Original author: Deep Tide TechFlow

When Bitcoin exceeded $90,000, various ecosystems in the crypto market began their own celebrations.

AI storytelling continues to be hot, Meme continues to play out wealth creation myths... But in this carnival, the projects in the BTC ecosystem are more like outsiders: It's all about them, and I have nothing.

Obviously, the positive effects of Bitcoin pump have not spilled over too much into our own ecosystem projects.

Even compared to the 'most unreliable' Ethereum, the proud Decentralized Finance sector accounts for nearly 17% of Ethereum's total Market Cap, while BTC basically maintains a 50% Market Cap share of the entire market. However, its total locked value (TVL) in the Decentralized Finance ecosystem is less than 1% of the entire market (data from CMC research report).

However, the crypto market has always followed the rule of attention and narrative rotation.

A large gap also contains phased opportunities. After the inscription and stake gameplay, the BTC ecosystem fell silent; there is also the possibility of being ignited at any time in the face of a huge gap.

Some projects that have been deeply involved in the BTC ecosystem for many years may also have their own opportunities, often just lacking a catalyst.

While various Meme coins are experiencing a "boom and pull" situation, Stacks, as one of the earliest Layer 2 solutions for BTC, has chosen a quiet path - focusing on technical transformation and finally completing the long-awaited Nakamoto upgrade.

Don't forget, last year STX also had a similar Meme-like temperament, and the price was pumped 10 times at one point.

What will this upgrade bring and will it be a new opportunity for start-up?

In the current speculative market environment, how much room for imagination does a project like Stacks, which focuses on technological innovation, still have?

Old store new exploration, let us meet Stacks, this old friend, again.

Nakamoto Upgrade, Not Just Technical Refactoring

The core of Nakamoto's upgrade lies in the comprehensive innovation of the PoX Consensus Mechanism of Stacks 2.0. To understand the significance of this upgrade, we need to first understand the limitations of the existing PoX mechanism.

In the current PoX mechanism, the confirmation of Stacks Blocks requires waiting for a new Block to be generated in the BTC network. Although this mechanism inherits the security of BTC, it also brings efficiency issues: even simple transactions require waiting for the BTC network to generate a block for about 10 minutes. More importantly, since the confirmation of Stacks Blocks relies on the accumulation of BTC Blocks, users often need to wait for multiple BTC Blocks (usually 6 blocks, about 1 hour) to ensure the finality of the transaction.

And the analysis of GrayScale is even more intuitive in showing the possible performance difference before and after the upgrade:

(Data Source: Grayscale Research)

The new Nakamoto PoX solves this performance issue by introducing the "Fast Block Confirmation" mechanism. The upgraded system allows transactions to be pre-confirmed through the internal Consensus Mechanism while waiting for BTC block confirmation. This allows most transactions to be confirmed within minutes while still maintaining security binding with the BTC network.

In terms of security architecture, the upgrade has brought substantial improvements. The original Stacks, while writing its Block hash value into BTC transactions, had potential risks due to this one-way security inheritance. Under the new architecture, Miners are required to simultaneously participate in BTC Mining and Stacks validation, creating a two-way security verification mechanism. This not only increases the cost of attack, but also ensures the honest behavior of validators through economic incentives.

The improvement in interoperability is reflected in the reconstruction of the underlying architecture. Prior to this, the interaction between Stacks and the BTC network required the complex Relay mechanism, which not only increased latency but also introduced additional trust assumptions. The new architecture adopts a direct state verification mechanism, allowing Stacks Node to directly read and verify the state of the BTC network, greatly simplifying the complexity of Cross-Chain Interaction operations. This improvement lays the foundation for subsequent innovative applications, especially the implementation of sBTC.

We can also use a table to quickly understand the details and possible implications of Nakamoto's upgrade.

At the same time, according to the analysis in the grayscale's research report, after the upgrade of the Satoshi of Bitcoin, Stacks protocol will provide unique features including:

(i) BTC collateralized stablecoin,

(ii) BTC-based lending (and BTC native rewards),

(iii) Based on BTC's Decentralized Autonomous Organization.

