexibility and composability of its Constant Value Market Making algorithm (see below if curious), which allows for up to 8 tokens that can be deployed with many liquidity provider strategies.

Industry overview and Potential Adoption

Index funds

Index funds are one of the most well-known financial instruments in TradFi. Since the first index fund in 1972, most investors rely heavily on these indexes to get a sense of the market, hedge their risk, and diversify their portfolios. Similar to how index funds and portfolio managers charge fees for their service, a decentralized protocol like Beethoven X will do the same with the difference that the protocol’s revenue will be shared with its liquidity providers and the protocol DAO (Decentralized Autonomous Organization).

By being a permissionless protocol that is built on blockchains, Beethoven X will capture the upside of automating portfolio management strategies, all while avoiding the custodial risk of other centralized solutions in crypto, or in TradFi.

• What makes the original Balancer’s AMM unique is its flexibility. While other DEXs impose a set of constraints, such as limiting trading between only 2 assets, Balancer V2 can accommodate a wide variety of pool compositions and asset weightings. This opens up the door for customized pricing functions.
• One of the main features of Balancer’s pools is also that users can provide single-side liquidity, which means that a single token can be supplied to the pool instead of depositing the whole basket of tokens present in the pool (or a LP token made up of 2 tokens together, like most DEXs use). This single-side liquidity also returns proportional LP shares to the users. This is determined by the pool’s supply of pool shares, the token balance, and the weights assigned to that token (see the formula below to see how this works). 

8020 Governance System

Single Staking Issues

Many DeFi protocols employ a native token single-sided staking mechanism where users stake governance tokens for voting power and incentives.

Although it seems suitable, closer inspection reveals some drawbacks. Incentivized staking reduces the circulating supply available for swaps, resulting in decreased liquidity in liquidity pools.

This lack of liquidity causes the following issues:

• Higher slippage.
• Reduced market depth.
• Increased volatility.
• Limited access to capital.

Balancing governance participation incentives with sufficient liquidity is a challenge for such protocols.

To tackle these challenges and promote liquidity supply, protocols often resort to offering extra incentives for their tokens. These incentives are not only distributed across multiple liquidity pools but also spread across various decentralized exchanges. However, this approach can lead to inefficiency, high costs, and complexity, as protocols become entangled in managing such incentive programs.

What is required is a solution that not only encourages governance participation but also provides an efficient and streamlined incentive program without the need for capital lockup.

The 8020 Solution

The solution to these challenges is facilitated by Balancer’s Weighted technology. This technology utilizes weighted mathematical calculations to configure liquidity pools with up to 8 tokens, allowing for customized weightings based on specific preferences.

For example, in an 80/20 pool, one asset would constitute 80% of the pool’s composition while the other asset would make up the remaining 20%. This flexibility enables protocols to create liquidity pools with precise asset allocations according to their requirements.

This model hosts a range of benefits including:

• Deep Liquidity
  • Reduced slippage.
  • Ability to facilitate large trades.
  • Lower price volatility.
• Asymmetric upside and reduced impermanent loss (IL).
• Efficient incentive programs.
  • Centralised liquidity pool and swap fees.
• Hedging and price appreciation.
  • An 80/20 split helps to minimize the risk of IL it also provides users with exposure to the base asset, acting as a hedge.

Existing usage of the 8020 model

• Balancer’s ve8020 governance.
• Beethoven X’s maturity-adjusted model.
• AAVE protocol safety model.
• Radiant Capital governance model.

Chains 

The protocol is currently deployed on Fantom and Optimism, with almost 70% of its TVL being on Fantom. 

For Users

Target Users

• Traders can take advantage of optimal swap rates, minimal slippage and concentrated liquidity. Beethoven’s smart router will seek the most optimal path that offers the best swap price.
• Investors can create customizable index funds
• Protocols can introduce new primitives that are tailored to the demand of its users and market conditions

Slippage is the difference between the expected price of an order and the price at which the order is actually executed on the blockchain. It is usually shown as a percentage that represents how much the price of an asset has changed between the time when the trader sends the transaction and the time when the transaction is executed.

For Investors

Investing Strategies

To fully understand how the underlying DEX behind Beethoven works, users should get familiar with the possible use cases and potential impacts on the price of one asset in the pool with respect to another. Based on the degree of price impact, we can classify the types of transactions as follows, with the:

• Provide liquidity in all assets:
  • All token balances grow proportionally.
  • Since the liquidity deposit does not change the balance ratio of the assets in the pool, there is no change in the spot price.
  • See the chart on the left for a visual view of how the token balances change before and after providing liquidity.

• Single-side liquidity deposit:
  • The token balances don’t grow proportionally.
  • There is a change in the balance ratio that leads to changes in the spot price of the assets. However, there are no changes in token weights.

• Swap:
  • When a swap takes place, the balance of one asset decreases while the balance of another asset increases.
  • Due to the trade’s impact, the spot price changes, but the weights remain unchanged.

• Weights change:
  • Weights remain unchanged every time someone trades or deposits/withdraws liquidity.
  • Weights are a parameter of a given liquidity pool. Whenever weights are updated, the spot price will change as well. This is different from traditional AMMs where the token weights remain constant in perpetuity. Dynamic weights changes open up the doors for innovative use cases such as portfolio rebalances triggered by an external price, market cap, or TVL signals. This will also minimize the losses of LPs that come from the profits made by arbitrageurs.

Besides all these scenarios, users must also take into account:

• Large pools are harder to balance since a price change is caused by a change in the balance ratio of a particular trading pair.

• Large pools are less sensitive to changes because the size of the trade has an effect on the amount of price change. This is important to consider when it comes to accounting for slippage. Because of this, the same spot price in 2 different pools can lead to 2 different trade executions.  As you can see below, the pool with much more liquidity provides much less slippage on trades.

