Bitcoin is experiencing a Builders renaissance, with a flourishing ecosystem and more use cases beyond digital gold.
At Restake.net , we believe this new era is just getting started, and we want to be the first in line to help and support nascent Bitcoin projects with funding and infrastructure.
Introducing: Stacks — the leading Bitcoin Layer 2.
What is Stacks?
Stacks is an open-source protocol that enables smart contracts and decentralized applications (dApps) on Bitcoin, offering enhanced functionality while maintaining the network’s security and decentralized nature.
Recognized as a leading Bitcoin Layer 2 solution, Stacks facilitates more complex transactions and interactions on the Bitcoin blockchain, broadening the scope of Bitcoin’s capabilities.
With the Nakamoto upgrade around the corner, Stacks will further accelerate transactions and bolster security. Earlier versions of Stacks have established a foundation for a blockchain capable of supporting smart contracts and decentralized apps, deeply integrated with Bitcoin. The Nakamoto Release is expected to refine and advance this vision — more on this later in the article.
Key Features of Stacks
Stacks boasts its own blockchain, compiler, and programming language, Clarity, operating in tandem with Bitcoin. This creates a new blockchain that operates outside, but hand in hand with Bitcoin, featuring its own governance and transaction model.
Rather than employing cross-chain bridges for asset transfers, it integrates with the Bitcoin main chain by posting ‘anchoring transactions’, recording its blockchain state on the most secure and pristine blockchain in existence.
The anchoring transactions contain the Stacks’ block headers and additional information needed to operate in harmony with Bitcoin, ensuring its security and immutability.
Stacks utilizes the Proof of Transfer (PoX) consensus algorithm, distinguishing between miners and transaction validators.
Simply put, validators stake STX tokens to mine BTC, whereas miners stake BTC on the Bitcoin main chain to mine STX.
Let’s dive deeper into Stacks’ unique consensus mechanism.
Stacks’ Consensus Mechanism — PoX
The origins of the Proof of Transfer consensus mechanism date back to its predecessor PoB (Proof of Burn), which was proposed by Jude Nelson and Aaron Blankstein at the end of 2018.
PoB enabled Stacks miners to compete by destroying cryptocurrency, offering a more environmentally friendly alternative to traditional proof-of-work blockchains.
However, recognizing the destructive nature of PoB and its potential to reduce token supply, Stacks transitioned to the PoX consensus to better balance the interests of miners and token holders while minimizing the impact on the Bitcoin network.
There are two primary network participants in the PoX mechanism.
- Miners — spending Bitcoin to generate additional Stacks
- Stackers — supporting the network by stacking STX and earning BTC
Mining and Stacking Process
The mining process
- Miners send BTC to stackers to avail the chance of winning a block reward and transaction fees for the Stacks block.
- The winning miner is selected using a weighted random function. Their chance of winning is (non linearly) proportional to the amount of BTC they transferred compared to the other miners. Reminds you a bit of PoS.
- After selecting the lucky miner, they will earn the right to stream microblocks and commit a new block to the Stacks blockchain.
- As a block reward, the miners get newly minted STX with transaction fees.
The stacking process
- Stackers lock their STX holdings for one or multiple cycles on the Stacks blockchain.
- Stackers can select between stacking independently and collectively by pooling with other stackers based on the amount of STX locked.
- Stackers provide the BTC address to receive their rewards. The rewards are available as soon as they are transferred to the address, and they are proportional to the amount of STX stacked.
- When the number of cycles committed ends, their STX holdings unlock.
Big milestones ahead: sBTC and Nakamoto
Stacks wasn’t born yesterday. The team has been relentlessly working on this innovative project through multiple cycles, battling wild bears and building in the rain.
Key Milestones
2017 — Stacks was Founded by Muneeb Ali and Ryan Shea
2019 — Stacks 2.0 Whitepaper released
2020 Q1 — Implemented Proof of Mining Transfer (POX) consensus mechanism
2020 Q2 — Stacks 2.0 testnet is online
2021 Q4 — Stacks 2.0 mainnet launch
2023 Q1 — Stacks 2.1 is released
2023 Q4 — sBTC Developer Release
2024 April — Stacks Nakamoto Release
2024 Q3 — sBTC launch
In a few days, Stacks will undergo one of its most important upgrades to date, the Nakamoto Upgrade.
The Nakamoto Upgrade is an upcoming update to the Stacks network designed to make transactions even faster and more secure, tying them closely to Bitcoin’s reliability. It changes how new blocks are made by separating this process from the selection of miners, ensuring blocks come consistently with no potential disruptions.
