Original Author: Jaden Fan, Jinze Jiang, LD Capital Research
The problem of the sustainability of miners' income has emerged, and the Bitcoin community is facing a potential crisis of computing power. The ecological development of the Bitcoin intelligent network can effectively improve the network utilization rate and solve the problem of miners' income sustainability. However, the problem of network congestion seriously hinders the ecological development of the Bitcoin network, and the importance of the L2 solution is highlighted. Among them, Stacks has the most prosperous ecology among the BTC two-layer network projects, and will usher in a major update at the end of 2023.
This article will introduce the mechanism of Stacks and two important DeFi protocols in its ecosystem: ALEX and Arkadiko Protocol.
Every time the BTC block reward is halved, the miners' income is also halved. Since the handling fee contributed by BTC transactions accounts for less than 5% of the miners' income, the computing power system has been supported by doubling the BTC price in the past. As the market value of BTC increases, the volatility gradually decreases. After halving, mining rewards may gradually fail to cover the cost of computing power. Therefore, BTC needs a sustainable source of income. With the explosion of applications, the ecological application of ETH has solved the problem of sustainable income, but currently due to the block time and smart contract restrictions of the Bitcoin network, it is impossible to obtain sustainable income.
The Bitcoin NFT protocol Ordinals opened the prelude to the explosion of the Bitcoin ecology, the network usage rate increased, and the handling fee soared to the level of early 2018. As of May 11, the types of Ordinals BRC 20 tokens exceeded 14,000, and the number of inscription forgings exceeded 5.8 million, and the income of miners also increased accordingly. In mid-2019 and 2021, the increase in daily transaction fees on the Bitcoin network is due to the high activity in the overall market, and this transaction growth comes from the innovative development of the Bitcoin ecosystem, with the highest BTC daily transaction fee reaching 600+BTC.
Figure: The sum of daily transaction fees on the BTC network, calculated in BTC, source: Blockchain.com, Trend Research
However, the capacity and speed of the BTC network limit the development of related transaction activities. If BTC has an L2 layer like the ETH ecosystem to create more use cases and handling fees, it can greatly increase the income of network miners and maintain the growth of computing power.
The BTC halving is approaching, and the popularity of the BTC L2 concept continues to rise.
According to the current block generation speed of the Bitcoin network, the halving is expected to occur in May 2024, and the BTC halving has always been one of the most popular events in the market. As the halving time approaches, funds will focus more on Bitcoin, but due to the large market value, investing in Bitcoin can only obtain market Beta returns, and L2 projects that release BTC liquidity and expand the BTC application layer are likely to become funds The preferred target for pursuing Alpha returns.
Stacks has the most prosperous ecology among the BTC two-layer network projects, and it will usher in a major update at the end of 2023.
Due to the high difficulty of technology development, the number of L2 projects on BTC has always been small, and the market heat is also low. Although everyone is familiar with the Lightning Network, the Lightning Network focuses on P2P payments and is not a direct competitor of Stacks. Stacks is currently the most prosperous project in the BTC L2 concept. At the end of 2023, the Nakamoto upgrade that Stacks will carry out will bring about a comprehensive improvement in network performance, and at the same time launch an important product - SBTC. Superimposed on the BTC halving cycle, Stacks has the possibility of obtaining excess market funds to enter.
background events
Figure: STX price trend, source: Tradingview, Trend Research
On February 21, 2023, the price of BTC broke through the $25,000 mark for the first time in seven months. Ordinal Punks based on the Bitcoin NFT protocol Ordinals opened the prelude to the explosion of the BTC NFT project. According to the twitter information of the robot Ordinal Punk Sales, the Ordinal Punk with a casting price of 0.01 BTC was sold for as high as 9.5 bitcoins, worth more than 240,000 US dollars.
Ordinals is a Bitcoin NFT protocol, launched by Casey Rodarmor on January 21, 2023. The core technical point is: by adding specific content to the script of the taproot script-path transaction, the smallest unit of Bitcoin, satoshi, is unique, so as to achieve sustainable track. A satoshi with specific content can be understood as an NFT on the Bitcoin network. Using Ordinals does not require a Bitcoin sidechain or Layer 2 network and can be used without any changes to the Bitcoin network.
Later, user @domodata believed that when the additional information in the Ordinals protocol is set to a unified standard, then the Ordinals protocol can issue not only non-fungible tokens (NFT) but also fungible tokens (FT). Therefore, @domodata created the first experimental BRC 20 standard token ORDI through the Ordinals protocol on March 8. As of May 10, the historical price of ORDI broke through $29, and there are more than 14,000 types of BRC-20 tokens. Ordinals inscriptions have been forged a total of 5.7 million times, with a single-day peak of 400,000 times on May 7. In addition, the main types of Ordinals are pictures and texts. On April 23, the explosion of text type (BRC 20) tokens greatly increased the usage rate of the Bitcoin network.