Investors should also be aware that the assets traded in the pool are also traded in different markets, such as CEXs or DEXs. Because of this, there will be opportunities for arbitrageurs to profit from the difference in token prices based on Beethoven’s pool vs other liquidity pools or markets.

Revenue Breakdown 

• Wherever possible, Beethoven introduces protocol fees for transactions. For instance, every time there is a trade, the liquidity pool collects trading fees based on the pool’s underlying assets.
  • 30% of the fees are used to buy BEETS off the open market. This revenue is redistributed to Liquidity Stakers (liquidity providers who stake their LP tokens in the protocol)
  • 50% of the protocol fees are used to build a diversified DAO-controlled treasury
  • 20% of the protocol fees are reserved for the core team to fund development and infrastructure costs
    • 2% out of the team funds will be invested in the Beethoven X Climate Fund. This is an investment in nature-based regenerative solutions such as forestry, regenerative agriculture or direct air capturing.
  • In the future, protocol fees amounts and distribution will be defined by governance
• By offering LBPs as a service, Beethoven manages to drive additional volume to its platform, resulting in additional revenue from protocol fees. 
  • Approved protocols who access this service will also have the option to get help and advisorship (content, marketing…) from Beethoven’s core team in exchange for leaving their liquidity in the protocol after launch. This also creates a long-term alignment that brings in more liquidity and extra revenue from fees.

Protocol Use Cases

Liquidity pools are the fundamental building block of the AMM. These smart contracts define how different assets can be traded in the protocol. The Balancer V2 technology allows for limitless flexibility when it comes to deriving pricing functions for different pool compositions. Because of this, Beethoven features the following pools:

• Weighted pools are the industry standard for creating multi-asset pools on Beethoven X with different token weightings and dynamic swap fees. Unlike the typical 50:50 liquidity pools popularized by early DEXs like Uniswap, weighted pools can contain many different assets and assign a different weight to each one of them.

Weighted pools collect fees from traders by capturing arbitrage opportunities. Contrary to standard AMM pools, these fees are dynamic and will continually change over time. As the price of each asset in the pool changes, traders and arbitrageurs will open positions to rebalance the pool (see formula below for details on calculating fees).

By making adjustments to trading fees, LPs can be paid optimally according to the market conditions (instead of earning at a fixed rate).

• During periods of high volatility, LPs can take advantage of increased pricing on trading fees (since traders are willing to open a swap regardless of its associated cost).
• During periods of higher competition, the liquidity pool could also lower its trading fees to attract more volume and make it more attractive for traders.
• Observe the rate of utilization of liquidity pool comparing the dynamic swap fees of Balancer V2 compared to the fixed fees on Curve

Each pool can contain up to 8 different tokens, where each token is given a weight defining what fraction of the pools is made up of each asset.

• As the price of each token changes, traders and arbitrageurs automatically rebalance the pool by making swaps, effectively bringing the pool back to its desired asset weighting whilst collecting swap fees.
• There is less impermanent loss, mostly due to the presence of multiple assets or weightings
  • For example, a pool containing 95% BEETS and 5% FTM would experience far less impermanent loss than an equivalent 50:50 pool.
  • 80/20 pools have become the most common pools due to their ability to balance enough liquidity available, pool profitability, and protection against impermanent loss.
  • The caveat is that the higher the asymmetry or difference of assets within a pool, the more likely it is that the pool will incur higher slippage when trades are made. This happens because one side of the pool will have significantly less liquidity.

Impermanent loss refers to the difference in value between holding the assets vs depositing the same assets in a liquidity pool. This results in a temporary loss of funds due to the need to rely on arbitrageurs to continually trade and bring the price back to its true market value.

• Stable pools are liquidity pools composed of assets that are expected to consistently trade at near parity. By using Curve’s stableswap, traders can execute large orders without experiencing significant price impact. Some examples are DAI/USDC/USDT, wBTC/renBTC/sBTC
• MetaStable Pools are a generalized version of stable pools that contain tokens with known exchange rates. One example of this are token pairs such as DAI/cDAI (where cDAI appreciates in value relative to DAI by accumulating lending fees from Compound).
  • Metastable pools improve the capital efficiency of interest-bearing token pairs, such as DAI/cDAI, or ETH/stETH. When the prices are close to each other, a standard stable pool could handle the activity with minimal price impact. However, these assets don’t necessarily trade at 1:1 parity. Instead, they are correlated in price, but the price is not exactly the same, due to a slight rate of growth in the interest-bearing asset. This is even more important during times of high volatility, where token prices experience large swings. In these situations, instead of liquidity providers earning the yield, arbitrage traders will try to take advantage of the differential and make a profit at the expense of LPs. In other words, liquidity providers lose out on all of the interest-bearing yield that has been extracted by arbitrage traders.
  • Even though metastable pools work similarly to stable pools, there are a couple of differences:
    • Metastable pools are built specifically for highly correlated assets that do not exactly share the same price.
    • Metastable pools use a Rate Provider. The Rate Provider is the mechanism that allows the pool to account for the price appreciation of the yield-bearing asset. By currently updating the ratio between the base asset and its yield-bearing equivalent, the pool can account for the growth instead of assuming a constant 1:1 ratio.
• Boosted pools are the base layer for achieving sustainable liquidity. Most AMMs have a utilization rate for their liquidity pools that leaves a lot of liquidity just sitting there, idle.  Beethoven X aims to use this idle liquidity to earn more yield.  For instance, liquidity providers can use their LP tokens on external protocols such as Yearn. This offers several advantages such as:
  • More capital efficiency for the LP deposits that remain idle in a trading pool, which often happens when the trading volume is much smaller than the net amount of the pool’s total liquidity. When this happens, this indicates that a large portion of the pool’s liquidity would be better off earning yield somewhere else, since it is not being consumed by traders.
  • Allow illiquid tokens to be used in liquidity pairs. This allows staked tokens to be used within LP positions. One example of this is the BOO/xBOO pair, which can also be paired with other yield-bearing assets such as wFTM or USDC while maintaining the economic benefits of xBOO.
  • Design a standard for capital efficient pools:

• First, linear pools are designed to hold a main token (e.g. DAI) and a yield-bearing token (e.g. yvDAI), where one of them will act as the stable asset and the other one as the yield-generating asset. Unlike a standard 50/50 pool, the linear pool defines the optimal range of liquidity to support trading activity. The remaining liquidity that is not used by traders is then wrapped into a boosted layer of yield that will be directed to liquidity providers. In order to maintain the optimal range for the stable asset (DAI), the pool implements a reward mechanism that incentivizes arbitrage trades. Whenever the balance of the stable asset moves outside this range, a linear fee will be charged to accumulate the rewards that will be given to arbitrageurs that bring the price back to the optimal range. The further the price moves from the range, the higher the fee.

• The concept of linear pools is only useful in theory; Nested pools solve this problem by creating the pathway that will facilitate trades between a token pair. Nested pools construct a master pool (USD stable pool) where all of the token pairs within the nested linear pool can be traded. By using this construction, the master pool can be mapped to any nested liquidity pool and result in deeper liquidity. By nesting linear pools together, a pathway is created to facilitate trades across token pairs while still earning a boosted yield. For example, assuming two linear pools, one trading DAI and another one trading USDC, these 2 pools could be placed inside of another larger pool that now has access to the net sum of all of the tokens in both of the linear pools. What makes this pool different is that it has the added benefit of managing a significant portion of the liquidity that is earning yield in an interest-bearing asset.

• Phantom BPTs allow for extra leverage by utilizing a swap rather than a mint/burn mechanism. This is a faster and more gas-efficient process that reduces the cost of claiming BPTs for liquidity providers. Phantom BPTs are a layer of abstraction that represents a pool’s BPT token. In pools where Phantom BPTs are used, all of the pool’s BPTs are minted at the time of pool creation and are held by the protocol itself. This allows the pool to swap assets instead of going through a constant process of minting/burning tokens when BPTs are issued to liquidity providers.

Basically, boosted pools allow for trades to occur between tokens while creating a pathway for the pool’s liquidity at the same time. This means that traders can swap the asset, while the remaining liquidity is earning yield instead of remaining unused.

• Smart order routing allows traders to find the most optimal price by sourcing the liquidity from multiple pools. This feature allows for the execution of market orders by following the most efficient path, which is the one that guarantees the best price for traders.
  • The goal of the smart order router is to maximize the return for the user
  • From the user’s perspective, there is no arbitrage possible. This is because after a swap is executed, all of the routes/paths used end up having the same spot price. This allows traders to benefit from all the aggregated liquidity in a vault regardless of the diverse set of pools in the protocol
  • The routing algorithm executes the following steps:
  • Check how many pools are required to be able to trade the user’s amount. This will determine the number of paths to be followed. Usually, the user’s amount is lower than the liquidity available in the largest pool, which means that only that pool can guarantee an efficient execution price.
  • Determine the number of paths and come up with the target distribution to route and swap in each of the paths. The sum of all smaller swaps must equal the user’s initial trading size.

• Gauge voting allows for the distribution of 30% of all BEETS token emissions to liquidity pools according to a bi-weekly gauge vote system that is based on bribes and snapshots.
• LBP launches are a capital-efficient manner to fairly distribute tokens and allow for price discovery in a permissionless manner:
  • Bots are disincentivized from participating by front-running users since they would end up paying a higher price.
  • There are no gas wars since anyone can buy into or sell out of the LBP pool at any point during the event.
  • The price can automatically decrease over the duration of the liquidity generation event due to token and collateral weighting adjustments over time (for example from 95-5 to 50-50). 
  • The price starts high and follows a preconfigured price decay curve over the duration of the event
  • The creation of Liquidity Bootstrapping Pool is a permissionless process. Anyone can launch tokens and anyone can participate in an ongoing liquidity generation event.

In order to participate in a LBP auction, users must follow the following steps:

1. Hold the funding token that the team launching the token has chosen as collateral (usually the native token of the chain or a stablecoin).
   • This is the token that users will use to purchase the newly launched token
   • Note that, in addition to the collateral token, users must hold the asset of the native chain to pay for gas fees.
2. Find the project you want to purchase in the Liquidity Generation Event
3. Once the auction starts, the price will slowly decay. Once it reaches a price the user is willing to pay, it will use the collateral token to make the acquisition effective
   • Users must be aware that the price decay built into the auction is given by a set of parameters set by the team launching the token. These parameters allow for multiple possible scenarios. For instance, as more users start buying, the price rise might offset the price decay.

Economics

Fees breakdown

Trading fees:

• Every time there is a trade in a pool, the pool collects a trading fee.
• Trading fees are denominated in the input token (the token you are selling). 
• This fee is collected by the liquidity pool. 
• Users can claim their proportional share of the pool with their LP tokens
• The fee for a given pool is set by the pool creator.

Flash loan fees:

• Interest on Flash loans.

LBP fees:

• There is a 2% fee charged on the collateral to protocols launching their token through an LBP. This fee goes to Beethoven’s treasury. Beethoven itself will not hold the token being launched to prevent situations where the newly launched token is farmed and dumped.