PoX Stackers will decide when to switch miners, and a 70% agreement is required to proceed with any major changes. This aims to speed up transactions, secure them as firmly as Bitcoin transactions, reduce the influence of miner behavior on rewards, and make the blockchain more resistant to unauthorized alterations.
Beyond STX: Bringing BTC onto Stacks with sBTC
sBTC is wrapped/synthetic BTC brought onto the Stacks L2 that introduces trust-minimized Bitcoin and Stacks interoperability, enabling the use of Bitcoin in Stacks’ smart contracts and dApps without sacrificing security.
This development unlocks Bitcoin’s programmability, facilitating the emergence of De-Fi platforms, NFTs, and other applications that expand Bitcoin’s utility.
The more BTC is wrapped into sBTC, the more BTC becomes scarce and subject to volatility to the upside and downside. With the BTC halving around the corner and the recent influx into the BTC spot ETFs… “we like the stock”.
Several established node operators have committed to becoming sBTC signers, supporting the launch of sBTC later this year.
We are proud to be one of their selected core contributors, and we look forward to embarking on this journey with them.
Stacking
With the Nakamoto Upgrade, Stackers not only lock their STX tokens to secure the network economically but also take on the role of validating and approving blocks produced by the miners.
The Stacks protocol ensures the blockchain’s integrity by verifying its status with each new Bitcoin block, maintaining synchronization between the Stacks and Bitcoin chains. This mechanism binds the activities of Stackers and miners, promoting collaborative efforts towards producing secure and efficient blocks.
Additionally, Stackers agree on the last signed block and require the next miner to continue from this point, preventing the creation of new Stacks forks. Stacks forks only occur in conjunction with Bitcoin, ensuring alignment between the two chains.
This synergy between Stackers and miners lays the groundwork for rapid block production and complete Bitcoin finality.
Stacks Q1 2024 Overview
The narrative around Bitcoin L2 is gaining momentum as Stacks hits new all-time highs, driven by the upcoming Nakamoto Upgrade and the addition of over 142,927 new accounts in Q1. This influx has led to a record number of transactions and the introduction of liquid stacking tokens (stSTX) through StackingDAO, revolutionizing Stacks’ DeFi landscape by providing STX liquidity while earning rewards. The partnership with BitFlow Finance has further enabled the establishment of new liquidity pools, marking a significant growth in Stacks DeFi.
Source: @signal21btc
Stacks saw its TVL 12.5x during the STX rally, whereas STX denominated TVL grew 74%
Liquid stacking is quickly reshaping Stacks’ DeFi user base in Q1
In Q1, contracts deployed grew by 148%, a strong signal of growing developer interest
StackingDAO
Stacking DAO is a Liquid Stacking Protocol on Stacks, allowing users to earn native ~6.35% yield on their STX, while keeping liquidity in stSTX.
As of April 2024, Stacking DAO is the largest DeFi protocol on Stacks, with over $100M TVL, with a 46% MoM increase.
Before the Stacking DAO launch, users faced a choice between using their STX for Stacking or DeFi. Given Stacking was more profitable, there was less incentive to allocate STX liquidity to DeFi. With the introduction of stSTX, users can now engage in both Stacking and the DeFi ecosystem on Stacks.
Stacking DAO V2
‘With the Nakamoto launch, it’s Stacking DAO duty to keep assisting Stacks by forming a set of signers to ensure an efficient and decentralized block production environment on Stacks’
In Nakamoto, stacking flows have significant changes in comparison to previous versions of Stacks. Because Nakamoto requires stackers to run a signer, which validates blocks produced by Stacks miners, stackers need to provide new information when making Stacking transactions.
Consequently, Stacking DAO is laying the groundwork for a comprehensive validator network to be established following the launch of Nakamoto. With the advent of Nakamoto, the roles of Stackers will evolve to effectively serve as validators (referred to as “signers” on Stacks), enhancing the blockchain’s security.
What does this all mean for Stacks and Bitcoin?
Stacks opens a sea of opportunity for the huge settlement layer that Bitcoin is. The project can help unleash the De-Fi potentials of Bitcoin, potentially bringing back users who have previously found their home for yield/NFTs etc. in other ecosystems. What was once confined to its store of value properties is now set free to fly and venture into uncharted territories.
Restake’s Role in the Ecosystem
Restake is thrilled to be part of the Bitcoin renaissance and to join the Stacks’ Signer cohort to promote signer decentralization and a secure foundation. We are also partnering with Stacking DAO to provide institutional level infrastructure, positioning to be key supporters of the liquid staking ecosystem on Bitcoin.
On top of all of the above, we are investing in other Bitcoin related projects to further expand our network and connect the dots in an ever-evolving landscape. If you are a nascent and ambitious protocol aiming to make the world a better place, our DMs are open.