Figure: BRC 20 tokens, source:https://brc-20.io/， Trend Research
Figure: Ordinals inscription forging times, source: Dune.com, Trend Research
Figure: BTC inscription forging type, source: Dune.com, Trend Research
The popularity of BTC NFT and BRC 20 has also driven up the transaction fees on the Bitcoin chain, and the income of miners has increased accordingly. The peak value of single-day handling fees denominated in US dollars has been the same as the bull market at the end of 2017 and the bull market in April 2021. Ordinals have brought a new trend, but BRC 20 and BTC NFT are not created for actual use cases. It will take time to test whether the transaction volume of BTC NFT and BRC 20 will disappear from the public eye after the popularity fades.
Figure: BTC daily transaction fees in USD, source: Blockchain.com, Trend Research
At the same time, the Bitcoin network was blocked, and the number of unconfirmed transactions was as high as nearly 400,000. Bitcoin developers Erik Aronesty and Ali Sherief both launched a discussion on "whether it is necessary to reject non-standard Taproot transactions" to solve the problem of Bitcoin network congestion. The majority of the community opposed the proposal. On May 7, the founder of the cross-chain project Interlay proposed the BRC 21 standard for cross-chaining assets such as Ethereum to the Bitcoin chain, but Bitcoin network congestion is one of the key obstacles to the ecological development of Bitcoin.
Figure: Bitcoin network situation (2023.05.10), source: mempool.space, Trend Research
The increase in miner fees caused by the issuance of BTC NFT and the upsurge of BRC-20, the problem of Bitcoin network congestion, and the ecological development direction of the Bitcoin network are all worthy of our reconsideration of the long-established concept of BTC L2 and its future development prospects.
BTC layer 2
historical discussion
Bitcoin's second-layer network (BTC L2) solution was born to solve the problems of Bitcoin network expansion and high transaction fees. As early as 2015, Joseph Poon and Thaddeus Dryja proposed the concept of Lightning Network, which is currently the most well-known project. Through the establishment of payment channels, the Lightning Network has realized fast and low-cost Bitcoin transactions, greatly improving the scalability of the Bitcoin network, and the current number of nodes and application scenarios of the Lightning Network are developing rapidly.
The Lightning Network mainly solves the problem of slow payment and high cost of BTC, but it does not solve the problem of BTC's lack of native application construction. Therefore, the concept of Bitcoin's sidechain (Sidechain) was also proposed at the same time as the Lightning Network. Blockstream first proposed and developed a side chain Liquid Network, which was launched in 2018. At the same time, there is also RSK (Rootstock), which is more famous than Liquid.
BTC-based L2 development has a huge workload and high technical difficulty. RSK and Stacks have gradually become one of the few projects in BTC L2 that can implement Bitcoin network construction applications.
Around 2019, the Ethereum network ecological project is thriving, while the BTC network is struggling. The community began to discuss whether we really need BTC L2, or whether we just need a good BTC cross-chain protocol to release the liquidity of BTC. The Bitcoin-anchored currency protocol ushered in an explosion, and the largest BTC-anchored currency protocol was born during this period. Judging from the later development, both BTC-anchored coins and BTC-based stablecoins have encountered problems:
1) The most important thing is safety and reliability. Since these agreements often only lock BTC in multi-signature addresses, the security and cooperation relationship of the signers become potential hidden dangers, causing users with large assets to dare not use the anchor currency scheme;
2) Lack of ecologically native application scenarios of Bitcoin and rely heavily on Ethereum. The importance of a reliable BTC L2 network is unquestionable. It will provide the underlying technical framework for a more native and secure Bitcoin-anchored currency, and it will also provide an environment for the development of Bitcoin's second-tier applications. It is to convert BTC from a passive income asset The key to transforming into an active income asset.
Since 2015, different schemes such as Drivechain, RGB Protocol and Statechains have been proposed one after another. This report will focus on Stacks for analysis.
Several important solutions for Bitcoin expansion projects in history:
Source: LD Capital
Stacks project introduction
1. Project introduction and roadmap
Stacks is a Bitcoin smart contract layer whose goal is to enable smart contracts to trustlessly use Bitcoin as an asset and settle transactions on the Bitcoin blockchain.
The initial version of Stacks was launched in early 2021, introducing Bitcoin transaction settlement, using the Clarity language for smart contract design, and supporting BTC for asset atomic swaps. The goal of the Stacks layer is to increase the Bitcoin economy by turning BTC into a productive rather than passive asset and enabling various decentralized applications.
Although Stacks does not directly call itself Sidechain, we believe that Stacks essentially builds a new chain outside the Bitcoin chain, with an independent governance structure and transaction model. However, unlike Sidechain in the usual sense, which only bridges assets through cross-chain bridges, Stacks achieves integration with the Bitcoin main chain by submitting anchor transactions on the Bitcoin main chain. These anchor transactions contain block header information on the Stacks chain The summary and some additional information are broadcast to the Bitcoin network to ensure that it cannot be tampered with. In addition, the project allows applications and smart contracts to use BTC as their asset or currency to settle their transactions on the Bitcoin main chain.
