The core of the Nakamoto upgrade lies in the comprehensive innovation of the PoX consensus mechanism in Stacks 2.0.
Author: Deep Tide TechFlow
As Bitcoin breaks through $90,000, various ecosystems in the crypto market have begun their own celebrations.
AI narratives continue to thrive, and meme coins keep creating wealth myths… But in this celebration, projects within the Bitcoin ecosystem seem more like "outsiders": They are lively, while I have nothing.
Clearly, the positive effects of Bitcoin's rise have not significantly spilled over to projects within its own ecosystem.
Even compared to the "most disappointing" Ethereum, the latter's proud DeFi sector occupies nearly 17% of Ethereum's total market cap in total value locked (TVL); while Bitcoin maintains about 50% of the entire market's market cap, its DeFi ecosystem's total locked value (TVL) is less than 1% of the entire market (data source from CMC research).
However, the crypto market consistently follows the rules of attention and narrative rotation.
Such a large gap also contains phase-specific opportunities. After the inscription and staking gameplay, the BTC ecosystem fell into silence; in the face of a huge gap, there is also the possibility of being ignited at any time.
Some projects that have been deeply involved in the Bitcoin ecosystem for many years may also welcome their opportunities, often just needing a catalyst.
While various meme coins take turns in "explosive rallies," Stacks, as one of the earliest Layer 2 solutions for Bitcoin, has chosen a quiet path — focusing on technological transformation, and finally completing the long-awaited Nakamoto upgrade.
Let’s not forget that last year, STX also had a similar meme-like quality, with its price once being pulled up by 10 times.
What will this upgrade bring? Will it be a new opportunity for launch?
In the current market environment of heightened speculative sentiment, how much imaginative space is there for projects like Stacks that focus on technological innovation?
Let’s revisit our old friend, Stacks.
Nakamoto Upgrade: Not Just a Technical Reconstruction
The core of the Nakamoto upgrade lies in the comprehensive innovation of the PoX consensus mechanism in Stacks 2.0. To understand the significance of this upgrade, we first need to understand the limitations of the existing PoX mechanism.
In the current PoX mechanism, the confirmation of Stacks blocks requires waiting for the Bitcoin network to generate a new block. While this mechanism inherits Bitcoin's security, it also brings efficiency issues: even simple transactions need to wait for about 10 minutes for Bitcoin's block time. More importantly, since Stacks' block confirmation relies on the accumulation of Bitcoin blocks, users often need to wait for multiple Bitcoin blocks (usually 6 blocks, about 1 hour) to ensure the finality of transactions.
GrayScale's analysis provides a more intuitive display of the potential performance gap before and after the upgrade:
(Data source: GrayScale Research)
The new Nakamoto PoX addresses this performance issue by introducing a "fast block confirmation" mechanism. The upgraded system allows transactions to be pre-confirmed through an internal consensus mechanism while waiting for Bitcoin block confirmations. This enables most transactions to be confirmed within minutes while still maintaining security binding with the Bitcoin network.
In terms of security architecture, the upgrade brings substantial improvements. The original Stacks wrote its block hash into Bitcoin transactions, but this one-way security inheritance posed potential risks. Under the new architecture, miners need to participate in both Bitcoin mining and Stacks validation, creating a bidirectional security verification mechanism. This not only increases the cost of attacks but also ensures the honest behavior of validators through economic incentives.
Improvements in interoperability are reflected in the reconstruction of the underlying architecture. Previously, interactions between Stacks and the Bitcoin network required complex relay mechanisms, which not only increased latency but also introduced additional trust assumptions. The new architecture adopts a direct state verification mechanism, allowing Stacks nodes to directly read and verify the state of the Bitcoin network, significantly simplifying the complexity of cross-chain 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 potential significance of the Nakamoto upgrade:
According to GrayScale's research analysis, after the Nakamoto upgrade, the Stacks protocol will offer unique features including:
(i) Bitcoin-collateralized stablecoins,
(ii) Bitcoin-based lending (and Bitcoin-native rewards),
(iii) Bitcoin-based decentralized autonomous organizations.