Increase protocol swap fee to 25%: https://ftmscan.com/tx/0xa39303f24dcf72795e98414a99830484644ccb6c4e570999db758ac7d734b987 

Set protocol swap fee percentage to 15%: https://ftmscan.com/tx/0x2cae7dbc0ef64f4660a8befa5274177b08b66122bfc99f157904ef0c60e87cb3 

Set protocol flash loan percentage to 0.03%: https://ftmscan.com/tx/0x63856e70c2f52e91cc8ecb3838298d0b8a2e0dc20f11e737fca066d6f550125c 

30% of protocol fees will be redistributed to BEETS liquidity providers:

• 80/20 BEETS/FTM LPs can stake their LP tokens the Beethoven Orchestra and receive fBeets (tokens that represent your LP position and which will grow over time the longer you remain in the Orchestra)
• Once a week the fees are collected and 30% of the funds will be transferred into the Beethoven Orchestra to increase the value of fBeets tokens.
• The benefits of the 80/20 weighted pool allow users to forgo any single staking pool for the BEETS token.

Operational Expenses

Liquidity mining campaign rewards Liquidity providers with BEETS incentives

• Farming rewards for 80/20 BEETS pools to promote deep liquidity for the BEETS token.
• These incentives rewards minimize the degree of impermanent loss for liquidity providers.

fBEETS holders can participate in a bi-weekly gauge vote to determine where the 30% of the BEETS incentives should go. This allows token holders to make decisions at the protocol level, which supports the decentralization process of the DAO. By holding fBEETS, token holders can vote on community proposals and have a voice in the protocol’s long-term progression.

• Voting done via Snapshot
• Every two weeks the monetary policy of the protocol allows fBEETS token holders to use their governance voting power to vote on where BEETS token reward emissions should be distributed. This sets a precedent for other protocols to vote on emissions and influence voting decisions using bribes (the Beetwars)
• Community pools can be added upon requests that satisfy the minimum requirements:
  • To be considered for that week, the proposal must be posted on Discord before Wednesday 18:00 UTC .
  • TVL must be above $50K.
  • The maximum weight discrepancy allowed is 80/20.
  • Tokens included in the pool must not have a transfer tax.
  • The pool must be permissionless or owned by a multisig.
  • The pool needs to be verified.
  • The liquidity committee reserves the right to reject a pool for security purposes.
• The remaining 70% of BEETS emissions are distributed as base farm weights (subject to changes by the liquidity committee).

Tokenomics

The BEETs token is the governance token for the Beethoven protocol. This token is also used as reward for liquidity stakers, which will collect a portion of the protocol fees.

fBEETS token holders can participate in bi-weekly gauge votes to determine where the 30% of the BEETS incentives should go. This is achieved via a bribing governance system.

In order to get fBEETS, it is a requirement that users hold BEETS. BEETS can be bought on the beets.fi site. On the same site, users can navigate to the “stake” page and invest BEETS in the Fidelio Duetto pool (you will need to hold 80% BEETS and 20% FTM in your wallet). 

After staking, the user will receive fBEETS tokens and be able to participate in governance voting for pool emissions. 

In April 2022, a voting proposal introduced a locking mechanism for fBEETS in alignment with ve tokenomics. The decision was carefully analyzed by the team and shared with the community to align incentives between users and the protocol. Initially, this was meant to be implemented in Q3 2022. However, due to the cascade of events that impacted the crypto markets, the launch of locking was postponed.

Advantages and Disadvantages of Locking: 

• Align incentives of users and the protocol to prevent abusing the system in pursuit of profit. This model ensures that users that have the protocol’s interest at heart, lock up their positions for extended periods of time. The downside is that during volatile times, this creates a dynamic where users are put at risk, since they don’t have the freedom to align their exposure.
• The longer the users lock their tokens, the higher their voting power.
  • For whales, it is easier to lock since they can secure a large portion of governance
  • Smaller investors cannot participate in governance in equal conditions, since their size is significantly smaller and they would give up the freedom of selling at their own time preference
• Locking leads to lower sell pressure for BEETS. However, recent events have proven that locking does not necessarily mitigate price depreciation.

Pros of Locking:

• Users who lock have an incentive to be active in governance
• Users who participate in governance can earn a boost in rewards
• Longer time locks grant higher voting power
• Capital is stuck inside the protocol

Cons of Locking:

• Whales and DAOs can lock smaller sizes of their tokens and control the majority of the protocol
• Traders who want to sell will not lock
• Locking removes freedom for selling whenever the user wants to
• Experience shows that locking does not necessarily mitigate selling pressure
• Capital is not used efficiently

This design looks after the organic growth of the protocol, which will be supported by its community in the long term. Based on a survey conducted by the team, they came to the conclusion that most users perceived “locking” as a “risk-reward game” that primarily involves leveraging risks and returns. In addition to that, the team dedicated an entire AMA solely to communicate with the community and start a discussion about whether to move forward with the ve locking model or not.

The team managed to receive feedback from the community, where the results show a positive attitude toward locking

Given the duration of the current bear market and the shortcoming of the ve model, the team started exploring alternatives such as financial NFTs. For instance, this would allow users to lock their veTokens within a NFT. By holding the NFT, users receive the underlying yield and governance power while still having the ability to sell on a secondary marketplace. This solution has not gained much traction yet, since there is no substantial demand for financial NFTs in secondary marketplaces.

Reliquary Integration

As a solution, Beethoven is introducing the Reliquary. The Reliquary allows users to deposit LP tokens within a Relic. Unlike the ve model, the Relic can be exited at any time. Since there is no locking, this concept introduces a process of maturation. The Relic persuades users/DAOs to earn additional incentives/governance power by cultivating a position over a given time period. The longer a position is held, the more powerful it becomes.

The concept of maturity is broken down into various tiers/tranches where each tier progressively unlocks more rewards. As users approach a higher level of maturity, both token emissions and voting power will scale up until the maximum level is reached. The key innovation is that users will not obtain maximum emissions nor voting power when the Relic is created. Instead, they will be rewarded over time and can exit their positions whenever they choose.

