Beethoven-X is a relatively new Fantom based decentralized exchange and investment platform. The project was announced in September 2021 with a launch shortly thereafter on October 7. It packs a plethora of new features including custom weighted investment pools, stable pools, low cost trading & deep liquidity with smart order routing and lucrative earning potential for liquidity providers. This has helped propel Beethoven-X up the Defi Llama ladder to place it as one of the top projects on Fantom. The team at Beethoven-X are committed to maximizing the risk-adjusted return through constant experimentation and optimization. Their goal is to become the number one decentralized exchange on fantom.
The project is personified by a reincarnated cartoon of Beethoven who is back from beyond with the help of the loyal community of Beethoven-X users, lovingly referred to as Ludwigs. Throughout the project you can find a multitude of references to Beethoven and music with a ghastly twist. These themes are evident throughout the project from the names of their liquidity pools (The Grand Orchestra & Fantom of the Opera) right down to their token name (Beets). It is clear that the team at Beethoven-X want users to have fun whilst creating wealth.
The Friendly Fork on Fantom
Beethoven-X is a ‘friendly fork’ of Balancer V2 which is a protocol on the Ethereum network. A fork is a copy of an existing project that is run by a new team. Balancer V2 is a decentralized exchange which has innovated with features such as weighted pools, stable pools and smart order routing, all discussed below in detail. In this case, the Balancer team has given the Beethoven-X team their blessing to fork the project over to the Fantom network, hence the ‘friendly fork’. Although both teams collaborate closely, the Beethoven-X team is free to develop their protocol in their own way. Beethoven-X is focused on improving the UX and accessibility of the Balancer platform.
Weighted Pools: The DeFi Index Fund
The stand out feature of Beethoven-X is the ability to provide liquidity into weighted investment pools of up to 8 different assets. These pools function much like an index fund in traditional finance. Upon entering a pool, the initial assets are split into the pool components based on pool defined ratios. The easy to use interface saves users the hassle of getting each of the individual assets and allows them to deposit with a few clicks.After entering the weighted pool, the ratio is automatically maintained, or “balanced”, over the life of the investment. In a traditional finance index fund, investors pay advisors management fees to balance their portfolios. Here users collect trading fees from arbitrageurs who balance the pools. As an asset becomes over or under weighted in the pool, the buy and sell value of the asset will stray from the market value. These small price fluctuations incentivises arbitrageurs to buy and sell these assets into the pools until the correct weighting is achieved.
There are many preset pools for investors to choose from which cover a broad range of assets. Some examples include:
- Fantom Of The Opera – 30% USDC & 70% wFTM
- The Grand Orchestra – 33% wFTM, 33% wBTC & 33% wETH.
- Fantom Conservatory of Music – 25% wFTM, 12% SPIRIT, 12% BOO, 12% TAROT, 12% ANY, 12% SCREAM% 15% BEETs.
Users are also able to create their own custom weighted pools, choosing up to 8 assets in whichever composition they desire. Be aware that low liquidity pools can be susceptible to market manipulation so it may be best to stick to larger pools.
There are three main benefits of using weighted pools:
- Exposure control: Users can choose their level of exposure of assets while still providing liquidity.
- Impermanent loss: The higher a token\’s weight in a pool, the less impermanent loss it will experience in the event of a price surge.
- Trading pairs: By allowing pools to be customizable with multiple different tokens, the number of trading options grows significantly with each additional token.
Smart Order Routing
Trading on Beethoven-X is powered by the Smart Order Router v2 (SOR). On a standard DEX, users can only trade between the two tokens in each liquidity pool. SOR intelligently analyzes all of the pools which contain the desired tokens to find the optimal trading route. This could be a direct swap in one pool or bundling several transactions across multiple pools. The SOR also takes into account slippage and gas costs to ensure the best outcome for the trader.
SOR also benefits liquidity providers, especially those in smaller liquidity pools. On a traditional DEX, trading between an obscure pair can often have low volume. In contrast, SOR helps utilize all of the liquidity on the protocol. When SOR looks for the best path, it can often include trading with intermediary assets. This can give a boost in trading volume to these pools which means more trading fees to the liquidity providers.
Here is an example of the SOR where a user is swapping USDC for wFTM.
Traders can additionally benefit from low slippage on large trades of stable assets such as stable coins or synthetic assets. Stable Pools is based on technology popularized by Curve which allows for significantly larger trades before encountering substantial price impact, vastly increasing capital efficiency for like-kind swaps.
Beethoven-X collects fees via trades and flash loans at the following rates:
- Fixed Swap Fees: 0.25%
- Dynamic Swap Fees: Custom fee set by pool owner which can be from 0.0001% – 10%
- These are paid by traders utilizing the swap feature
- LP providers will also pay this by depositing an unequal weight of assets into a pool.
- Flash Loan Fee: 0.03%
- Paid for access to the protocol\’s liquidity.
85% of all swap fees are paid back directly to liquidity providers. The remaining 15% are distributed as follows:
- 50% is invested into liquidity pools managed by the treasury committee within the DAO structure.
- 30% are used to buy back BEETs/wFTM LP as farming rewards to fBEETs holders.
- 18% team salary, infrastructure and future development
- 2% Beethoven-X Climate Fund
The BEETs token is the governance token for the Beethoven-X protocol which is minted and provided to liquidity providers to incentivize them to use the platform. BEETs has a total maximum supply of 250,000,000 which is due to be emitted over 4 years.
