By providing a channel to bring $2 trillion in BTC liquidity into the on-chain ecosystem, sBTC is expected to completely activate BTCFi.
Written by: Maggie
From a certain perspective, the $2.1 trillion Bitcoin market (latest CoinGecko data as of December 18, 2024) is the largest "sleeping pool of funds" in the crypto world.
Unfortunately, for most of the time, it has neither generated returns for holders nor injected vitality into the on-chain financial ecosystem. Although there have been many attempts to release Bitcoin asset liquidity since the DeFi Summer began in 2020, most have been repetitive wheel reinventions, with overall BTC capital inflow being very limited, failing to truly leverage the BTCFi market.
Against this backdrop, sBTC, which has just launched on the Stacks mainnet, as a 1:1 Bitcoin-backed asset on Stacks L2, aims to leverage Bitcoin's security (100% Bitcoin finality) and fast transactions to release BTC capital and open up new use cases, thereby completely activating the Bitcoin economy.
Currently, sBTC is operated by a large-scale network of signers composed of institutions such as BitGo, Asymmetric, and Ankr, and is expected to become one of the most decentralized L2 Bitcoin assets, bringing unprecedented opportunities to fields such as DeFi and dApps. This article will further explore the specific operational mechanisms and relative advantages of sBTC.
How does sBTC work?
Users first deposit BTC into a multi-signature protocol monitored by a decentralized group of Stacks signers through Bitcoin's mainnet transactions.
After the BTC is deposited, sBTC is minted on Stacks, allowing users to interact with DeFi dApps.
Users can seamlessly use Bitcoin DeFi; for example, Zest Protocol will support mainnet BTC deposits and automatically convert them into sBTC. In the future, sBTC is expected to become a fee token on Stacks, further enhancing user experience.
Will there be a deposit limit for sBTC?
At the current stage, the deposit limit is set at 1,000 BTC to conduct controlled testing and gradually strengthen security.
In the early stages, only deposits are supported, and withdrawals are temporarily unavailable.
Will sBTC generate returns?
Imagine earning Bitcoin rewards just by holding BTC.
No staking, no points, no complicated processes—just hold BTC to receive rewards. Early users of sBTC can connect their wallets to https://bitcoinismore.org/ (launching at 22:00 Beijing time on December 17) to receive a 5% annualized Bitcoin reward.
Now, with the sBTC reward program, all of this becomes possible. Early users can earn BTC rewards simply by holding sBTC, and the rewards will be distributed in the form of sBTC.
The sBTC reward program is supported by stackers who "Stack" STX.
When staking STX, stakers earn BTC through Stacks' consensus mechanism. To enable the sBTC reward program, these stakers will transfer their proof of BTC reward contributions to the sBTC reward pool.
BTC from the reward pool will be directly deposited into a smart contract, which will deposit BTC into sBTC and proportionally distribute the rewards to sBTC holders. The protocol will take snapshots of users' sBTC holdings daily and distribute rewards every two weeks—this is the length of a PoX cycle.
The currently estimated annualized BTC reward is 5%, and rewards will be distributed every two weeks.
Key features of sBTC:
Where can sBTC be used?
Multiple DeFi protocols will support sBTC, allowing users to earn additional returns on top of the 5% APY:
Liquidity Pool: Users can deposit sBTC into Bitflow's liquidity pool, facilitating trading and earning a share of the trading fees.
Yield Farming: Liquidity providers can stake their LP (liquidity provider) tokens in yield farming projects to earn additional rewards, typically from trading activity or platform incentives.
Early Predictions: Deploying sBTC may bring an additional 10%-30% annualized return.
Bitflow Runes AMM
Bitflow has launched the Runes AMM (automated market maker) on Stacks L2, allowing users to bring Runes to L2 for a better user experience.
sBTC will be available on the first day of Zest Protocol's lending market launch.
Zest Protocol will initiate an enhanced yield campaign from day one, offering up to 10% BTC returns for provided sBTC.
Zest will also unlock more DeFi strategies related to sBTC, such as:
Deposit sBTC to earn up to 10% annualized BTC returns;
Use BTC (or other stablecoins) as collateral to borrow USDh stablecoins and exchange them for USDh;
Stake USDh on Hermetica to earn up to 25% annualized returns.
Note: Hermetica's DeFi protocol offers USDh, the first yield-bearing stablecoin backed by Bitcoin. The yield is sustainably generated through funding fees from perpetual contracts on centralized exchanges and paid out daily.
stSTXbtc is a new liquid staking token that users can apply within the Stacks DeFi ecosystem. Users holding this token will earn up to 10% annualized returns through staking rewards, which will be directly paid to users' wallets in the form of sBTC.
Liquidity Provision: Users can provide sBTC to Velar's liquidity pool, facilitating trading and earning a share of the trading fees generated by the platform.