Similar to how basic financial primitives in 2017 propelled the development of the Ethereum DeFi ecosystem, given Bitcoin's currently prominent status, its ecosystem may also thrive in a similar manner.
sBTC: Innovative Applications of Bitcoin on Stacks
This upgrade looks promising, but what substantial changes will it bring to the ecosystem and products?
From Stacks' own first-party perspective, a new product that comes with the upgrade is sBTC.
As a decentralized Bitcoin two-way pegging protocol, the design intention of sBTC is simple: to make Bitcoin, the "digital gold," more flexible and become a truly programmable productive asset.
Thus, the sBTC mentioned in the table can be understood as an innovative Bitcoin wrapping protocol that allows Bitcoin to operate in the Stacks network in the form of smart contracts.
A foundational project still needs to be closer to asset issuance to gain more attention and create more gameplay.
This vision does not sound new. There are already many similar attempts in the market, such as the popular wBTC on Ethereum, which even reached a locked value of $5-15 billion under a centralized custody model. But the ambition of sBTC is clearly more than that — it aims to be a truly decentralized solution that aligns with the spirit of Bitcoin.
The core mechanism of sBTC is actually very intuitive: when users lock BTC on the Bitcoin mainnet, the Stacks network mints an equivalent amount of sBTC, strictly maintaining a 1:1 pegging relationship. Users can use these sBTC to participate in smart contract interactions, and when redemption is needed, they simply destroy 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 what makes sBTC stand out.
It does not have a preset manager but instead uses an open dynamic group of signers to operate the entire system. All key operations are conducted on the Bitcoin mainnet, inheriting Bitcoin's security features.
Signers earn BTC rewards through Stacks consensus, and this economic incentive ensures the system can operate continuously and stably. More importantly, sBTC directly implements price oracle functionality on the Bitcoin mainnet without relying on any external data sources.
Timing is crucial. The emergence of sBTC in the Bitcoin ecosystem comes at the right moment. With the completion of the Nakamoto upgrade, the technical foundation is already in place.
From the market perspective, the TVL of Bitcoin DeFi accounts for less than 1%, forming a huge contrast with its market cap, which means there is significant room for development. Even more encouragingly, several major Bitcoin organizations have clearly expressed support for the sBTC initiative, showing industry recognition of this innovation.
Regarding sBTC, it should be noted 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 sBTC upgrade is expected to launch in early December 2024. Currently, the community is voting on the SIP-029 proposal, which will optimize the Stacks token issuance mechanism and pave the way for the launch of sBTC.
If you want to know more about sBTC, the official Zen can help you quickly understand the basics.
In the current context of the Bitcoin ecosystem where "only the coin price rises but not the ecosystem," the emergence of sBTC may become a catalyst for changing this situation. Just as Ethereum propelled the development of the DeFi ecosystem in 2017 through basic financial primitives, the Bitcoin ecosystem may also just be waiting for such an opportunity.
Ecosystem and Data Overview
Whether before or after the upgrade, Stacks itself remains foundational, and its development progress is inseparable from the construction of ecosystem projects.
After the Nakamoto upgrade, by releasing the liquidity of the BTC ecosystem through sBTC, Bitcoin smart contract functionality, and scalability improvements, various projects in the ecosystem may benefit from this.
The Stacks ecosystem has over 60 DApps, most of which are related to DeFi and NFTs. Among them, DeFi protocols benefit significantly from the upgrade, as users can simply lock their BTC to mint sBTC on Stacks and use sBTC in DeFi applications, such as stablecoin lending, borrowing, and asset swapping. For DeFi protocols built on Stacks, users can earn BTC rewards.