Similar to how the basic financial primitives in 2017 drove the development of the Ethereum Decentralized Finance ecosystem, given BTC's current highly followed status, its ecosystem may also be thriving now.

sBTC, the innovative application of BTC on Stacks

This upgrade looks good, but what substantial changes will it bring to the ecosystem and products?

From Stacks' own perspective, a new product that comes with the upgrade is sBTC.

As a BTC bidirectional anchoring protocol of Decentralization, the design intention of sBTC is simple: to make BTC, known as "digital gold," more flexible and become a productive asset with true Programmability.

So the sBTC mentioned in the above table can be understood as an innovative BTC encapsulation protocol, which allows BTC to run in Smart Contract form on the Stacks network.

A infrastructure project, still need to be closer to the issuance asset, in order to get more attention and create more gameplay.

This vision doesn't sound new. There have been many similar attempts in the market, such as wBTC, which is popular on the ETH network. Even in a centralized custody model, its locked amount has reached 5-15 billion US dollars. But the ambition of sBTC clearly goes beyond this—it aims to be a truly decentralized solution that aligns with the spirit of BTC.

The core mechanism of sBTC is actually very intuitive: when users lock BTC on the BTC Mainnet, the Stacks network will mint an equal amount of sBTC, strictly maintaining a 1:1 anchoring relationship. Users can use these sBTC to participate in Smart Contract interactions, and when redemption is needed, simply destroying the sBTC will automatically release the corresponding amount of BTC.

It sounds simple, but the real technical challenge lies in how to ensure the Decentralization and security of this process, which is also the most unique feature of sBTC.

It has no pre-set manager, but operates the entire system with an open and dynamic group of signers. All key operations are carried out on BTCMainnet, inheriting the security features of Bitcoin.

Signers are rewarded with BTC through Stacks Consensus, an economic incentive that ensures the system's continued stable operation. More importantly, sBTC directly implements the price Oracle Machine function on the BTC Mainnet without relying on any external data sources.

Timing is crucial. In the BTC ecosystem, the emergence of sBTC is timely. With the completion of Nakamoto upgrade, the technical foundation is already in place.

From the market perspective, the TVL of BTC Decentralized Finance accounts for less than 1%, which is in stark contrast to its market capitalization. This gap indicates significant development potential. What's even more encouraging is that several major BTC organizations have explicitly expressed their support for the sBTC plan, demonstrating industry recognition of this innovation.

Regarding sBTC, it is important to note that it is not a direct component of the Nakamoto upgrade, but rather one of the important applications supported by this upgrade. The Nakamoto upgrade provides the necessary technical foundation for sBTC through improved interoperability and security architecture.

According to the latest news from the Stacks-related blog, the upgrade of sBTC is expected to be launched in early December 2024. Currently, the community is voting on the SIP-029 proposal, which will optimize the Stacks Tokenissuance mechanism and pave the way for the launch of sBTC.

And if you want to know more about the introduction of sBTC, the official guide can basically help you quickly understand the general idea.

In the context of the current BTC ecosystem where the price rises but the ecosystem does not, the emergence of sBTC may serve as a catalyst to change this situation. Just like Ethereum in 2017, which promoted the development of the Decentralized Finance ecosystem through basic financial primitives, the BTC ecosystem may just be missing such an opportunity.

Overview of Ecology and Data

Whether before or after the upgrade, Stacks itself is still infrastructure, and its development and progress also rely on the construction of ecological projects.

And after the Nakamoto upgrade, the release of Liquidity in the BTC ecosystem through sBTC, BTCSmart Contract functionality, and scalability improvements, various projects in the ecosystem may also benefit from this.

The Stacks ecosystem has over 60 DAPPs, most of which are related to Decentralized Finance and Non-fungible Tokens. Among them, Decentralized Finance protocol has received relatively greater upgrade benefits, as users can simply lock their BTC through the upgrade proposed by Satoshi, mint sBTC on Stacks, and use sBTC in Decentralized Finance, such as stablecoin lending, borrowing, asset swapping, etc. For Decentralized Finance protocols built on Stacks, users can earn BTC rewards.

