Source: Stacks
At 00:00 on December 18, 2024, sBTC officially launches on the BTC L2 Stacks mainnet.
Stacks is the leading Bitcoin L2, and the launch of the sBTC mainnet is a channel for bringing $20 trillion in BTC liquidity into the on-chain ecosystem, expected to unlock BTCFi.
Introduction to sBTC
What is sBTC?
sBTC is a 1:1 pegged asset on the Bitcoin Layer 2 network Stacks, allowing developers to create productive applications for Bitcoin and opening doors for Bitcoin's decentralized finance (DeFi), non-fungible tokens (NFT), and more.
Unlocking Bitcoin liquidity is a key narrative, especially considering that Ethereum, despite having a market cap of less than 25% of Bitcoin, has a much higher total locked value (TVL) in its DeFi ecosystem.
sBTC aims to unlock over $20 trillion in Bitcoin liquidity through Stacks for use in DeFi and decentralized applications (dApps), paving the way for a thriving Bitcoin-driven economy.
sBTC is operated by numerous signers, including institutional giants such as BitGo, Asymmetric, Ankr, making it the most decentralized Layer 2 network for BTC. Additionally, transactions on the L2 network are secured by 100% of Bitcoin's security budget, making Bitcoin transactions on the L2 network as irreversible as those on the L1 network.
How does sBTC work?
User operation begins with a transaction on the Bitcoin mainnet, where BTC is deposited into a multi-signature protocol monitored by a decentralized group of Stacks signers.
Once BTC is deposited, sBTC will be minted on Stacks, enabling users to interact with DeFi decentralized applications.
Thanks to this design, users can participate in Bitcoin DeFi without even knowing they are on Stacks. For example, the Zest protocol will support deposits on the Bitcoin mainnet and automatically convert them to sBTC. As sBTC may become the fee Gas token on Stacks in the future, user experience will further improve.
Will there be a cap on sBTC?
At this stage, a deposit cap of 1000 BTC will be implemented for controlled testing. As ongoing security measures reinforce the protocol, the scale will expand.
In the early stages, only deposit functionality will be enabled, while withdrawal functionality will be temporarily unavailable.
Will sBTC generate yield?
Imagine earning Bitcoin rewards just by holding BTC. No staking, no points, no complexity — just let Bitcoin rewards enter your wallet. Early users of sBTC who connect their wallets to https://bitcoinismore.org/ (launching at 00:00 Beijing time on December 18, 11 AM Eastern Time on December 17) will receive a 5% annual yield (APY).
This has now been made possible through the sBTC reward program. Early users can earn Bitcoin rewards simply by holding sBTC — distributed in the form of sBTC.
The sBTC reward program is supported by a group of participants who are 'Stacking' STX (the native token of Stacks).
When participating in STX Stacking, participants earn Bitcoin through Stacks' consensus mechanism. To enable the sBTC reward program, these participants will contribute their corresponding Proof of Transfer Bitcoin rewards to the sBTC reward pool.
BTC from the reward pool will be directly deposited into a smart contract that converts Bitcoin into sBTC and proportionally allocates rewards to sBTC holders. The protocol takes daily snapshots of the sBTC held by users, with rewards distributed every two weeks (the duration of one PoX cycle).
Currently, the estimated annual Bitcoin rewards are 5%, distributed every two weeks.
What are the key features of sBTC?
DeFi use cases for sBTC: Additional yield
Where can sBTC be used?
Multiple DeFi protocols will support sBTC, allowing users to earn additional yields beyond the 5% simply by holding sBTC:
1. Bitflow DEX:
Liquidity pool: Users can deposit sBTC into Bitflow's liquidity pool, facilitating trading and earning a share of transaction fees.
Yield Farming: Liquidity providers can stake their LP tokens in yield farming programs to earn additional rewards, which typically come from trading activity or platform incentives.
Early projections suggest that deploying sBTC can yield an additional annual return of 10 - 30%.
Bitflow Runes AMM:
Bitflow has launched a Stacks Layer 2 network Runes automated market maker, allowing you to bring Runes to the Layer 2 network for a better user experience.
2. Zest — Lending Market
sBTC will be listed on the Zest protocol lending market from day one.
The Zest protocol will launch a yield enhancement campaign on its lending market from day one, offering up to 10% Bitcoin yield on sBTC supply.
Zest will also unlock more DeFi strategies involving sBTC, such as:
Depositing sBTC can earn up to 10% annual Bitcoin yield
Borrow USDh stablecoins by collateralizing Bitcoin (or other stablecoins and converting them into USD stablecoin USDh)
Staking USDh on Hermetica can earn up to 25% annual yield on stablecoins, with USDh being a Bitcoin-backed yield-bearing stablecoin on Stacks.
Note: Hermetica's DeFi protocol offers USDh, the first yield-bearing stablecoin backed by Bitcoin. Its yield is sustainably generated through the funding fees of perpetual contracts on centralized exchanges and distributed daily.
stSTXbtc is a new liquid staking token that users can utilize in Stacks' DeFi. By holding this token, users will directly receive staking rewards of up to 10% paid in sBTC in their wallets.