So it can be defined that Stacks is an innovative Sidechain model. Compared with ETH's Rollup scheme, which is the so-called "native Layer 2", both of them package multiple transactions into one batch and submit them to the blockchain for verification. This approach can effectively reduce the number of transactions on the blockchain, thereby improving overall performance. The main differences are:
1. The verification mechanism is different: Stacks uses the PoX (Proof of Transfer) consensus algorithm, while Optimism Rollup uses the PoS (Proof of Stake) consensus algorithm.
2. Different security: After the ETH-to-POS mechanism, miners and verifiers have the same role, and the verification nodes on the Rollup chain need to pledge a certain amount of ETH as a security guarantee. In Stacks, miners and transaction verifiers are two roles. Transaction verifiers need to pledge STX tokens (mining BTC), and miners need to pledge BTC on the Bitcoin main chain (mining STX).
2018 Q4 mainnet launch
2018 Q4 released the official wallet Hiro Wallet
2019 Q2 Submit $50 million to SEC for compliant token offering
2019 Q2 Stacks 2.0 white paper released
2019 Q2 Introduce Clarity contract development oracle
2019 Q3 became the first SEC compliant public offering project
2019 Q3 Raised USD 23 million through token offering
2020 Q1 Implement the Proof of Mining Transfer (POX) consensus mechanism
2020 Q2 Stacks 2.0 testnet launch
2020 Q2 Submit a development report to the SEC
After the launch of 2020 Q4 Stacks 2.0, STX is no longer regarded as a security regulated by US law (SEC has not publicly agreed with this point of view)
2021 Q2 release Stacks Accelerator ecological development project
2021 Q2 released the Stacks expansion solution Hyperchain
2021 Q4 Audit of the Clarity contract
2022 Q2 release version 2.05.0.2.0
2023 Q1 Stacks 2.1 release
2023 Q1 Launch Hiro developer platform
2023 Q4 major update, Nakamoto network release
2023 Q4 major update, SBTC released
2. The structure of Stacks and how it works
The technical architecture of Stacks consists of a core layer and subnets that application developers and users can choose between. The Stacks mainnet has high decentralization but low throughput, and the subnet has low decentralization but higher throughput. Miners/operators of a given subnet can require high network bandwidth between miner sets, e.g. with data center nodes, or even whitelist subnet miner sets to ensure high performance.
Figure: Stacks architecture, source: https://stx.is/nakamoto
The core layer of Stacks interacts with the Bitcoin layer based on the PoX (Proof of Transfer) mechanism. PoX is an equity pledge similar to PoS. The interaction process between the two is as follows:
Figure: The interaction process of each role in stacks, source: stx.is, Trend Research
STX miners participate in the leader election by sending transactions on the Bitcoin blockchain. The verifiable random function VRF randomly selects the leader of each round (while giving higher BTC bids more weight), and the leader writes on the Stacks chain into a new block.
STX holders can participate in the consensus and receive BTC rewards by participating in a process called "Stacking". The process is for users to lock their STX for a reward period (roughly two weeks), run or support a full node, and send useful information on the network through STX transactions. STX holders who actively participate in Stacking will receive bitcoin rewards for this cycle.
1. PoX miners bid on the Bitcoin layer to be the leader of the next block. They bid by spending Bitcoin and are rewarded with STX tokens.
2. Once PoX miners win the leader bid, they will start creating new blocks and adding them to the Stacks layer. This process is achieved through chain anchoring, which binds the information in the Stacks blockchain with the information on the Bitcoin blockchain.
3. In the Stacks layer, new blocks contain all the latest transactions and state changes. These transactions and state changes are broadcast to the entire network and verified and confirmed by other nodes.
4. Once a new block is confirmed, it is added to the Stacks blockchain and the latest state is visible to all parties involved.
The interaction between the Stacks core layer and the Bitcoin layer is achieved through a process called "chain anchoring". Chain pegging is the process of binding information on the Stacks blockchain to information on the Bitcoin blockchain. This process ensures that all transactions and state changes that occur in the Stacks network can be traced back to the Bitcoin blockchain and can be proven to be recognized and protected by the Bitcoin network.
Specifically, each Stacks block contains a hash pointing to the previous Stacks block and a pointing to the previous Bitcoin block. This hash is generated by combining the hash of the previous Bitcoin block with the hash of the previous Stacks block. This way, each new Stacks block will contain a hash pointing to the previous Bitcoin block in its header, binding the two networks together.
To give an example:
Suppose Alice is a Stacks PoX miner and she wants to be the leader of the next block. She can do her bidding by spending Bitcoin (BTC) on the Stacks network. The higher her bid, the more likely she is to be the leader. This bidding process happens on the Stacks chain, while new blocks are written to the Bitcoin layer.