Pros:

• Shifts the focus from a “forced” model to an “incentivized” model where users can calculate the tradeoffs and choose to exit at any time if they wish to do so.
• Solves illiquidity problems, since positions can be exited when desired
• Users who believe in the protocol and governance will wait for maturity
• It opens up the potential for a secondary marketplace where mature positions can be traded
• If successful, all BEETS emissions could be channeled through this model
• This limits the ability for users to buy a position to vote and sell straight afterward

Cons:

• It is a new innovation that has not been battle-tested beyond code audits
• Users who participate earlier will obtain more power than later users
• Adopting new and revolutionary ideas takes time and effort to educate protocol users
• Since the Reliquary uses a new contract, users will have to migrate to enter and deposit BPTs into a Relic.

Protocols that implement the Reliquary technology are allowed to customize their maturity curves to suit their situation. The Reliquary contract is open source; any protocol that implements the technology has free reign to design a unique maturity profile.

Linear Maturity

The simplest maturity model, where users receive rewards that increase in equal amounts each week until reaching maximum maturity.

Exponential Maturity

A model where users’ rewards suddenly increase past an inflexion point.

Reliquary can be seen as an evolution of the Masterchef contract, Similar to the Masterchef, there will be a reward token distributed to pools based on allocation points. Despite using an upgradeable contract, the rewards calculation and pools distribution is dynamically adjusted without manual intervention.  Read below to learn the specific formulas that are used to calculate emissions.

For a given specific time period, the total emissions are calculated as follows:

Where the distribution for a pool is based on its allocation points in relation to the total allocation points:

For example, If 10 BEETS per second are emitted in an even distribution between 2 pools, the same allocation points are given to each such that the emissions for the next 60 seconds for one pool would be:

At this stage, the Reliquary adds an additional layer of abstraction with maturity levels (tranches). For each pool, different maturity levels and rewards for each level are given. 

The maturity of a position is then calculated from the entry timestamp and the current block timestamp

Every level is assigned a minimum maturity required:

The minimum requisite for level 1 is 0 seconds, for level 2 is 1 day…

Each level has a predefined number of allocation points.

Instead of using the user share of the total balance in the rewards pool (like in the Masterchef contract), the levels of maturity are taken into account by multiplying the staked balance of the user with the allocation of his maturity level. This is then divided by the sum of the total balance for each level multiplied by its allocation points.

For instance, a user with a balance of 1,000 tokens with a maturity level of 2 (20 allocation points), would be able to access a weighted balance of 20,000:

This balance is then divided against the total weighted balance of the pool:

Such that the rewards for the user are:

Similarly, if the user was at level 4 of maturity, he would double the rewards:

At a first glance, you might think that the mechanism is similar to locking contracts, where you get more rewards the longer you lock. However, the difference is that staked positions are not bound to a wallet address, but rather to an NFT. This means that users can transfer their staked positions for a profit in the secondary market.  Introducing maturity levels to staked positions creates a dynamic where voting power is not dictated by how long the tokens are locked. Instead, any market participant or protocol can purchase the staked position of any other user in the open market.

Note that, since the maturity of a position is defined by the current block time minus the entry timestamp, the weighted maturity is added to the entry time such that users can deposit more tokens to an already matured position.

Token Distribution 

BEETS has a maximum supply of 250,000,000 tokens. 

As part of the contribution to the Balancer ecosystem by being a friendly fork, Beethoven started its decentralization proposal suggesting the 5% of the total supply of BEETS should be allocated as:

• 4% provided to the BAL treasury with a 6-month cliff and 2 years of linear vesting
• 1% as an airdrop to BAL holders

The following would qualify for the airdrop:

• Snapshot was taken for all BAL holders as of Nov 11, 2021.
• Addresses with Balancer LP positions of at least $100 in a pool containing BAL (taking into account Balancer V2 pools on Ethereum mainnet, Polygon, and Arbitrum)
• Address with a Matic QiDAO vault with at least 5 BAL deposited
• Addresses containing at least 5 BAL, snapshot taken on Dec 03, 2021.
• 2x multiplier assigned to BAL holders and BAL-ETH (80-20) LP holders on Ethereum mainnet.
• 1x multiplier assigned to BAL holders and BAL-ETH (60-40) LP holders on Arbitrum.
• 1x multiplier assigned to BAL holders, USDC-MATIC-WETH-BAL (25-25-25-25) LP holders, and holders with BAL held in the Qi vault on Polygon..
• Airdrop token distribution based on the multiplier weightage above, not based on USD value of holdings.
• Airdrop commenced on Dec 23, 2021, once a week for 4 weeks, split equally, and the last airdrop occurred on Jan 13, 2022.

In order to meet the eligibility requirements, the following conditions had to be met as well:

• To receive the BEETS airdrop the wallet address should have at least $100 staked in a Beethoven-incentivized farm on Fantom Opera. This position should be maintained during the airdrop distribution.

The initial mint was 22% of the total maximum supply distributed as follows:

Out of the 22% minted tokens, only 2.65% were in circulation upon launch, with all other tokens following their corresponding vesting schedule:

• Liquidity bootstrapping pool:
  • 5,000,000 BEETS tokens were distributed during an LBP event of 24 hours starting at a high price and ratio of 95/5 which gradually declined to 80/20 lowering the price of BEETS over the duration of the event
  • At the end of the LBP event, the funds were transferred from the LBP into an 80/20 BEETS/USDC weighted pool
  • The LP tokens received from depositing the remaining funds from the LBP were deposited into the BEETS/USDC farm on behalf of a time-locked vesting contract for 180 days. These farming rewards were not vested.

