Stacks is a Bitcoin L2 that enables smart contracts and decentralized applications (dApps) to use Bitcoin as their base layer. Transactions on Stacks are settled on Bitcoin to benefit from its security, network effect, and capital.
The chain’s TVL rose by over 1300% between October 2023 and April 2024, signaling its massive potential and the community’s warm embrace. This growth can be attributed to the exponential growth of the Stacks DeFi ecosystem.
Key Ecosystem Developments
The Stacks TVL was $55.42 million on January 01, 2024, and reached an all-time high TVL of $189.19 million on April 02, 2024, which is a 241.5% rise in 3 months.
But even before then, the Stacks DeFi ecosystem had been on an upward trajectory. 2023 was a banner year for the network's DeFi protocols, with Messari’s research reports noting that:
The DeFi TVL of Q1 2023 was $26.7 million, and it surged to $61.2 million in Q4 2023, resulting in a 762.5% YoY change.
The TVL of Stacks’ native token, STX, increased from 28.7 million in Q1 2023 to 42.9 million in Q4 2023, a 31.1% YoY change.
Let’s look at some of the key applications that contributed to this TVL.
Decentralized Exchanges (DEXs)
DEXs built on Stacks allow users to buy, sell, trade, and swap assets with BTC. These DEXs connect users to BTC-backed assets like SIP10 tokens, BRC-20 tokens, and more so that they can engage with a growing DeFi ecosystem on Bitcoin.
The TVL for Stacks DEXs has surpassed $125 million, with over 97% of TVL covered by the exchanges ALEX and Bitflow.
ALEX: ALEX is a major decentralized exchange built on Stacks to provide users with a seamless Bitcoin DeFi experience. The network fees are to be paid using STX tokens. Users need Stack-supported wallets to buy cryptocurrencies.
Bitflow: Bitflow DEX leverages technologies like Atomic Swaps, decentralized liquidity pools, layer-2 smart contracts, and Stacks Bitcoin (sBTC) to offer seamless trading features to its users.
Lending and Borrowing Platforms
Bitcoin users can use Stack-based lending and borrowing platforms to earn BTC by lending and borrowing other assets against their BTC. Here, a BTC pool is created that is controlled through the Stacks consensus. At the time of writing, the TVL of Stacks lending protocols is over $10 million.
Zest Protocol is a lending protocol that rewards liquidity providers with BTC. Here, users can request loans with information like token amount, collateral ratio, payment period, interest rate, and more.
Stacking and Liquidity Protocols
Stacking allows stackers to earn STX and STX-backed tokens by participating in the network consensus mechanism. Users can Stack in a pool or individually (though they’ll need to become a signer) through Lockstacks. They can also participate in Liquid Stacking, which was developed by LISA and Stacking DAO.
Additionally, users can also access protocols that allow them to interact with liquidity pools for yield farming opportunities. Velar, for example, is a DeFi liquidity protocol that allows yield farming on Stacks. A liquidity pool with 15 token pairs also rewards users for adding liquidity.
Stablecoins
Stablecoins developed on Stacks help users reduce volatility in their assets. Moreover, users can opt for Stack platforms that allow STX token collateralizing to mint stablecoins. A number of projects like ALEX possess their own stablecoins while others help users access them.
Arkadiko is a platform that allows one to borrow a stablecoin USDA by collateralizing STK tokens. This platform also has its native governance token, DIKO, which can be used to participate in DAO proposals.
NFT Marketplaces
The NFT marketplace development is one of the innovative developments of the Stacks ecosystem. Users can visit this marketplace to buy NFTs minted on the Bitcoin blockchain.
Powered by Stacks, Gamma is a prominent NFT marketplace that has sold over 600K NFTs. This marketplace has over 3,000 creators who have earned over $5 million to date.
Nakamoto: The Next Frontier For Stacks
Nakamoto Upgrade is the Stacks network’s upcoming hard fork, designed to make it more secure and faster. With this major upgrade, the Stacks blockchain attained 100% Bitcoin finality, making Bitcoin transactions irreversible.
This upgrade also mitigates the Miner Extractable Value (MEV) by introducing a series of countermeasures, such as miner participation in recent blocks, median of past bids method, and absolute bid total. These factors ensure genuine miner contributions to the network.
Additionally, the Nakamoto Upgrade allows developers to explore the expanded Bitcoin’s utility and freely build dApps. These developments pave the way to build new Bitcoin-based DeFi projects that provide trading, swapping, lending, and borrowing services on the Stacks blockchain.
Fast blocks will be available to app developers after the activation phase in May 2024. Moreover, most of the app-building process remains similar to pre-Nakamoto, with some changes in PoX, new block structure, stacking functions, and Clarity functions.
Stacks Bitcoin or sBTC is a 1:1 Bitcoin pegged asset enabling smart contracts to write transactions on the blockchain. For this reason, sBTC allows the create more DeFI-based functionality, such as:
Deployment of BTC to earn yields.
On-chain-based undercollateralized BTC lending.
BTC collateralized stablecoin loans.
Stacks Subnets
Subnets are developed to address the scaling challenges of the Stacks’ mainchain. Therefore, Subnets act as an extension of the Stacks’ mainchain to provide low latency and high throughput for fueling use cases like high-volume transactions and NFT minting.
Subnets work in coordination with the Bitcoin blockchain while operating with faster block confirmations. Here, the Subnets transaction converges on the Stacks blockchain, which finally settles on Bitcoin.
The Stacks ecosystem will exist with a diverse number of Subnets that offer tailored solutions based on app requirements for varied purposes. Moreover, Subnets allow developers to explore EVM compatibility, zk-proofs, and Bitcoin rollups on Stacks.
The Subnets can boost the Stacks DeFi ecosystem through:
Crypto Exchanges: The inclusion of Subnets can help trading exchanges execute high-volume transactions without congesting the network.
DeFi Platforms: Subnets help DeFi platforms to buy, sell, swap, and trade tokens with low fees.
Future and Roadmap
Nakamoto Release is the major update for the Stacks’ DeFi ecosystem, which will add more use cases in the near future. The Nakamoto rollout began in April 2024, and was announced on Stacks’ official X handle.
The expected date for mainnet activation, which is set to begin on August 28. During this period, Nakamoto rules will go live with a two-step release process along with signer onboarding.
The two-step process is implemented using a hard fork that involves breaking the release into two forks. This process allows core developers to fix bugs or make final adjustments as Signers come online. In the final activation step, Nakamoto rules are turned active, implementing the complete Nakamoto features such as fast blocks, Bitcoin finality, and Signer-based functions.
According to the Stacks roadmap, once the Nakamoto upgrade is completed, An sBTC SIP along with updated tooling will be released. After about three months of the Nakamoto upgrade, sBTC will be live and will enhance the use cases of Bitcoin DeFi with the coordination of the Stacks ecosystem.
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