Once Alice wins the leader bid, she will start creating new blocks and adding them to the Stacks layer. As a reward, Alice will receive a certain amount of STX tokens. These STX tokens are made up of transaction fees paid by other Stacks users, and thanks to the PoX mechanism, these tokens are earned by Alice spending BTC.
In summary, PoX is different from Bitcoin's PoW consensus mechanism, but it uses mined BTC instead of mining electricity as a security guarantee, and uses STX tokens instead of BTC as miner rewards.
Nakamoto upgrade
The Nakamoto upgrade is the next major upgrade for Stacks and is expected to launch in Q4 2023. This upgrade is significant as it will introduce five important features. The most notable of these: Stacks transactions are secured by the Bitcoin network. This feature makes Stacks transactions more secure and reliable, and becomes a real Layer 2 rather than a side chain with its own independent state. Second, the introduction of a decentralized, two-way Bitcoin peg (sBTC) may drive the unlocking of a "Bitcoin DeFi market" worth hundreds of billions of dollars. Finally, the block generation speed of 4-5 seconds and programming languages that support other networks (such as Solidity) have greatly improved network performance, reduced the difficulty for developers to enter, and provided conditions for the outbreak of ecological projects.
According to the Stacks December postwhite paperThe more detailed content about Nakamoto upgrade information is as follows:
Shared network security with BTC: enables Stacks transactions to obtain the final confirmation of Bitcoin; after about 100 Bitcoin blocks or about one day of confirmation, transactions on the Stacks layer will be hashed by the entire Bitcoin network protected. This means that to reverse these transactions, an attacker would need to attack the entire Bitcoin network. These transactions are settled on the Bitcoin network and have Bitcoin finality. In addition, the Stacks layer forks at the same time as the Bitcoin network, so any state on the Stacks layer will automatically follow the Bitcoin fork.
SBTC: Introducing a new decentralized, non-custodial Bitcoin-pegged asset, sBTC, that enables smart contracts to run faster and cheaper without compromising security. This also enables contracts on the Stacks layer to be trusted to write to the Bitcoin network through pegged transactions. Stacks already supports BTC atomic swaps, enabling Bitcoin addresses to own and move assets defined on the Stacks layer. Implemented Magic swaps and Catamaran swaps are examples of trustless atomic swaps between assets on Bitcoin's L1 and Stacks layers. In addition, users can own assets on the Stacks layer, such as STX, stablecoins, and NFTs, on Bitcoin addresses and transfer them through Bitcoin L1 transactions.
Clarity Language: The Clarity Language is a secure, decidable language for provable smart contracts. Using Clarity, developers can output the execution results before execution, and determine what the contract can and cannot do. The security of Clarity language for smart contracts on the chain can be greatly improved. For example, when signing a contract or performing a transfer, you can determine the balance of your account after the contract operation of the signature operation before confirmation. As of December 2022, more than 5,000 Clarity contracts have been deployed on the Stacks layer.
Bitcoin status reading: It can completely read the data of the Bitcoin chain, support reading Bitcoin transactions and status changes, and execute smart contracts triggered by Bitcoin transactions. The Bitcoin reading function can keep the Bitcoin L1 layer network data and L2 layer network data in sync.
Fast block generation and customized subnets support multiple development languages: the current block generation time is 10 minutes, and after the upgrade, the Byzantine consensus can achieve a block generation speed of 4-5 seconds, breaking the 10-minute block generation limit of BTC. Every time a block is produced, the transaction hash is written into Bitcoin to ensure network security. Additionally, scalability layers such as subnets can make different trade-offs in terms of performance and decentralization than the Stacks mainnet. The subnet can support other programming languages and execution environments (such as Ethereum's Solidity and EVM), which enables all Ethereum smart contracts to use Bitcoin-anchored assets and settle on the Bitcoin chain.
SBTC
SBTC is the core product in the Nakamoto network upgrade. When the BTC L2 network is established, if there is a lack of native assets on the chain, the financial ecology of the second-tier network cannot operate. SBTC solves this problem and can support decentralized Bitcoin. Lending, Bitcoin-backed stablecoins, and more. At the same time, compared with the current BTC anchor currency scheme, SBTC is more decentralized and more natively anchored. It can gain a certain share from the BTC anchor currency market and is expected to greatly increase the TVL and user volume of the Stacks network.
The characteristic of SBTC is that the verifier of SBTC is a decentralized collection composed of dynamically changing signers, which breaks the centralized dilemma of BTC with a maximum of 15 multi-signature addresses and the inability to change signers. On the other hand, as the core asset of the Stacks two-layer network, the disadvantage is that it lacks incentive support for mainstream applications in the ETH ecosystem, and the advantage is that it will receive incentives from all DeFi applications on the Stacks network. Finally, the stable currency based on SBTC also provides imagination for the market value of SBTC.