• Vested team funds:
  • 5% initial allowance (1,625,000 BEETS). None of these tokens have been or will be used in the BEETS/USDC farm
  • 95% linearly vested over 4 years

• Strategic partnerships seek to integrate other protocols. None of these funds are allocated to the core team members. For that reason, well-known community members will be responsible for handling a 2 out of 3 Strategic Partners multisig wallet. Among the signers are:

• Justin Bebis: smart contract engineer and co-host of Blockbytes (previously Fantom Unchained and Fantom Alerts). He provides technical guidance and advises the protocol

• Solarcurve: Balancer long-term contributor and community member. He is currently leading the growth of the discord AMA’s and weekly newsletter

The remaining supply after the initial mint will be emitted over 4 years according to the Emission Schedule as follows:

Token emissions are done by the MasterChef contract, which is also the owner of the BEETS token. Because of this, the MasterChef contract is the only entity that can mint new BEETS tokens following the set emission amount per Block.

• Out of the new token emissions, 12.8% of tokens are minted directly into the Treasury Multisig Wallet.
• The remaining 87.2% are distributed across all farms according to their weights
  • Users who participate in a farm will receive their share of emissions based on their share of the total liquidity in the farm

Treasury Funds

The community will make a decision about where to spend the Treasury Funds. This is ensured by a 3 / 4 multisig wallet consisting of 1 Beethoven team member and 3 well-known community members: Austin (Blockbytes), 0xwives, and Mike B (Baller).

 

 

 

Beethoven X NFT 

The protocol has launched a series of NFT collections that bring in extra utility for community members, facilitate partnerships, and grant access to exclusive gifts (such as Beta versions, whitelist spots in other collections…)

• The OG Collection features the first 500 NFTs created and hand-made by Vee, Beethoven’s designer.
  • This collection was minted to the 500 early liquidity providers as a symbol of gratitude for their support during the early stages of the project.
  • The artwork is inspired by music, culture, and the fast-moving world that characterizes modern life.
  • The collection was designed by Vee, Beethoven’s designer.
  • The collection is currently trading on Paintswap.

• Undead Partnerships Collection is a limited set of NFTs awarded for projects and individuals who have helped to bootstrap and engage with Beethoven’s community.
  • More items will be added to the collection as more partnerships are formed.
  • The collection was designed by Vee, Beethoven’s designer.
  • The collection is currently trading on Paintswap.

• Helpin Ludwigs is an exclusive collection of custom pfp avatars created by individuals and partners who have contributed to the protocol. 
  • Each avatar was crafted to represent the characteristics of the person who will own the NFT.
  • The collection was created as a sign of appreciation for the support of community contributors.
  • The collection was designed by Vee, Beethoven’s designer.
  • The collection is currently trading on Paintswap.

• Music for Peace and Love is an initiative created by the Beethoven X community to show our support for those in need during times of crisis. 
  • These NFTS are a symbol that our community strongly opposes violence and oppression and we hope they will serve to inspire others across the globe to unite towards a better world for all of its wonderful beings.
  • These NFTs were given to community members who donated to Ukraine when Ukraine was facing tough times.
  • The collection is currently trading on Paintswap.

• Mix-tapes and Mementos are a collection where the protocol team seeks to innovate and experiment with a variety of creative ideas. Unlike other collections, it is meant to be a dynamic and rapidly growing set of items that will not follow any particular theme.
  • The collection was designed by Vee, Beethoven’s designer.
  • The collection is currently trading on Paintswap.

As far as utility goes, all NFT holders of the collections mentioned above get access to the exclusive Ludwig Lounge, a VIP channel on the project’s Discord. This provides benefits such as:

• Early protocol announcements.
• Opportunities to try out and test beta versions before anyone else.
• Exclusive giveaways from other partner NFTs.
• Whitelist spots and early access to other NFT projects or protocol incentives.

The team also runs community competitions to engage with the community, such as the Battle of the Beets. This is a monthly competition that attempts to find the best community-made pool. Multiple prizes are reserved for the participants, such as:

• 10,000 BEETS shared between the top 3 pools. This is calculated by taking the annualized swap fee and dividing it by the average TVL during the competition period. This ratio shows the dollar amount generated per dollar of TVL
  • 5,000 BEETS for the first
  • 3,500 for the second
  • 1,500 for the third
  • Bonus points will be scored for the following:
  • Highest number of unique users entering the pool
  • Gather more than $50,000 in TVL with a maximum weight discrepancy of 80/20
  • Innovative pool name
• Exclusive NFT for the most innovative pool name
• Exclusive NFT is the pool manages to gain entry to the Gauge Vote
• Exclusive NFT for the pool with the highest number of users

To participate, users will compose their own liquidity pool by choosing the tokens of the pools, setting the swap fees, and letting their imagination come up with innovative designs that attract more TVL and revenue to the protocol. 

Governance

The Governance system has the goal of “bringing power back to people”. This is achieved via the BEETs token, which grants users the ability to influence the evolution of the protocol through decentralized governance.

One narrative that got a lot of traction in the Fantom community is the Beets Wars, a bribing voting system by which fBEETS holders and protocols participate bi-weekly to make decisions about what pools should be rewarded with BEETS token emissions. Thank to voting governance, each fBEET holder has the right to distribute voting powers among pools of their choice. Ultimately, this voting allocation decides the amount each pool receives from the 30% of BEETS emissions during the following 2-week period. By offering bribes as an incentive, protocols compete to maximize the amount of rewards they will get distributed to their own pool from the protocol.

fBEETS holders and users who have staked fBEETS need to take into account the following requisites in order to participate in the bribing voting mechanism:

• Farming incentive gauge votes happen on a bi-weekly basis.
• Each voting round begins on Thursday and closes on Sunday of the same week.
• Prior to the next voting round, a random snapshot is taken to whitelist the wallets holding fBEETS. The snapshot timing is not publicly announced (to uphold the integrity of the voting system). 
• fBEETS staked in the Fidelio Duetto pool are included in the snapshot.
• fBEETS staked in auto-compounding protocols that are external to Beethoven are not included in the snapshot.
• Votes can be distributed across multiple pools by assigning different weights to each.
• It is possible to update a vote, even after the user has voted. 
• All bi-weekly voting proposals can be found on Beethoven’s snapshot page.

