The Stalk System: DeFi's First Bank Run Minimization Mechanism
One of the two primary problems that an algorithmic stablecoin must solve is how to minimize bank runs.
Bank runs are inevitable: because there is always less liquidity than value in the system, there is no way for every participant to exit the system without the value of their assets decreasing. The more people who leave, the less value available for others to do the same. Therefore, if some people leave, it can scare others into leaving as well, kicking off a bank run.
In other words, algorithmic stablecoins are highly reflexive. When the going is good, people pile in to participate in the yield generated by the growth of the protocol. But, when the momentum shifts in the opposite direction, a trickle can quickly turn into a rapid outflow.
Therefore, a properly designed algorithmic stablecoin must have a highly effective and anti-reflexive bank run minimization mechanism.
To Run, or Not to Run
That is the question every holder of an algo stable faces once a bank run starts. In order to survive, the protocol must create sufficient incentives for people to stay.
The main incentive algo stables are able to offer participants is yield in the form of more currency, which increases supply. However, during a bank run the protocol is trying to reduce supply, not increase it. If it increases the supply during a bank run, it will only exacerbate the run.
The key insight of the Stalk System is that while the protocol cannot mint more currency during the bank run, it can offer higher yields in the future when the protocol is minting for those that stuck around during the run.
In more traditional economic terms, the Stalk System creates an explicit opportunity cost of future mints for people that participate in the bank run and then rejoin the system later.
Stalk System 101: Stalk and Seeds
The Stalk System uses two assets, Stalk and Seeds, to create this opportunity cost. Stalk entitles users to a pro rata portion of all mints. Seeds yield more Stalk every hour.
Upon Deposit, Depositors receive Stalk based on the Pinto Denominated Value (PDV) of the Deposit, and Seeds based on the asset Deposited and the PDV of the Deposit.
The opportunity cost for participating in bank runs is created because upon Withdrawal, all Stalk and Seeds, including Stalk accumulated from Seeds, associated with the Deposit are burned.
During a bank run, Depositors must decide between staying put to keep all of the Stalk from Seeds they have accumulated since they initially Deposited – and continuing to earn Stalk until the printing resumes – or leaving and burning their Stalk that has accumulated from Seeds during the duration of their Deposit.
Anti-Reflexivity
An effective bank run minimization scheme must be anti-reflexive: the deeper into the bank run the protocol gets, the more the bank-run minimization scheme must incentivize staying put.
In the case of the Stalk System, as other Depositors Withdraw from the protocol and burn their Stalk, the marginal benefit of each remaining Depositor's Stalk from Seeds increases because it represents a larger and larger portion of the total Stalk.
Shorter Bank Runs
The Stalk System is designed such that if a Depositor decides to participate in the bank run, they are incentivized to run as soon as possible, because their Stalk from Seeds are worthless to them anyways.
This naturally segregates participants into two categories: bank runners that leave immediately once a bank run starts, and long term Depositors that stick around.
While this leads to short periods of high volatility during which short term holders leave the system, it has the benefit of ending the bank run sooner so the system can then swiftly return to its value target. In other words, given that bank runs are inevitable, the protocol creates the conditions to get them over with and then efficiently return to a healthier state.
Fair to New Participants
The original Stalk System had a fixed number of Seeds for each asset on the Deposit Whitelist, which had a drawback: it was essentially impossible for newer Deposits to ever catch up to the Stalk of older Deposits of similar size. This problem made it unattractive for new Deposits to enter the system, and was exacerbated during extended periods without any mints, which is exactly when the system wants to attract new Deposits most.
The solution was to upgrade the Stalk System to include a parameter in the protocol – currently set to 6 months – that makes it such that a new Deposit with an average number of Seeds per PDV will catch up to the average Stalk accumulated from Seeds per PDV across all Deposits, at the time of the new Deposit, in that time frame.
Properly setting this parameter is a balancing act. If the time to catch up is set too high, then it discourages new Deposits; if it is set too low, then the opportunity cost created by the Stalk System may be insufficient to discourage participation in bank runs.
In practice, this solution dramatically decreases the friction for new Deposits to enter the system, more equitably distributes new supply when the protocol is growing and facilitates more decentralized ownership.
Silo Rewards
Maximizing the various forms of yield accrued in the Silo, which are explained here, requires active claiming:
Earned Pinto are Pinto that have been paid to a Stalkholder since the last Season the Stalkholder claimed (Planted) them. Upon Plant, Earned Pinto become Deposited Pinto.
Earned Stalk are Stalk earned from Earned Pinto. Earned Stalk automatically contribute to Stalk ownership and do not require any action to claim them.
Grown Stalk is the Stalk earned from Seeds. Grown Stalk does not contribute to Stalk ownership until it is claimed (Mown). Mow can be called on its own, and it is also called at the beginning of any Silo interaction (Depositing, Withdrawing, Converting, Planting, etc.). Throughout the Pinto documentation, Mown Stalk is often referred to as "Stalk accumulated from Seeds".
Plantable Seeds are Seeds earned in conjunction with Earned Pinto. Plantable Seeds must be Planted in order to grow Stalk.
In Summary
Bank runs are unavoidable for algorithmic stablecoins, but they can be managed. Pinto’s Stalk System does this by turning reflexivity on its head: those who exit realize an opportunity cost in the event of the protocol's future success, while those who stay see their share of future mints grow. This design shortens bank runs, rewards long-term participants, and ensures new entrants can still compete for yield, making the system more resilient and equitable over time.
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