Figure: SBTC anchoring/unlocking process, source: stacks white paper, Trend Research
The basic principle of BTC anchoring assets is:
Lock-Mint
Lock BTC on the BTC chain, mint anchor assets on the target chain
Burn-Unlock
Destroy the anchor assets on the target chain and release BTC on the BTC chain
Since the BTC chain does not have Turing completeness, the link of locking BTC on the BTC chain needs to be completed through an escrow account, which is managed by a witness; when a Burn transaction occurs, the witness must manually complete the Unlock link.
The BTC-anchored coin application chain is Turing-complete (such as WBTC in the ETH chain), so it is in the Lock-Mint link. You can choose to deploy the BTC light node contract on the target chain. When the user passes the Lock transaction to the light node contract, the contract will be verified and the Mint action will be executed. You can also choose to still rely on witnesses to verify the Lock transaction and execute Mint.
The key point of BTC anchor asset design is the witness mechanism, which determines whether the anchor currency is a centralized solution or a decentralized solution, as well as the security of assets.
The specific process of Mint and Burn of SBTC is as follows:
When a user wants to convert BTC to SBTC, they need to send BTC to a multi-signature address and initiate a transaction on the Stacks network. This transaction triggers a smart contract that sends BTC to the multi-signature address and creates a corresponding amount of SBTC assets on the Stacks network. When a user wants to convert SBTC back to BTC, they need to send a message to the smart contract and initiate another transaction on the Stacks network. This transaction will trigger another smart contract, which will destroy the corresponding amount of SBTC assets and send the corresponding amount of BTC to the user.
Source: LD Capital
Analysis of BTC anchor currency on the Ethereum chain
Figure: BTC-anchored coins on the Ethereum chain, source: dune.com Trend Research
2020 – 04 – 01 2500 BTC
2022 – 05 – 01 334, 541 BTC + 133.8 X
DeFi Summer's pursuit of TVL has brought about the rapid growth of BTC-anchored coins. The peak circulation market value of BTC-anchored coins accounts for about 1.57% of the BTC market value. WBTC market value accounts for the largest 83%, and HBTC market value accounts for the second 11.5%. The centralized BTC anchor currency accounts for more than 95%, and the REN BTC is the largest in the decentralized solution, accounting for about 2%; in November 2020, the REN BTC accounted for more than 15%.
Stacks vs RSK Comparison
Both Stacks and the old BTC second-tier project RSK are Bitcoin-based smart contract platforms, and they both aim to expand the functions and application scenarios of Bitcoin. Here are some advantages of Stacks over RSK:
1. Deeper connection with Bitcoin: The connection between the Stacks layer and the Bitcoin main chain is deeper and closer. Specifically, the Stacks layer uses a technology to implement smart contract functions, which allows the Stacks layer to directly use Bitcoin as its asset or currency, and to settle transactions on the Bitcoin main chain. This design makes the Stacks layer more closely connected to the Bitcoin main chain, and can better utilize the security and stability of Bitcoin.
2. More efficient smart contract execution: The Stacks layer adopts a new smart contract programming language called Clarity, which aims to improve the reliability, security and auditability of smart contracts. The Clarity language has the advantages of being concise, clear, predictable, and easy to audit, which makes smart contract execution more efficient and reliable.
3. Better decentralized governance: The Stacks layer adopts a decentralized governance model, which means that community members can participate in platform decision-making. In the future, the Stacks layer will continue to promote decentralized governance and provide more opportunities for community members to participate. The RSK governance model represents community participation through a governance committee composed of 5 seats.
4. Wider ecosystem support: The Stacks ecosystem is actively developing and has already attracted many well-known projects and companies to join it. For example, Blockstack PBC (now renamed Hiro Systems), one of the most important projects in the Stacks ecosystem, has developed many Stacks-based
3. Token economic model
The total supply of STX tokens is capped at 1.818 billion, and the current circulation is about 1.36 billion.
There are 1.32 billion STX in the genesis block of the Stacks cryptocurrency. These STXs were distributed through several releases in 2017 and 2019. The price of STX issued in 2017 was $0.12, the price of the 2019 issue was $0.25, and the price of the 2019 SEC-compliant issue was $0.30.
The distribution of mining rewards is 1000 STX/block for the first 4 years, 500 STX/block for the next 4 years, 250 STX/block for the next 4 years, and then 125 STX/block permanently. STX allocated to founders and employees follows a 3-year unlock.
https://gaia.blockstack.org/hub/1 Eo 6 q4 qLMcSSpkhoUADxRAGZhgUyjVEVcK/stacks-zh.pdf
Figure: STX token distribution, source: stacks-zh, Trend Research
Staking rewards (stacking): A staking mechanism where users can earn STX by staking their STX to ensure the security of the network. Staking rewards vary based on the amount of STX staked and the overall network participation rate. Holders can choose different Stacking cycles to obtain different rewards. Generally, longer stacking periods will provide higher rewards. The size of the reward depends on the number of tokens locked and the length of the Stacking cycle. Participants will be rewarded at the end of the Stacking period. Rewards are paid out in STX and stored in the participant's wallet. The length of the stacking cycle is about 1,800 blocks, which is about 2 weeks. At the end of each Stacking cycle, participants can choose to continue Stacking or quit Stacking.
