Author: Deep Tide TechFlow

When Bitcoin broke through $90,000, the crypto market and all its ecosystems began their own frenzy.

AI narrative continues to be hot, Meme continues to perform the myth of wealth creation... 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 effect of BTCpump has not spilled over too much into their own ecological projects.

Even compared to the 'most unreliable' ETH, the proud Decentralized Finance sector occupies nearly 17% of the total Market Cap of ETH; while BTC maintains a 50% market share of the entire market's Market Cap, 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 law of attention and narrative rotation.

The huge gap also contains opportunities for stages, 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 taking turns to stage a "pump and dump" trend, Stacks, as one of the earliest Layer2 solutions for BTC, has chosen a quiet path - focusing on technical improvements and finally completing the long-awaited Nakamoto upgrade.

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

What will this upgrade bring, will it be a new opportunity for launch?

In the current speculative market environment, how much room for imagination is there for projects like Stacks that focus on technological innovation?

Old store, new exploration. Let's get to know Stacks, this old friend, once again.

Nakamoto upgrade, not only technical reconstruction

The core of Nakamoto's upgrade lies in the comprehensive innovation of the PoX Consensus Mechanism in 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 Block needs to wait for BTC network to generate a new Block to complete. Although this mechanism inherits the security of BTC, it also brings efficiency issues: even simple transactions need to wait for the approximately 10 minutes block generation time of the BTC network. More importantly, since the confirmation of Stacks' Block depends 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 transactions.

The analysis of GrayScale is even more intuitive in demonstrating the possible performance differences before and after the upgrade:

(Data Source: Gray Research Report)

The new Nakamoto PoX solves this performance issue by introducing a "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 enables 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 a potential risk due to this one-way security inheritance. In the new architecture, Miners need to participate in both BTC Mining and Stacks validation, creating a two-way security verification mechanism. This not only increases the cost of attacks but also ensures the honesty of validators through economic incentives.

The improvement of interoperability is reflected in the reconstruction of the underlying architecture. Previously, the interaction between Stacks and the BTC network required a complex Relay mechanism, which not only increased latency but also introduced additional trust assumptions. The new architecture adopts a direct state verification mechanism, allowing StacksNode to directly read and verify the state of the BTC network, significantly 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.

Meanwhile, according to Grayscale's research report analysis, after the upgrade of Satoshi Nakamoto, the Stacks protocol will provide unique features including:

(i) BTC-collateralized stablecoin,

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

(iii) Decentralized Autonomous Organization based on Bitcoin.

Similar to how the basic financial primitives in 2017 drove the development of the Ethereum Decentralized Finance ecosystem, given the current highly followed status of Bitcoin, its ecosystem may also experience a similar thriving development.

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, one of the new products that comes with the upgrade is sBTC.

As a Decentralization BTC bi-directional anchored protocol, sBTC was designed with a simple purpose: to make BTC, the "digital gold," more flexible and truly become a productive asset with Programmability.

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

Whether it is an infrastructure project or not, it needs to be closer to the issuance assets in order to attract more attention and create more gameplay.

This vision doesn't sound new. There have been many similar attempts in the market, such as the popular wBTC on the ETH network, even though its lock-up volume has reached 5-15 billion US dollars under a centralized custody model. But sBTC's ambition is obviously more than that—it aims to be a truly decentralized solution in line 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 equivalent 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 destroy the sBTC, and the corresponding amount of BTC will be automatically released.

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 aspect of sBTC.

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

Signers receive BTC rewards through Stacks Consensus, which ensures the system can continue to operate stably. More importantly, sBTC directly implements the price Oracle Machine function on BTC Mainnet, without relying on any external data sources.

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

And from the market perspective, BTC Decentralized Finance's TVL accounts for less than 1% of its Market Cap, creating a huge disparity, which implies huge development space. What's even more encouraging is that multiple major BTC organizations have explicitly expressed their support for the sBTC plan, demonstrating the industry's recognition of this innovation.

Regarding sBTC, it is important to note that it is not a direct component of the Nakamoto upgrade, but 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 blog, the upgrade of sBTC is expected to start in early December 2024. Currently, the community is voting on proposal SIP-029, 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 One Finger Zen can basically help you quickly understand roughly.

In the current BTC ecosystem, the emergence of sBTC may be a catalyst for changing the current situation of "only rising coin price, not rising ecosystem". Just like Ethereum in 2017 promoted the development of the Decentralized Finance ecosystem through basic financial primitives, the BTC ecosystem may just be lacking such an opportunity.

Overview of Ecology and Data

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

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

There are over 60 DAPPs in the Stacks ecosystem, mostly related to Decentralized Finance and Non-fungible Tokens. Among them, Decentralized Finance protocols have received relatively large upgrade dividends, because through the upgrade by Satoshi, users only need to lock their BTC to mint sBTC on Stacks, and use sBTC in Decentralized Finance, such as stablecoin lending, borrowing, asset exchange, etc. For Decentralized Finance protocols built on Stacks, users can receive BTC rewards.

Currently, some good Decentralized Finance protocols are as follows:

Alex Labs: Building the most comprehensive BTC Decentralized Finance ecosystem on Stacks. Alex Labs extends Lisa (Stacks version of Liquiditystake), launchpad, and cross-chain bridges and other products to the Runes ecosystem;

Arkadiko: Adopting the CDP (Debt Collateralization, similar to MakerDAO) model, allowing users to mint stablecoins, generating BTC returns;

StackingDAO: Liquidity stake protocol on Stacks, allowing staking Stacks to generate additional income;

Zest: on-chain lending protocol;

Bitflow Finance: DEX in the ecosystem;

According to 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 shown in the figure above, and the funds volume of different ecosystem projects is positively correlated with the activity of Addresses. The protocol with the most staked funds often has the most active Addresses.

But in terms of the total TVL and the absolute number of Addresses, there is indeed a considerable gap between Decentralized Finance and ETH on Stacks. From another perspective, the data also confirms the point made at the beginning of the article - what we often need is a catalyst, a spark, to transform the gap into 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 their cultural attributes, influence, market capitalization, and activity still have a big gap 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, it 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 vehicles 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 technological innovation and market recognition?

Does having technology mean the market will definitely buy it? Of course not, many times whether the market buys it depends on the project's operation ideas and planning.

Technology upgrade is just the essence, and the sBTC, which is ready to go, is the next key piece for Stacks by encouraging more people to participate in the construction of sBTC on both the supply and demand sides.

Therefore, the recently launched 'Best & Brightest' program by Stacks is essentially a major innovation project solicitation for 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 takes into account the growth space for individual developers and provides sufficient development funds for mature teams.

In order 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 dollars worth of assets, with 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 this plan's launch is just right. Just as BTC prices hit new highs and the market is generally caught up in speculation, Stacks has chosen a seemingly slow-burning but potentially more visionary path: providing more possibilities for the entire BTC ecosystem through solid technological innovation and ecosystem development.

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 institutional endorsement is not only a recognition of the technical solution, but also a vote of confidence in the future development of the entire ecosystem.

We are very 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 but not rise in ecology", 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 emerge before it can be revealed.