The maturity curve introduced by the Reliquary introduces a new paradigm for on-chain governance. Instead of taking random snapshots, every user is required to engage in a period of maturity in order to be able to access the voting power. In order to ensure active participation, the team has been in touch with other Liquidity-as-a-service protocols like Convex, Aura, and LiquidDriver. These discussions helped the team to model the adequate maturity schedule.

Users can keep track of proposals in the dedicated Beets Wars Twitter account: https://twitter.com/Beets_Wars 

Insights about operational costs are a good example of the degree of transparency and open communication that the team gives the the community. For instance, BIP-36 explained the costs associated with running the project’s infrastructure and proposed to the DAO allocating a budget to ensure the runway of the protocol in the long term.

Every week, the team publishes an article on their Medium blog with updates about the progress being made. This series of posts is known as the “Concerto Programme”, and it covers development, governance, and marketing updates among other news relevant to community members. Similarly, monthly performance reports as well as quarterly reports are also published. These reports will highlight the most relevant updates, showcase the protocol’s performance, inform about the top performing pools, analyze BEETS performance, go over growth metrics…

Beethoven X also has an analytics site where key metrics such as TVL, weekly fees, and weekly volume are shown as below.

By committing funds to the bug bounty, the team shows its contribution and efforts to keep the protocol secure in the long run. This promotes a healthy environment that leads to a safer user experience. 

Risks

Security

All protocol contracts are immutable and not upgradeable. However, a fine-tuned authorization mechanism allows for access-control permissions at the function level. The access to all protected functions is managed by the Authorizer contract.

The default admin role does not give permission to execute protected functions but allows for granting or revoking roles to other entities (or himself).

Any entity that is granted the default admin role can grant or revoke permissions at the function level. Currently, all roles are granted to the Admin multisig.

The MasterChef contract is the owner of the BEETS token and is subject to a 6-hour minimum and 30 days maximum timelock delay of exactly 6 hours. The timelock admin is the MasterChef Admin multisig

While the LBP as a service offered by Beethoven is a permissionless process where protocols can set up their own parameters, the team has implemented a security review process that will grant those protocols an “approved” status. By granting this status, users can be sure that it is safe to participate in the event if they wish to do so.

Audits

Beethoven uses Balancer V2 contracts verbatim and, therefore, all the completed audits apply:

• Abdk, 2022-04-15: https://github.com/balancer-labs/balancer-v2-monorepo/blob/master/audits/abdk/2022-04-15.pdf 
• Certora, 2021-04-19: https://github.com/balancer-labs/balancer-v2-monorepo/blob/master/audits/certora/2021-04-19.pdf 
• Certora, 2022-09-01: https://github.com/balancer-labs/balancer-v2-monorepo/blob/master/audits/certora/2022-09-01.pdf 
• OpenZeppelin, 2021-03-15: https://github.com/balancer-labs/balancer-v2-monorepo/blob/master/audits/openzeppelin/2021-03-15.pdf 
• OpenZeppelin, 2021-10-09: https://github.com/balancer-labs/balancer-v2-monorepo/blob/master/audits/openzeppelin/2021-10-09.pdf 
• Trail of bits, 2021-04-05: https://github.com/balancer-labs/balancer-v2-monorepo/blob/master/audits/trail-of-bits/2021-04-05.pdf 
• Trail of bits, 2021-12-22: https://github.com/balancer-labs/balancer-v2-monorepo/blob/master/audits/trail-of-bits/2021-12-22.pdf 
• Trail of bits, 2022-06-22: https://github.com/balancer-labs/balancer-v2-monorepo/blob/master/audits/trail-of-bits/2022-06-22.pdf 
• Trail of bits, 2022-09-22: https://github.com/balancer-labs/balancer-v2-monorepo/blob/master/audits/trail-of-bits/2022-09-22.pdf 

Additionally, Beethoven has also completed an audit with Trail of Bits: https://github.com/trailofbits/publications/blob/master/reviews/BeethovenXSummary.pdf 

Bug Bounties

Beethoven also joined Balancer Labs’ Bug Bounty Program in April 2021 with a top prize of 1,000 ETH. The following contracts are eligible as part of the initiative:

• Vault
• WeightedPoolFactory
• WeightedPool2TokensFactory
• StablePoolFactory
• Authorizer

Bug bounty payouts will be split based on the severity of the vulnerability:

Smart contracts

• Critical  ($50,000 to $500,000)
  • Critical vulnerabilities are capped at 10% of the economic damage considering the funds at risk
  • A minimum reward of $50,000 is guaranteed
  • These vulnerabilities involve the direct theft of funds, unclaimed yield, permanent freezing of funds, or excess in swap fees
• High ($5,000 to $20,000)
  • These vulnerabilities include permanent freezing of unclaimed yield, theft of unclaimed yield, or temporary freezing of funds for a minimum period of 1 hour

Web application

• Critical  ($20,000)
  • Direct theft of user funds
  • Malicious interactions with an already-connected wallet, such as modifying transaction parameters, substituting smart contract addresses, or submitting malicious transactions
• High($10,000)
  • The scope includes the execution of arbitrary commands, taking down the application, and taking over the domain.
• Medium ($2,000)
  • The scope covers injecting/modifying static content without javascript, such as an HTML injection replacing existing text with arbitrary text, file uploads…, redirecting users to malicious sites, and retrieving sensitive data from servers or databases.