Liquidity mining: In addition to staking rewards, users can also earn STX by providing liquidity to Stacks DEX (a decentralized exchange on the Stacks blockchain).
Governance: STX holders have governance rights over the Stacks blockchain and are able to vote on proposals and changes to the network.
Burn Mechanism: A portion of transaction fees on the Stacks blockchain are burned, reducing the overall supply of STX over time.
4. Network and user status
Figure: Stacks TVL changes, source: defillama, Trend Research
Figure: Number of Stacks wallets, source: stacksdata.info, Trend Research
Figure: Number of Stacks contract deployments, source: stacksdata.info, Trend Research
Compared with the second layer of Ethereum, the volume of Stacks is still very small, whether it is TVL or the number of active addresses.
The number of Stacks network addresses increased significantly in Q4 of 2022 and 2023, mainly due to the BNS domain name registration and the BTC ecology.
The number of contract deployments will surge in the first half of 2023, and the prospect of ecological development is relatively optimistic.
5. BTC's L2 project has huge room for development
At present, the number of BTC cross-chained to the Ethereum network through various schemes is about 165,000, and the total amount of BTC held by the top 100 BTC holding addresses marked by Binance Exchange is 375,000 BTC. BTC holders who are willing to take the risk of centralized custody also have a relatively high acceptance of BTC L2. Based on this, it is speculated that the BTC L2 TVL can reach the level of 500,000 BTC under optimistic circumstances.
At present, the total amount of BTC on Stacks is only 2,700+ pieces, and the potential value of BTC has not yet been released. There is still huge room for development of BTC L2. If the BTC L2 TVL can reach 500,000 BTC, then based on the current BTC price, it will release a value of 13.5 billion US dollars, which is 3.7 times the current second-layer TVL of Ethereum. Stacks, as the most prosperous second-tier project in the Bitcoin second-tier ecosystem, may be the biggest beneficiary.
ETH TVL/ETH L2 TVL (mainly Arbitrum, Optimism) is around 11.38.
BTC TVL (BTC FDV) / BTC L2 TVL (including Stacks, Rootstock) is about 17,074.
ETH FDV/ETH L2 FDV (mainly Arbitrum, Optimism) is around 11.72.
BTC FDV / BTC L2 FDV (including Stacks, Rootstock) is about 441.32.
From a simple comparison of TVL and FDV, compared with the second-tier project of Ethereum, because the second-tier ecosystem of Bitcoin has not yet developed, there is an overestimation, mainly because the market has relatively high expectations for the second-tier bitcoin track.
Stacks is valued based on the TVL/FDV values of the current second-tier Ethereum projects Arbitrum and Optimism as reference values.
TVL forecasts are divided into optimistic, neutral and pessimistic scenarios. Optimistically, TVL can reach 500,000 BTC, that is, the sum of the number of BTCs anchored by Ethereum cross-chain and the number of BTCs marked by the centralized exchange Binance; under neutral conditions, the number of BTCs anchored by Ethereum can be reached; , reaching 20,000 BTC.
Source: LD Capital
6. Team members and their recent dynamic introduction
In the early days, the main company behind Stacks was Blockstack PBC, which has been renamed Hiro Systems PBC (Hiro for short). Muneeb Ali is the founder of Hiro. The main members of the project team have many years of research and development experience in the field of distributed systems, including 6 doctors in the field of distributed systems, and 2 scientists who have won the "Presidential Career Award" in the United States.
Core members of the Stacks ecosystem
Muneeb Ali, co-founder of Stacks, CEO of Hiro, is a Ph.D. in computer science from Princeton University, focusing on the research of full-stack solutions for building distributed applications. He has given speeches on forums such as TEDx, spread encrypted digital currency and blockchain, and written a large number of academic publications and white papers on related topics. Currently Twitter is active, and most of the product updates and development plans come from Muneeb.
Jude Nelson, Chief Technology Officer (CTO) of Stacks, former Hiro engineering partner, received a Ph.D. in computer science from Princeton University, and was a core member of PlanetLab, which received an ACM Test for enabling planetary-scale experiments and deployments of Time Award. His research covers optical and storage systems and CDN. Vim has been used for over ten years. In the past year, one of the main contributors to stacks github, submitted 1, 273 contributions.
