Written by: Maggie
From a certain perspective, Bitcoin, with a volume of 2.1 trillion US dollars (the latest CoinGecko data as of December 18, 2024), is the largest "sleeping capital pool" in the crypto world.
Unfortunately, most of the time it neither brings benefits to holders nor injects vitality into the on-chain financial ecosystem. Although there have been many attempts to release the liquidity of Bitcoin assets since the start of DeFi Summer in 2020, most of them are just reinventing the wheel, and the overall BTC capital inflow attracted is very limited, and it has never really been able to leverage the BTCFi market.
In this context, 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 unlock BTC capital and explore new use cases, thereby revitalizing the Bitcoin economy.
Currently, sBTC is operated by a large-scale signer network consisting of institutions such as BitGo, Asymmetric, and Ankr, expected to become one of the most decentralized L2 Bitcoin assets, bringing unprecedented opportunities in DeFi, dApps, and more. This article will further explore the specific operation mechanisms and relative advantages of sBTC.
How does sBTC work?
Users first deposit BTC through the Bitcoin mainnet, which is monitored by a decentralized signer group from Stacks in a multi-signature protocol.
After BTC is deposited, sBTC is minted on Stacks, allowing users to interact with DeFi dApps.
Users can seamlessly use Bitcoin DeFi, such as Zest Protocol supporting mainnet BTC deposits and automatically converting them into sBTC. In the future, sBTC is expected to become a fee token on Stacks, further enhancing the user experience.
Will there be a deposit limit for sBTC?
At the current stage, the deposit limit is set at 1,000 BTC for controlled testing and gradually enhancing security.
In the early stages, only deposits are supported, and withdrawals are temporarily unavailable.
Will sBTC generate yield?
Imagine earning Bitcoin yield just by holding BTC.
No staking, no points, no complicated processes; simply holding BTC earns rewards. Early users of sBTC can connect their wallets to https://bitcoinismore.org/ (launching December 17 at 22:00 Beijing time) to receive a 5% annual Bitcoin reward.
Now, through the sBTC reward program, all of this is 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 'Stacking' STX.
When staking STX, stakers earn BTC through Stacks' consensus mechanism. To enable the sBTC reward program, these stakers will transfer proof of BTC reward contributions to the sBTC reward pool.
BTC from the reward pool will be directly deposited into a smart contract that will deposit BTC into sBTC and proportionally distribute rewards to sBTC holders. The protocol snapshots users' sBTC holdings daily and distributes rewards every two weeks—which is the length of a PoX cycle.
The currently estimated annual BTC reward is 5%, which 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 yield on top of the 5% APY:
Bitflow DEX
Liquidity pool: Users can deposit sBTC into Bitflow's liquidity pool, facilitating trades 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 generated from trading activities or platform incentives.
Early prediction: Deploying sBTC may bring an additional 10%-30% annual yield.
Bitflow Runes AMM
Bitflow has launched the Runes AMM (Automated Market Maker) for Stacks L2, allowing users to bring Runes to L2 for a better user experience.
Zest - lending market
sBTC will be available on the first day of Zest Protocol's lending market launch.
Zest Protocol will launch an enhanced yield campaign starting from the first day of its launch, offering up to 10% BTC yield for provided sBTC.
Zest will also unlock more DeFi strategies related to sBTC, such as:
Deposit sBTC to earn up to 10% annual BTC yield;
Use BTC (or other stablecoins) as collateral to borrow USDh stablecoins and exchange it for USDh;
Stake USDh in Hermetica to earn up to 25% annual yield.
Reminder: Hermetica's DeFi protocol offers USDh, the first yield-bearing stablecoin backed by Bitcoin. This yield is sustainably generated through perpetual contract funding fees on centralized exchanges and is paid out daily.
stSTXbtc is a new liquid staking token that users can apply in Stacks' DeFi ecosystem. Users holding this token can earn up to 10% annual yield through staking rewards, which will be directly paid to users' wallets in the form of sBTC.
Velar DEX
Liquidity provision: Users can provide sBTC to Velar's liquidity pool, facilitating trades 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 obtained 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 staking contracts to earn rewards, such as extra tokens or a percentage of profits 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 votes, 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 (like STX or stablecoins). In this way, they provide liquidity for the platform's trades and earn a share of the trading fees from the pool.
ALEX will provide additional reward earnings through its native token ALEX as part of the Surge campaign. This means that in addition to the 5% annual yield from the sBTC reward program, users can also earn extra 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 yield 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 yield.
Liquidation participation: Users can act as liquidators, earning collateral and rewards by repaying part of under-collateralized loans, thereby earning yield through the liquidation process.
Granite currently has a waiting list that allows early registered users to access it early. Eventually, the system will introduce a points system that brings additional benefits, giving early registered users a significant advantage.
Granite waiting list
What is the difference between sBTC and other BTC assets?
These BTC assets typically require sending BTC to an intermediary or relying on a trusted signer coalition / small multi-signature organization.
sBTC will initially rely on 15 signers, including enterprise-level institutions like BlockDaemon, Figment, Luganodes, and Kiln, responsible for anchoring and unlocking the assets. Over time, this responsibility will gradually transfer to all Stacks signers, allowing anyone to participate in the security and decentralization of the network. Institutions like BitGo and the Aptos Foundation are also expected to join this process.
In addition, 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.
Reminder: Signers are responsible for verifying and approving each block produced; anyone can become an independent signer as long as they stake 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 because it brings:
Fast blocks (reduced from the current 10 minutes to less than 1 minute, optimization still ongoing)
100% Bitcoin finality
Fast blocks: Fast blocks provide a Solana-like transaction experience and Bitcoin DeFi interactions, greatly improving the overall user experience when interacting with Stacks L2.
Stacks' DeFi ecosystem has grown rapidly this year, and now applying DeFi strategies takes just seconds, making it easy for users to quickly join and retain.
Before the Nakamoto hard fork, Stacks blocks were settled in sync with Bitcoin blocks (averaging 10 minutes), which made the chain slower and unable to meet the demands of DeFi activities. This limitation no longer exists. Instead, Stacks blocks can now be completed in seconds, and performance improvements are regularly conducted. 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 binding a single Stacks block to a single Bitcoin block, Bitcoin blocks are now bound to miners' terms, during which they will mine multiple Stacks blocks that settle in seconds.
Currently, there are 50 signers, including enterprise-level institutions like BitGo, Aptos, Luganodes, and Kiln, responsible for verifying and approving each block produced during each miner's term.
Fast block times and Bitcoin finality make Stacks the most secure and scalable Bitcoin L2, operated by a decentralized signer network and set to achieve decentralized Bitcoin liquidity through the upcoming sBTC upgrade.
3) Stacks data analytics platform:
Signal 21: https://signal21.io/
DefiLlama: https://defillama.com/chain/Stacks
Stacks block explorer: https://explorer.hiro.so/
