The Silo is the Deposit facility of the Pinto protocol.
Pinto, like any currency, requires liquidity to thrive—and the Silo is its mechanism for incentivizing it. Like many blockchain-native assets, Pinto is traded on an Automated Market Maker (AMM) exchange similar to Uniswap, known as the Pinto Exchange. Users can provide liquidity and receive LP tokens which they can stake, along with plain Pinto, in the Silo to earn yield whenever Pinto trades above its $1 target.
When users deposit assets in the Silo, they receive Stalk and Seeds:
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Stalk represents a depositor's proportional claim to future Pinto supply growth.
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Seeds continuously produce 1/10000 additional Stalk every hour, increasing a depositor's yield over time.
Stalk is forfeited when a user Withdraws their Deposit. Users can also take action within the Silo to move their Deposits between Pinto and various liquidity pools. This mechanism is called Converts and will be examined closely in another article.
Note that although the workflow for depositing in the Silo consists of multiple steps, they are performed in only one transaction via the Pinto UI.
Here is an illustration of the complete lifecycle of a Silo Deposit:
Key terms
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LP tokens: Tokens that represent liquidity positions in Pinto Exchange liquidity pools (known as Wells).
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Stalk: An asset linked to Deposits that represents a user's proportional claim to future yield from Pinto's supply growth.
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Seeds: An asset linked to Deposits that determines how quickly Stalk grows for a given Deposit.
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Grown Stalk: Accumulated Stalk linked to a Deposit that has accumulated over time from Seeds. All Grown Stalk is lost upon Withdrawal.
Importance of Stalk for system health
Stalk differentiates Pinto's Silo from traditional staking mechanisms. Besides representing a user's ownership of newly minted Pinto, Stalk minimizes bankruns and stabilizes the whole system. Because Seeds generate additional Stalk over time, the longer assets remain deposited, the more Grown Stalk and potential future yield a Deposit can receive. Withdrawing results in the total loss of Grown Stalk for a given Deposit, creating an ever-increasing opportunity cost and discouraging sudden liquidity exits.
Consider this simplified example: A user picks a whitelisted pool, adds liquidity and deposits. Upon depositing, they receive 1000 Stalk and 2000 Seeds. After 1 month, Seeds have yielded 146 Grown Stalk (730 hours * (2000 Seeds * 1/10000 Stalk per Seed per hour). The user’s total Stalk balance is now 1146, meaning that, all else being equal, the user will have a 11.46% boost on the yield received from their Deposit! It also means that if they were to Withdraw, they would essentially lose 1 month's worth of additional potential yield.
The more time passes in the Silo, the bigger the opportunity cost to Withdraw, making Deposits “sticky” and keeping the system healthy.
Evaluating conditions in the Silo
When using the Silo, there are a few things you have to keep in mind.
First of all, you need to consider the whitelisted token that you will be depositing. This can be either Pinto that you buy from the open market or an LP token that you acquire after adding liquidity to any liquidity pool that is incentivized by the protocol. This choice comes down to 2 things. The Seed amount of each whitelisted token and the implied asset exposure that comes with each token.
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Seed rates vary among assets and change gradually each hour based on the Seed Gauge System, influencing the amount of Stalk (and therefore yield) you will be eligible for.
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You can monitor the seed amounts in the Silo page of the Pinto UI here: https://pinto.money/silo
- Implied exposure is harder to quantify. What’s important to understand is that when you deposit a whitelisted LP token from a pool where Pinto is paired with a volatile asset, you’re also taking on exposure to that asset’s price movements. For example, say you are bullish on ETH and decide to add $1000 of liquidity to the PINTO:WETH liquidity pool and deposit in the Silo. Your Deposit will have roughly ~50% or ~$500 of ETH price exposure along with 50% Pinto price exposure. On the other hand, if you decide to deposit plain Pinto, your Deposit value will fluctuate only based on the Pinto price. If the Pinto price is low enough and you think Pinto will outperform the other volatile assets as it goes back to its target, it is possible that the arbitrage opportunity creates higher upside than allocation to volatile LPs.
To avoid older participants monopolizing the Stalk supply due to Seed growth and to encourage new participants, Pinto implements a mechanism called “Target Seasons To Catch Up”. This determines the target time needed for a new Deposit to catch up to the average existing Deposit in terms of Grown Stalk. This number is currently set to 6 months and is achieved by modifying the number of total available seeds each hour to achieve a target stalk inflation rate. Through this system, Pinto ensures fairness in decentralizing the Stalk supply over time.
Converts & Value Target
The Silo uses a novel Convert Mechanism to guide the Pinto price towards its $1 target. The Silo allows Conversions between Deposited LP tokens and Deposited Pinto, using Seeds and price arbitrage as incentives.
When Pinto is trading below its price target, the Silo allows Conversions from LP tokens to Pinto, providing users the opportunity to exit their exposure to the paired volatile asset and buy Pinto at a discount, profiting if Pinto returns to its price target. This creates upward price pressure on Pinto.
Conversely, when Pinto trades above the price target, the Silo allows Conversions from Pinto to LP tokens. This enables users to sell Pinto at a premium and gain exposure to the paired asset in the process, pushing the price of Pinto down.
Converts are a complex mechanism that will be thoroughly examined in another article.
By now, you should have a solid understanding of the Silo and how to use it to participate in the Pinto protocol. You can explore it firsthand and start interacting with the Silo anytime through the official Pinto UI: https://pinto.money/silo
Relevant Links:
Pinto App: https://pinto.money/overview