Aaron Blankstein, Chief Security Officer (CSO) at Stacks, joined the Blockstack engineering team in 2017 after earning his Ph.D. He studied computer science at Princeton and MIT. His research covers several topics, mainly focusing on web application performance, caching algorithms, compilers, and applied cryptography. His work on CONIKS won the Caspar Bowden Privacy-Enhancing Technology Award in 2017. Emacs has been in use for over 10 years. In the past year, Araron has submitted 581 contributions.
7. Status of development and ecological projects
Stacks was originally an open source project initiated by Bitcoin builders. The developers behind it have extensive experience in building applications and protocols based on the Bitcoin network. Now there are more than 30 independent entities and developers. Stacks is the current BTC L2 The most ecologically rich project. As of March 2023, the total number of projects listed on the official website is 88, including 8 key projects.
Key projects listed on Stacks official website, source: LD Capital
Specific project information can be found on the official website: https://www.stacks.co/explore/discover-apps
According to the latest sharing of Stacks founder muneeb on Twitter in February 2023, the following tracks and projects were highlighted:
andGamma.ioandSatoshibles
andXverseandHiro Wallet
andALEXandArkadiko Protocol
Since wallets and NFT trading markets do not issue coins, here are two DeFi protocols: ALEX and Arkadiko Protocol
Alex Lab
Alex Lab is the largest DeFi application in the Stacks ecosystem, with rich product functions, including lending LaunchPad, lending, DEX, order book, perpetual contract, etc. At the same time, Alex Lab has frequent interactions with other ecological developers including wallets, and has a high degree of community recognition. Finally, considering that the development language of Stacks is Clarity, Ethereum or other ecological developers have a high barrier to entry into the Stacks ecosystem, so in the short term, Alex has established a moat in the Stacks ecosystem, and this leading position will follow the development of the Stacks ecosystem project. increase and expand.
Data update date: 2023 – 05 – 10, source: LD Capital
Recent major updates:
1. New products: the order book test network has been launched
2. New products: cross-chain perpetual contracts will be launched soon
3. Product plan: will support the Ordinals protocol and support NFT transactions on BTC (the specific plan will be released on Medium in the next few weeks)
4. Token release: ALEX release is expected to be halved after block height 103,825
5. Financing: US$2.5 million strategic round of financing completed, Trust Machines and Gossamer Capital participated in the investment
team:
Chiente Hsu, Chief Executive Officer (CEO), Ph.D., has devoted himself to the field of quantitative investment, and served as the global head of Alpha Strategy at Credit Suisse and the global head of quantitative investment strategy research at Morgan Stanley.
Rachel Yu, co-founder, MSc, is an alumnus of Goldman Sachs and JP Morgan Asia, where she leads the institutional sales team in China. After successfully building a high-frequency data and machine learning trading firm, she co-founded ALEX.
Chiente and Rachel have been involved in nearly every area of the financial industry - Alex Lab development consists of over 15 experts in financial engineering, smart contract development and cryptocurrency insiders.
product:
LaunchPad: Currently IDO has launched two new projects, namely: ALEX — 2022 – 01 – 19 and BANANA (Bitcoin Monkey, similar to BAYC). The main reason is the lack of Stacks ecological projects, the projects that issue coins are even rarer, and the LaunchPad function does not show much ecological contribution.
Figure: Alex Labs transaction volume, source: app.alexlab.co, Trend Research
swap: currently supports the exchange of 12 currencies, and the latest daily transaction volume is 0.8 M. In February, as the popularity of the BTC L2 concept increased, the daily transaction volume increased significantly compared with January, and reached the highest single-day transaction on February 19 The volume is 3.5 M, and the most important trading volume is concentrated in STX and ALX related trading pairs. Subsequently, on-chain transaction volume declined as ALEX tokens were listed on centralized exchanges. The lack of large-cap trading targets is not only a problem faced by ALEX, but also a problem faced by the entire BTC L2 ecosystem. Due to the popularity of BRC 20, Alex Labs will be listed on the BRC 20 exchange.
Liquidity Pool (Pool): Supports 13 liquidity pools, the largest of which is STX — ALEX.
Figure: Alex staking page, source: app.alexlab.co/stake
Staking: The annualized income of staking is related to the staking cycle and whether to choose automatic staking to obtain compound interest. From the above figure, it can be seen that the total amount of staking is 123 million. About every 4 days is a minimum staking cycle, and 100 cycles (about 100 days) of staking are required to obtain the maximum annualized return. At the same time, staking returns must also participate in compound interest automatic pledge.
Farm: Staking the LP Token of the liquidity pool can get ALEX rewards and get APower at the same time. APower is a measure of getting the LaunchPad quota. Currently supports 5 LP Tokens, with annualized returns ranging from 34% to 57%.
Order book function: Currently in Beta testing version, the product page UI design and experience fluency are relatively good.
economic model
The total number of tokens is 1,000,000,000.
