Stacks ($STX) is now recognized as the predominant L2 building on top of Bitcoin. While other solutions exist like the Botanix, and the lightning network, Stacks currently stands alone when it comes to adoption among users. 2024 looks promising for the $BTC L2, with the chain’s Nakamoto upgrade and introduction of $sBTC (a programmable version of $BTC), as well as increasing institutional interest in the Bitcoin space in general. On February 8th, we released this information and more in our ‘Stacking Beta’ report to our premium members, shortly before the token price increased 40%.
While we are covering Stacks now, this certainly isn’t our first time discussing the protocol; we first brought Stacks and the potential it has to our audience back in June, when the price per $STX was just $0.55. Today, the token sits at a price of $2.52.
Our original thesis behind the success of the Stacks protocol revolved around the unlocking of half a trillion worth of $BTC in otherwise-idle onchain capital. This figure has now doubled, as $BTCs price has traversed a green path from $25k to $50k+.
Stay alert, stay informed ⬇️
Stacks Key Points:
Should Bitcoin reach mass adoption, it is still unclear how exactly $BTC will be used. Will it be a store of value? A medium of exchange? Or will new and novel use cases for $BTC will arise?
There is half a trillion dollars worth of capital currently in Bitcoin, most of it as a passive store of value. Instead of competing with Bitcoin, Stacks can provide novel use cases for $BTC holders. These include bitcoin-backed loans, bitcoin DeFi, or using $BTC to trade NFTs.
The emergence of Ordinals and BRC-20s has brought attention back to the oldest blockchain in crypto. This may continue with the next Bitcoin halving drawing closer.
With the ability to make Bitcoin more than ‘digital gold’, a thesis for $STX becomes increasingly interesting.
The next Bitcoin halving is fast approaching, currently expected to occur in April 2024. Unlike previous halvings, there is a new source for debate amongst Bitcoiners. The community now goes back and forth on using Bitcoin as a store of value or supporting DeFi activity and an increase in transaction fees.
Stacks was founded in 2017 when Muneeb Ali finished his Ph.D. His thesis laid out the foundations for a smart contract layer on top of Bitcoin to make it programmable. He released the original whitepaperand raised $50m. 6 years later, there has been rapid adoption of Bitcoin NFTs. This is in addition to increasing future security concerns for the Bitcoin network. Because of these catalysts, STX is positioned in a unique position to capture a multi-billion market-share opportunity.
Stablecoins are back in the public eye with the launch of Ethena…
Next Monday at 12 PM EST, we’ll be hosting our 3rd episode of Revelo Roundtable. We’ll be discussing the stablecoin space with a guest panel including Ethena, Mountain Protocol, Liquity, and Gyroscope… See you there!
Background on Stacks
To put it simply, it is a smart contract layer for Bitcoin. The key differentiator between Bitcoin and other blockchains like Ethereum is that Bitcoin can’t natively support smart contracts. Some have proposed implementing a soft fork to the Bitcoin network, which could then allow for smart contract compatibility. To be implemented, the majority of miners would have to vote in favor of this proposal. Stacks presents its own solution, which does not require support from Bitcoiners to be put into place.
S – Secured by Bitcoin’s hash power.
T – Trust-minimized peg mechanism (detailed in sBTC whitepaper).
A – Atomic swaps and assets owned by $BTC addresses.
C – Clarity programming language for safe and secure contracts.
K – Knowledge of the full state of the Bitcoin network.
S – Scalable and fast transactions that settle on Bitcoin.
An economic security problem
With every halving, Bitcoin experiences a security reduction. Up until now, this has largely gone unnoticed. This is due to the significant price appreciation, with $BTC more than doubling in price every 4 years. However, as the asset class matures, the probability for $BTC to keep doubling in price becomes slim.
Classic Crystal Growth Model in Context of Bitcoin Adoption
Bitcoin has two options for long-term security
Remove the 21m $BTC hard cap and implement tail emissions
On the one hand, removing the hard cap poses risks to Bitcoin’s core value proposition.
It potentially goes against Satoshi Nakamoto’s original vision.
Removing the cap may undermine Bitcoin’s appeal as a store of value (SoV) due to consistent inflation.
Some argue that the reduction in miner rewards will be offset by $BTC’s purchasing power increasing.
Another counterargument to tail emissions is that mining operations could become more complacent and would become less efficient over time. This would be because they no longer have to compete with other miners to create blocks, they just earn $BTC via an inflation rate.
Generate a sustainable fee pool that compensates miners.
On the other hand, it is still unclear whether a long-term path to economic security from transaction fees is still viable.
After all, the recent hype with BRC20s and Ordinal NFTs cannot be expected to last forever until the emergence of more tangible use cases.
If you’re finding this information useful, you can access our full original Stacks Analyst Insight for FREE, no account needed.
Our full 20+ page report goes over the intricacies of Stacks, it’s alignment with $BTC performance and adoption, BRC20s and Ordinals, and more…
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