At the protocol\’s inception, there was an initial mint of 22% of the total maximum supply which was allocated as follows:
- 2% for market liquidity at launch via Liquidity Bootstrapping Pool
- 7% allocation for strategic partnerships and development
- 13% vested team funds for operation costs, overhead, infrastructure, salaries
Only 5% of the team funds were initially unlocked with the remaining vested linearly over 4 years.
The remaining supply has been allocated as follows:
- 68% farm emissions
- 10% treasury
The emission schedule is aggressive in the first year with over 5 BEETs / block being emitted for the first 30 days with an exponential decrease thereafter. By day 390, the emission will have decreased to 1.6 BEETs / block before following a more linear decline in emissions.
With this emission schedule, users could expect a large amount of sell pressure early on as some users stake their BEETs and others sell them off for profit. When the protocol is emitting the most tokens is likely when the user base will be its smallest. As the protocol acquires more user demand will increase but emissions will decrease; increasing buy pressure.
To further reward BEET farmers, Beethoven-X offers a profit sharing in the form of fBEETs.
This means users who farm fBEETs are earning three rewards:
- Swap fees earned as a Liquidity Provider (BEETs and FTM)
- Farm incentives (BEETs)
- 30% of Protocol Revenue (Fidelio Duetto LPs)
To obtain fBEETs and start receiving the additional rewards, users must:
- Create a Fidelio Duetto LP token (20% wFTM & 80% BEETs)
- Stake the LP token to receive fBEETs.
- Deposit fBEETs into the fBEETs farm.
Beethoven-X converts 30% of protocol revenue to Fidelio Duetto LPs (BEETs/wFTM). These LPs are then distributed to fBEETs farmers. This means staking fBEETs awards users swap fees and LP tokens. which further increases swap fees awarded. The fBEETs crypt on Reaper Farm will stake rewarded LP tokens for more fBEETs which are in turn staked. This makes fBEETs an attractive asset for long term holders of BEETs.
If users do not want to manually harvest their fBEETs rewards users can use Reaper Farm to automatically stake LP tokens and create more fBeets.
Security & Safety
Beethoven-X’s smart contracts are exact copies of the contracts used by Balancer V2. This can be confirmed with a script in the Beethoven-X documentation. All contracts are immutable and non upgradeable. By forking Balancer, Beethoven-X inherits battle-tested code but also any security flaws that may arise. The good news is that Balancer V2 launched in April 2021 and has not suffered any major security issues so far.
Audits and Bug Bounty
Balancer V2 contracts have been fully audited three times by Certora, OpenZeppelin and Trail of Bits – all top tier auditing firms. These audits did not uncover any major security issues. Additionally, Balancer has an active bug bounty program that rewards users who identify contract vulnerabilities. Rewards for finding flaws are as high as $2,000,000 or 1,000 ETH, whichever is greater. This should provide users confidence that the team is proactive about security.
One of the most dangerous attack vectors in all cyber security is admin authorization. If a hacker acquires admin access to a crypto protocol it can be devastating. It’s a big red flag if a protocol\’s admin access can be accessed by any single private key. This is known as a single point of failure. A hacker only needs to acquire one key in order to completely destroy the protocol. To mitigate this risk, Beethoven-X employs a 3/4 multisig wallet to access admin authorization. This means a hacker would need to acquire three different private keys from three different people to access the Admin Authorization.
In the event of a crisis, the team is generally unable to interact with funds directly. This is due to the trust-less nature of DeFi and crypto at large. There is one exception, in the event of a serious vulnerability being discovered; the team can activate an emergency pause for up to 30 days. During this time, trading is halted and liquidity cannot be deposited to the vault, only withdrawn by existing users. This can only be activated within the first 90 days of the creation of the vault. After three months, the mechanism cannot be activated by anyone.
Case Study Safety
There are two general ways to manage IL with Beethoven-X. Pool composition and pool weighting. For pool composition, picking tokens which are highly correlated greatly helps mitigate IL. Since the tokens rise and fall together there will be minimal reallocation between the assets.This makes stable pools an attractive farming vehicle despite the more modest returns. Pool weighting can also offset impermanent loss. In pools with higher ratios like 80/20 or 95/5, allocations are so lopsided that reallocation rarely occurs.
It is also worth mentioning some general smart contract risks. Ultimately— when you send your funds to a protocol like Beethoven-X it leaves your one-in-a-billion wallet address and becomes part of a large target for nefarious or bad actors. Just like in real life, a clever robber won’t try to rob your house, they’ll hit the bank.
Overall, the Beethoven-X team is very transparent with how the project is run. All contracts and wallets are publicly available within their documentation. The treasury is 100% community owned and maintained, with all funds managed through governance votes.
Team and Community
Beethoven-X is run by an anonymous team which consists of:
- jeffery#1834 –Technical Director
- danielmk#2619 — Lead Dev
- kindhuman2000#1085 — Community Manager
The Beethoven-x team have also organized trusted community members into committees to have informed discussions on specific issues. For instance, there is a liquidity committee that is responsible for adjusting the emission rates of pools to maximize liquidity efficiency. These are community led and the team acts in an advisory role.
Beethoven-x\’s community is very much centered on Discord which currently consists of over 3.5K users. Discussions range from protocol fees, investment strategies to classical music. The team is very active on Discord where they make announcements, helping users and host AMAs.