20% goes to the foundation, allocated to the community reserve pool to support ALEX's ecosystem, early adopters and future development
50% reserved for community staking or providing liquidity tokens to earn $ALEX
30% to employees, advisors and early investors and founding team
Alex Labs stipulates the upper limit of the total new circulation of ALEX in the community part every year:
Figure: The annual upper limit of circulation in the community part, source: docs.alexlab.co, Trend Research
Arkadiko Protocal
Arkadiko is a stable ratio protocol similar to Make Dao. The product goal is to improve the liquidity of assets on the Stacks network, obtain the stable currency USDA by over-collateralizing the assets on Stacks, and promote the development of USDA in the Bitcoin second-layer network.
Basic information of the project
Data update date: 2023 – 05 – 13, source: LD Capital
recent major update
1. Stacks 2.1 is released. After Arkadiko completes the integration, users will be able to use STX to mint USDA while obtaining STX Staking benefits.
2. The stablecoin liquidity pool has been restarted to increase the liquidity and stability of USDA.
3. A new roadmap was released at the end of February 2023, which stated that it is planning to upgrade the token economy and reduce the selling pressure of Diko.
product
Compared with Alex Lab, Arkadiko Protocol's products focus on stable coins, and other functional modules play an auxiliary role. Compared with the stablecoin project on Ethereum, the current data of Arkadiko's products shows that in the fourth quarter of 2023, after the SBTC of Stacks goes online, it will provide enough collateral for Arkadiko's stablecoin casting, so that it has the opportunity to usher in a period of rapid growth.
SWAP: Currently supports trading of 7 currency pairs, mainly USDA, STX and XBTC. The TVL of the liquidity pool is 2.39 million USD, and the overall scale is relatively small.
Borrow: currently supports STX, XBTC and ALEX to borrow USDA.
Stake: currently supports stDiko, USDA and LPs in the liquidity pool to participate in the pledge. Except for stDiko whose annualized return is 7.4%, the other annualized returns range from 50% to 76.03%, and are stable at a relatively high annualized level.
Governance (governance): A total of 22 proposals have been completed so far, and the latest ongoing proposal is the collection Stacks 2.1.
economic model
Source: Arkadiko white paper, Trend Resea
The total amount of tokens is 100,000,000 tokens.
21% Team - 4-year vesting, unlocked monthly after 6-month lock-up period.
12% Strategic Funding - 4-year vesting, unlocked monthly after 6-month lock-up period.
17 % Arkadiko Foundation Treasury — — Locked tokens held by the foundation, released according to usage.
50% Ecosystem Reward Pool — serves as an incentive for users to provide liquidity to the protocol
Figure: Token Release, Source: Arkadiko White Paper, Trend Research
Summarize
Summarize
Stacks Labs is currently the most prosperous Bitcoin second-tier project with ecological development. Although the current TVL and active address data are far lower than the Ethereum second-tier project, there is a huge room for Bitcoin second-tier development. Stacks will undergo a Nakamoto upgrade in 2023 Q4, and this upgrade will introduce five important features. The most notable of these: Stacks transactions are secured by the Bitcoin network. This feature makes Stacks transactions more secure and reliable, and becomes a real Layer 2 rather than a side chain with its own independent state. Second, the introduction of a decentralized, two-way Bitcoin peg (sBTC) may drive the unlocking of a "Bitcoin DeFi market" worth hundreds of billions of dollars. Finally, the block generation speed of 4-5 seconds and programming languages that support other networks (such as Solidity) have greatly improved network performance, reduced the difficulty for developers to enter, and provided conditions for the outbreak of ecological projects.
Alex is the largest DEX product in the Stacks ecosystem. ALEX has rich products and a good user experience. The team has good engineering delivery capabilities. From the perspective of future product updates, the team is good at grasping hot spots (supporting Ordinals NFT transactions), and the development direction is clearly planned.
However, there are currently two important problems:
First, there are few tradable targets. Compared with Ethereum and other ecosystems, both TVL and active users are at a low level.
Secondly, the transaction confirmation is extremely slow. A SWAP interaction needs to wait for 4 BTC blocks, which takes an average of 40 minutes. It needs to wait for the Stacks Q4 upgrade to solve the problem. The block time is expected to be shortened to 4-5 seconds.
Overall, despite facing various problems, Alex Lab is still an excellent product. After the outbreak of BTC L2, ALEX will receive dividends from token issuance and transactions of various projects in the early stage.
The Arkadiko Protocol is a stablecoin project that was launched earlier on Stacks and has been continuously developed. The team has better technical capabilities and cooperates closely with Stacks officials and existing ecological projects. However, at present, the main collateral is STX, and the total market value is low; at the same time, the stable currency USDA also faces the problem of unsound ecology and few application scenarios. In the end, USDA did not form an application scale. Waiting for the release of Stacks SBTC, it is expected to provide enough collateral for USDA. At the same time, with the gradual enrichment of Stacks' second-tier applications, we can expect USDA to be used in the future stable currency market (especially Bitcoin Layer 2 network) to gain a certain market share.