Currently, some notable DeFi protocols include:
Alex Labs: Building the most comprehensive Bitcoin DeFi ecosystem through Stacks. Alex Labs expands products like Lisa (a liquid staking version for Stacks), launchpad, and cross-chain bridges into the Runes ecosystem;
Arkadiko: Adopting a CDP (Collateralized Debt Position, similar to MakerDAO) model, allowing users to mint stablecoins and generate Bitcoin yields;
StackingDAO: A liquid staking protocol on Stacks that allows staking Stacks to generate additional yields;
Zest: An on-chain lending protocol;
Bitflow Finance: A DEX within the ecosystem;
According to data from Signal 121, most of the staked STX has flowed into StackingDAO, followed by LISA and Stackswap.
Correspondingly, the active addresses in the Stacks ecosystem are primarily found in the DeFi protocols shown above, and the capital volume of different ecosystem projects is positively correlated with the activity level of their addresses. Protocols with the most staked funds often have the highest number of active addresses.
However, looking at the absolute values of total TVL and address counts, there is indeed a considerable gap between DeFi on Stacks and ETH. From another perspective, this data corroborates the initial point of the article — we often need a trigger point and catalyst to transform the gap into upward potential.
This gap is clearly difficult to fill with memes. It is worth noting that there are some meme projects on Stacks, but their cultural attributes, influence, market capitalization, and activity levels still show a significant gap compared to meme projects on Solana.
Therefore, as the infrastructure of Stacks matures, whether there will be more asset-creating gameplay similar to inscriptions in the previous BTC ecosystem will directly impact the activity level of the Stacks ecosystem.
However, the bridge has been built, and what kind of vehicles will eventually run on it will require time to observe.
Future Outlook: When Technological Innovation Meets Ecological Incentives
In the Bitcoin ecosystem, we often discuss a question: what is the relationship between technological innovation and market recognition?
Does having technology guarantee that the market will buy in? The answer is certainly No; often, whether the market accepts it depends on the project's operational thinking and planning.
Technological upgrades are just the foundation; on the surface, there is the promising sBTC, encouraging more people to participate in the construction of sBTC from both supply and demand sides, which is a key move for Stacks going forward.
Thus, the recently launched "Best & Brightest" program is essentially a major innovation project solicitation aimed at the Bitcoin ecosystem. In simple terms, it provides comprehensive support for developers and teams looking to build innovative applications on Bitcoin — somewhat like a "Bitcoin ecosystem innovation accelerator."
This program will gradually roll out starting in late November 2024, covering various important areas in the Bitcoin ecosystem, including miners, wallets, and exchanges. It caters to the growth space of individual developers while providing ample development funds for mature teams.
To ensure that these innovations are safe and reliable, Stacks has also specifically invited top security teams from the industry to join. For example, Immunefi (an on-chain security platform protecting over $190 billion in assets, with more than 45,000 security researchers) will host a dedicated "Attackathon" event, allowing white-hat hackers to test and reinforce the security of these innovative projects in advance.
Interestingly, the timing of this program's launch is impeccable. Just as Bitcoin prices hit new highs and the market generally fell into speculative frenzy, Stacks chose a seemingly slow but potentially more visionary path: providing more possibilities for the entire Bitcoin ecosystem through solid technological innovation and ecological construction.
From the perspective of institutional support, sBTC has already received backing from over 20 well-known institutions, including BitGo, Blockdaemon, Figment, Copper, and Asymmetric. This broad 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 likely to witness a wave of innovations based on Bitcoin. This not only relates to the expansion of the Bitcoin ecosystem but may also redefine our understanding of "Bitcoin applications."
After all, as Satoshi Nakamoto said on the Bitcoin forum: "In the coming decades, as block rewards become too small, transaction fees will become the primary compensation for nodes. I believe that in 20 years, there will either be a large volume of transactions or no transactions at all." It now seems that through such ecological innovation plans, Bitcoin is moving towards the former.
However, technological innovation ultimately needs to be tested by the market. In the current context of the Bitcoin ecosystem, where "only the coin price rises but not the ecosystem," will Stacks' choice gain market recognition?
The answer to this question may only be revealed when sBTC officially launches and more innovative applications based on Stacks emerge.
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