Yield Farming: By participating in yield farming projects, users can stake the liquidity provider (LP) tokens earned from providing sBTC liquidity to earn Velar's native tokens or other incentive rewards.
Staking: If Velar offers staking options for sBTC, users can lock their sBTC in a staking contract to earn rewards, such as additional tokens or a percentage of the revenue supporting network operations.
Velar will launch its own incentive program, allowing users to earn Velar's native token VELAR by deploying sBTC into its DEX pools.
Arkadiko- USDA Stablecoin
- Arkadiko will allow sBTC to be used as collateral in its protocol through governance voting, enabling users to borrow USDA or other assets against their Bitcoin holdings.
ALEXDEX
Users can deposit sBTC into ALEX's liquidity pool and pair it with other assets (such as STX or stablecoins). In this way, they provide liquidity for the platform's trading and earn a portion of the trading fees from the pool.
ALEX will provide additional reward yields through its native token ALEX as part of the Surge campaign. This means that, in addition to the 5% annualized yield from the sBTC reward program, users can also earn additional ALEX token rewards by providing sBTC liquidity.
Granite- Lending Protocol (not yet launched)
Borrowers can obtain stablecoin loans by using Bitcoin as collateral, while liquidity providers earn returns by supplying stablecoins to the protocol.
Borrowing: Users can borrow stablecoins using sBTC as collateral and then use them for various DeFi strategies to earn returns.
Liquidation Participation: Users can act as liquidators, earning collateral and rewards by repaying under-collateralized loans, thus earning returns through the liquidation process.
Granite currently has a waiting list that allows early registered users to access it ahead of time. Ultimately, the system will introduce a points system that brings additional benefits, giving early registered users significant advantages.
Granite Waiting List
How does sBTC differ from other BTC assets?
These BTC assets typically require sending BTC to intermediaries or rely on a trusted signer alliance/small multi-signature institutions.
sBTC will initially rely on 15 signers, including enterprise-level institutions such as BlockDaemon, Figment, Luganodes, and Kiln, responsible for handling the anchoring and unlocking of assets. Over time, this responsibility will gradually shift to all Stacks signers, allowing anyone to participate in the security and decentralization of the network, with institutions like BitGo and the Aptos Foundation expected to join this process.
Additionally, thanks to the design of Stacks, sBTC will achieve 100% Bitcoin finality, meaning that transactions on the Stacks layer will be as irreversible as Bitcoin transactions.
Reminder: Signers are responsible for verifying and approving each produced block; anyone can become an independent signer by staking enough STX, similar to the concept of validators.
Other Information:
1) sBTC Related Information:
sBTC Website: https://www.stacks.co/sbtc
sBTC Documentation: https://docs.stacks.co/concepts/sbtc
sBTC Presentation: https://www.stacks.co/sbtc-deck
2) Nakamoto Upgrade Information:
Nakamoto Website: https://www.nakamoto.run/
Documentation: https://docs.stacks.co/nakamoto-upgrade/nakamoto-upgrade-start-here
The Nakamoto upgrade is crucial as it brings:
Fast blocks (reduced from the current 10 minutes to less than 1 minute, with optimizations still ongoing)
100% Bitcoin finality
Fast Blocks: Fast blocks provide a transaction experience similar to Solana and Bitcoin DeFi interactions, greatly improving the overall user experience when interacting with Stacks L2.
Stacks' DeFi ecosystem has grown rapidly this year, allowing users to apply DeFi strategies in just a few seconds, facilitating quick onboarding and retention.
Before the Nakamoto hard fork, Stacks blocks were settled in sync with Bitcoin blocks (averaging 10 minutes), which made the chain slow and unable to meet the demands of DeFi activities. This limitation no longer exists. Instead, Stacks blocks can now be completed in seconds, with performance improvements occurring regularly. Meanwhile, once Bitcoin blocks are settled, Stacks still relies on Bitcoin's security.
100% Bitcoin Finality: With the Nakamoto upgrade, transactions occurring on Stacks L2 will utilize Bitcoin's 100% security budget, meaning that once subsequent Bitcoin blocks are settled, Stacks transactions will also be irreversible like Bitcoin.
Unlike individual Stacks blocks being tied to individual Bitcoin blocks, Bitcoin blocks are now tied to the miner's term, during which they will mine multiple Stacks blocks that settle in seconds.
Currently, there are 50 signers, including enterprise-level institutions such as BitGo, Aptos, Luganodes, and Kiln, responsible for verifying and approving each block produced during a miner's term.
Fast block times and Bitcoin finality make Stacks the most secure and scalable Bitcoin L2, operated by a decentralized network of signers, with the upcoming sBTC upgrade set to achieve decentralized liquidity for Bitcoin.
3) Stacks Data Analysis Platforms:
Signal 21: https://signal21.io/
DefiLlama: https://defillama.com/chain/Stacks
Stacks Block Explorer: https://explorer.hiro.so/
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