Stacks, a long-running project vying to give users the ability to leverage their Bitcoin in DeFi, just kicked off its Nakamoto upgrade.
The project released the new version of its software, giving validators on the network a two-week window to upgrade to it.
Muneeb Ali, a co-creator of the Stacks blockchain, said the most anticipated feature is the introduction of sBTC, a Bitcoin-pegged asset secured by the Bitcoin network.
Until now, Bitcoin has been absent from the Stacks blockchain.
“sBTC is what’s going to matter,” Ali told DL News. “Until sBTC is live, I personally don’t even pay attention to any of the metrics.”
Stacks, as well as more than a dozen competing projects, are creating workarounds to overcome Bitcoin’s incompatibility with big DeFi ecosystems.
sBTC is one such workaround, allowing users to use Bitcoin in activities such as lending and staking on Stacks.
It’s a big opportunity.
If just 5% of all Bitcoin made its way onto layer 2s like Stacks, which Ali said is a realistic target over the next two years, that still makes for about a $70 billion market.
“Right now, it’s not even 1% of Bitcoin,” Ali said.
Slow and steady
But competition is fierce.
Attention moves quickly, and incentives have become a popular strategy to bootstrap deposits and users. Often, the quality of a project’s marketing is more important than its technology.
In recent months, a rival project called Merlin Chain has seen its deposits soar as high as $2.6 billion after incentivising users with a points campaign and airdrop.
Stacks’ deposits, on the other hand, have fallen some 49% since April to just $95 million.
But Ali said he isn’t convinced such incentives are beneficial in the long term.
“We’re not throwing around incentives because of the way the Stacks started,” he said, noting that the project in 2019 became the first to conduct a token offering regulated by the US Securities and Exchange Commission.
“We don’t have a large treasury, it’s very decentralised. Those things actually matter a lot,” Ali said.
It’s not just deposits that are falling. According to Electric Capital’s Developer Report, the number of developers building on stacks has dropped 24% over the past two years.
Stacks is betting on Nakamoto and the introduction of sBTC to turn these trends around. But with many of its competitors already fully up and running, there’s no guarantee that it can catch up.
More decentralised
One reason for Stacks’ slow progress is its commitment to decentralisation.
The easiest and quickest way to make Bitcoin DeFi compatible is having a trusted company custody Bitcoin deposits and issue equivalent tokens on another blockchain.
This custody approach, however, often compromises on security and decentralisation.
Ethereum DeFi protocol Sky, formerly MakerDAO, recently limited its exposure to Wrapped Bitcoin due to custody concerns.
Stacks’ sBTC instead taps into the Bitcoin network’s security directly, using smart contracts. These lines of code implement strict rules, eliminating the need to trust a custodian.
“This is not just another Bitcoin asset,” Ali said. “It’s actually secured by a consensus of the chain.”
Stacks isn’t the only project hoping to lure users by eliminating custodians.
Rootstock, another blockchain that relies on the Bitcoin network for its security, uses a similar technique to secure deposits.
To Ali, there’s a difference that he said matters.
After Nakamoto, Stacks cannot be attacked if its own validators were to hypothetically collude with each other — a lofty security guarantee he says is unique to the network.
However, that enhanced security has meant Stacks is less agile than its competitors.
Still, Ali is confident going forward.
“We have a history of doing hard things the right way,” he said. “I would just remind people that sometimes things take longer than you expect.”
The Nakamoto upgrade is set to complete in mid-September.
Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at tim@dlnews.com.