3. Velar, DEX
Liquidity Provisioning: Users can supply sBTC to Velar's liquidity pool, facilitating trading and earning a share of the transaction fees generated by the platform.
Yield farming: By participating in yield farming programs, users can stake LP tokens earned from providing sBTC liquidity to earn additional rewards in Velar's native token or other incentive forms.
Staking: If Velar launches staking options for sBTC, users can lock their sBTC in a staking contract to earn rewards, such as additional tokens or a share of the yields, by supporting network operations.
Velar will have its own incentive program that allows you to deploy sBTC in a pool on its decentralized exchange to earn its native token called VELAR.
4. Arkadiko — USDA Stablecoin
Through governance voting, Arkadiko will allow sBTC to be used as collateral within its protocol, enabling users to borrow USDA or other assets against their Bitcoin holdings.
5. ALEX DEX
Users can deposit sBTC into ALEX's liquidity pool, pairing it with another asset (such as STX or a stablecoin). This facilitates trading on the platform and earns a share of the transaction fees generated by the pool.
ALEX will provide additional rewards in the form of its native token ALEX through a 'Surge Campaign'. This means that, in addition to the 5% annual yield from the sBTC reward program, you can also earn rewards by joining the sBTC pool and receiving additional ALEX token rewards.
6. Granite (Not yet launched) — Lending Protocol
Borrowers can obtain stablecoin loans by collateralizing their Bitcoin, while liquidity providers earn yields by supplying stablecoins to the protocol.
Borrowing: Users can use sBTC as collateral to borrow stablecoins, which can then be used for various DeFi strategies to earn yields.
Liquidation participation: Users can act as liquidators to repay under-collateralized loans in exchange for collateral and rewards, thus earning yields through the liquidation process.
Granite currently has a waiting list that allows early registrants to use it ahead of time. Ultimately, a points system will provide additional benefits, giving early registrants significant advantages.
How does sBTC differ from other Bitcoin assets (like wBTC, cbBTC, ecc)?
These Bitcoin assets typically require sending Bitcoin to a custodial entity or rely on a trusted signer coalition or small multi-signature mechanism.
Initially, sBTC will rely on 15 signers, including enterprise-level institutions such as BlockDaemon, Figment, Luganodes, and Kiln, to handle peg-ins and peg-outs. Over time, this responsibility will be handed over to all Stacks signers, allowing anyone to participate in securing the network and making it decentralized. BitGo, Aptos Foundation, and others are also expected to join this effort.
Moreover, thanks to the design of Stacks, sBTC will benefit from 100% Bitcoin finality, meaning that transactions on the Stacks layer will be as irreversible as Bitcoin transactions.
Note: Signers are responsible for validating and approving each block generated; anyone who accumulates enough STX to become an independent signer can become a signer — similar to the concept of validators.
Additional information on sBTC
1) Other information about sBTC:
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 Upgrade Website: https://www.nakamoto.run/
Documentation: https://docs.stacks.co/nakamoto-upgrade/nakamoto-upgrade-start-here
The Nakamoto upgrade is crucial because it brings the following outcomes:
Fast block generation (currently reduced from 10 minutes to under 1 minute after optimization)
100% Bitcoin finality
Fast block generation: Fast block generation brings a Solana-like experience to trading and Bitcoin DeFi interactions, greatly improving the overall user experience in interacting with the Stacks Layer 2 network.
The DeFi ecosystem on Stacks has developed rapidly this year, allowing new users to join and retain easily through DeFi strategies that now take just seconds.
Before the Nakamoto hard fork, Stacks blocks settled in sync with Bitcoin blocks (averaging 10 minutes), which made the chain too slow for DeFi activities. This limitation no longer exists. Instead, Stacks blocks can now be generated in just a few seconds, with performance continually improving. At the same time, it can still leverage Bitcoin's security after Bitcoin block settlement.
100% Bitcoin finality: Through the Nakamoto upgrade, transactions occurring on the Stacks Layer 2 network can leverage 100% of Bitcoin's security budget, meaning that once subsequent Bitcoin blocks are settled, Stacks transactions become as irreversible as Bitcoin transactions.
No longer is a single Stacks block bound to a single Bitcoin block; instead, Bitcoin blocks are now bound to the miner's term, during which they can mine multiple Stacks blocks that settle in seconds.
Currently, there are 50 signers, including BitGo, Aptos, Luganodes, Kiln, and other enterprise-level institutions, responsible for validating and approving each block generated during the miner term.
The fast block time combined with Bitcoin's finality makes Stacks the most secure and scalable Bitcoin Layer 2 network, operating through a decentralized network of signers, which will allow for the decentralized transfer of Bitcoin to the Layer 2 network through the upcoming sBTC upgrade.
3) Stacks Analysis Platform:
Signal 21: https://signal21.io/
DefiLlama: https://defillama.com/chain/Stacks
- Stacks Explorer: https://explorer.hiro.so/