For any rewards paid out by Balancer, Beethoven will pay an additional bounty:

• For vulnerabilities in the Critical and High categories, an additional 10% will be paid
• For vulnerabilities in the Medium and Low categories, an additional 20% will be paid

All vulnerabilities must be reported with a Proof of Concept that shows the level of impact and scope of the vulnerability in the protocol operations. All high and critical bug reports require a fix to be eligible for a reward. Simple statements and explanations are not accepted as PoC if there is no accompanying code.

Assets in Scope

The bug bounty will not cover attacks or bugs that require access to sensitive data (passwords, credentials…), incorrect data supplied by oracles, flash loan attacks, absence of enough liquidity, sybil attacks…

Dependencies on other protocols, liquidity risk, asset risk…

As Beethoven X is a Balancer friendly fork, there is some degree of dependency on Balancer. 

Incident 1

On January 6, 2023, Balancer tweeted that protocol fees of some Balancer pools have been set to 0 to avoid an issue (that will be disclosed in future) that has been mitigated using the emergency multisig. Because of a related issue, Balancer also tweeted that liquidity of certain pools should be removed as the issue cannot be mitigated by the emergency DAO. Among the affected pools, 3 of them are pools on Beethoven X, with 2 pools on Optimism and 1 on Fantom.

Incident 2

On January 11, 2023, Beethoven X released a medium article about the vulnerability disclosure. It was mentioned that 90% of combined TVL (2.8M) in the affected pools have since been removed by users and urged liquidity providers to remove funds ASAP. Farm emissions for the affected pools have been paused.

Incident 3

On August 22, 2023, Balancer received a report of a critical vulnerability affecting certain V2 pools. This also affected some of the pools on Beethoven X. On September 20, 2023, Beethoven X released a postmortem regarding the situation.

Despite multiple efforts across social media, only about $400k, roughly 25% of the TVL at risk, was withdrawn, still leaving almost $1.5M TVL at risk.

On Sunday morning, August 27th, the first successful Beethoven X exploit occurred on Fantom, roughly coinciding with the first Balancer exploit on Mainnet.

Over the coming hours and days, multiple attacks were launched on both Fantom and Optimism on the various pools at risk, with a total loss of around $1.1M on Fantom and around $320k on Optimism.

Additional Information

Investors 

Beethoven X has raised no funds from VCs investments.

FAQ

What is price impact?

Price impact is how much the price of an asset changes after a swap execution on one of its trading pairs. This occurs due to the AMM pricing being dependent on token balances. Since swaps modify the balances of the assets in the pool, so does the price of such assets.

What is slippage?

Slippage is the change in token prices between the time when a transaction is sent to the blockchain, and the time when that transaction is actually executed.

What is the Smart Order Router?

The Smart Order Router is a system that automatically detects the most efficient path to be followed by a trading order

How does the protocol collect and redistribute fees?

Every time there is a trade in a pool, the pool collects a trading fee denominated in the input token (the token you are selling). This fee is collected by the pool. Users can claim their proportional share of the pool with their LP tokens

THE unBEETables

the unBEETables is a community initiative launched on February 22 2023. It focuses on community development through a series of Quests centered around learning, creativity and community engagement.

It is hosted on Crew3 (a web3 community platform) and is integrated through Beethoven’s social media platforms. Users are able to earn unique rewards, unlock new features, gain access to an inclusive community of like-minded contributors, and rise through the ranks with a chance at winning an exclusive BEETS superhero NFT.

Its aim is to encourage community content creators to contribute towards the larger efforts of education in DeFi as well as build an engaged network of talented, like-minded individuals.

The initiative works through the following system:

• Everyone starts with the Sidekick role.
• Participation in quests levels up the rank via Discord.
• A sufficient rank allows participation in exclusive Superhero NFT giveaways.
• Every month, the Sidekick users at the top of the leaderboard (and the highest rank in the discord) unlock the chance to officially join the unBEETables.
  • Users who achieve this prestigious rank will receive a 1/1 exclusive and personal BEETS SuperHero NFT. They also unlock an exclusive UnBEETables chat and have the opportunity to become more closely intertwined with content creation for the Beethoven X brand.

Community Links 

Official Links

• Beethoven dapp: https://beets.fi/ 
  • Invest:  https://beets.fi/pools
  • Compose a pool: https://v1.beets.fi/#/pool-create 
  • Swap: https://beets.fi/swap 
  • Stake (FTM): https://v1.beets.fi/#/stake 
  • Launch (FTM): https://v1.beets.fi/#/launch 
  • Vote: https://snapshot.org/#/beets.eth 
  • Olympus bonds: https://pro.olympusdao.finance/#/bond 
• Discord: https://discord.gg/jedS4zGk28 
• Twitter: https://twitter.com/beethoven_x 
• Beets Wars twitter account: https://twitter.com/Beets_Wars 
• Medium: https://beethovenxio.medium.com/ 
• Github: https://github.com/beethovenxfi 
• Analytics: https://info.beets.fi/ 
• Docs: https://docs.beets.fi/ 
• Contract deployments: https://docs.beets.fi/developers/deployments 
• Subgraphs: https://docs.beets.fi/developers/subgraphs 

Crypto Community Links

• Multichain bridge: https://app.multichain.org/#/router 
• Allbridge: https://app.allbridge.io/bridge?from=SOL&to=FTM&asset=SOL 
• Defillama: https://defillama.com/protocol/beethoven-x 
• Balancer simulations research group: https://discord.com/invite/KTUPMCRZNQ 
• Guides:
  • How to verify a permissionless pool: https://docs.beets.fi/developers/pool-verification 

Revision History

Version 0.0 | Dec. 17, 2022 – Initial Release

Version 1.0 | Feb. 24, 2023 – Reliquary Integration, The unBEETables

Version 1.1 | Mar. 6, 2023 – Added ticker and price chart for $BEETS

Version 1.2 | June. 5, 2023 – Added section 5.1.2, 8020 adoption

Version 1.3 | Sept. 21, 2023 – Added section Incident 3.