Currently, some good Decentralized Finance protocols are as follows:

• Alex Labs: Building the most comprehensive BTC Decentralized Finance ecosystem through Stacks. Alex Labs will expand Lisa (Stacks version of Liquiditystake), lanuchpad, and cross-chain bridges products into the Runes ecosystem;
• Arkadiko: Adopts the CDP (Debt Collateralization, similar to MakerDAO) model, allowing users to mint stablecoins, generating BTC returns in the process;
• StackingDAO: A Liquidity stake protocol on Stacks that allows staking Stacks to generate additional income;
• Zest: on-chain lending protocol;
• Bitflow Finance: DEX in the ecosystem;

According to the data from Signal 121, most of the STX staked currently flows to StackingDAO, followed by LISA and Stackswap, etc.

Correspondingly, the active Addresses in the current Stacks ecosystem are basically in the Decentralized Finance protocol in the above figure, and the funds and the activity of Addresses in different ecosystem projects are positively correlated, and the protocol with the most stake funds often has the most active Addresses.

However, in terms of the absolute values of TVL and Address numbers, there is indeed a considerable gap between Decentralized Finance and ETH on Stacks. From another perspective, this also confirms the point made at the beginning of the article from a data perspective ---- what we often need is a spark and a catalyst to turn the gap into a rise space.

And this gap is obviously difficult to fill with Meme. It is worth noting that there are also some Meme projects on Stacks, but there is still a significant gap in cultural attributes, influence, Market Cap, and activity compared to Meme on Solana.

Therefore, as the Stacks infrastructure matures, whether there will be more gameplay similar to inscription in the previous BTC ecosystem to create assets, will directly impact the activity of the Stacks ecosystem.

However, the bridge has been built, and it will take time to observe what kind of cars will eventually run on it.

Future Outlook: When Technological Innovation Meets Ecological Incentives

In the BTC ecosystem, we often discuss a question: what is the relationship between technical innovation and market recognition?

Does having technology mean the market will definitely pay the bill? The answer is certainly No, many times whether the market will buy it depends on the project's operation ideas and planning.

Technical upgrade is just the core, and the sBTC, which is ready to go, encourages more people to participate in the construction of sBTC at both ends of supply and demand, which is the next key move for Stacks.

Therefore, Stacks' recently launched 'Best & Brightest' program is essentially a major innovation project solicitation activity aimed at the BTC ecosystem. Simply put, it provides comprehensive support for developers and teams who want to build innovative applications on BTC, a bit like a 'BTC ecosystem innovation accelerator'.

This plan will gradually unfold from late November 2024, covering various important areas in the BTC ecosystem such as Miner, Wallet, exchange, etc. It not only takes care of the growth space of individual developers, but also provides sufficient development funds for mature teams.

To ensure that these innovations are safe and reliable, Stacks has also invited top security teams in the industry to join. For example, Immunefi (an on-chain security platform that protects over $190 billion in assets and has over 45,000 security researchers) will host a dedicated 'Attackathon' event to allow white hat hackers to test and strengthen the security of these innovative projects in advance.

Interestingly, the timing of the launch of this plan is just right. Just as the price of Bitcoin hit a new high and the market was generally engulfed in speculative frenzy, Stacks chose a seemingly slow but potentially more visionary path: by solid technical innovation and ecosystem development, providing more possibilities for the entire Bitcoin ecosystem.

From the perspective of institutional support, sBTC has received support from more than 20 well-known institutions including BitGo, Blockdaemon, Figment, Copper, and Asymmetric. This wide range of institutional endorsements not only represents recognition of the technical solution, but also a vote of trust in the future development of the entire ecosystem.

We are likely to see a wave of innovative waves based on Bitcoin (BTC). This not only relates to the expansion of the BTC ecosystem, but also may redefine our understanding of "BTC applications".

After all, as Satoshi Nakamoto said on the BTC forum: "In the next few decades, when the Block Reward becomes too small, Money Laundering will become the main compensation for Nodes. I believe that in 20 years, there will either be a large volume or no volume." And now, it seems that BTC is moving in the direction of the former through such an ecological innovation plan.

However, technological innovation ultimately needs to be tested by the market. In the current BTC ecosystem where "only rise in price, not rise in ecosystem" is happening, will Stacks' choice be recognized by the market?

The answer to this question may have to wait until sBTC is officially launched, and until more innovative applications based on Stacks appear.