Proof of Growth: Stacking DAO Insider - sBTC Unlocks Bitcoin's Full Potential

Welcome to the Stacking DAO Insider – your go-to source for all things Bitcoin, Stacks, and the future of DeFi!

As pioneers in the Stacks ecosystem, we’re thrilled to bring you exclusive insights, the latest updates, and expert analysis straight from the frontier of decentralized finance.

Whether you’re a seasoned stacker or just starting your journey, this newsletter is packed with everything you need to stay ahead in the world of crypto. Get ready to unlock new opportunities and elevate your DeFi game!

Stacking DAO is the leading liquid staking protocol on Stacks, allowing users to earn consensus rewards from stacking STX tokens while retaining liquidity by minting stSTX or stSTXbtc.

This enables users to participate in Stacks DeFi activities like trading, lending or providing liquidity, maximizing yield opportunities while still securing the network.

Over the last two cycles, the yield for holding stSTX or stSTXbtc has averaged ~7.88% APY, paid in additional STX or sBTC tokens. Stack Today Here.

sBTC: Unlocking Bitcoin's Full Potential on Stacks

Since its launch in December, sBTC has rapidly gained traction as the most decentralized and permissionless way to use Bitcoin in DeFi.

Within just 48 hours of launch, the initial 1,000 BTC cap was fully utilized, demonstrating strong demand for a trust-minimized, programmable Bitcoin asset. Now, as we approach February 25th, the cap will be lifted to 3,000 BTC, enabling even greater liquidity and adoption.

Assuming sBTC hits its 3k cap, it would rank as the 6th largest wrapped Bitcoin asset, holding over 1% of total TVL (~$300M)

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What is sBTC?

sBTC is a trustless, Bitcoin-backed asset on Stacks, enabling decentralized Bitcoin transactions while maintaining a ~5% protocol-native yield, paid in additional sBTC.

Unlike centralized Bitcoin wrappers such as BitGo’s WBTC, Coinbase’s cbBTC, or Binance’s BTCB, which require users to trust a single custodian, sBTC operates through a decentralized peg mechanism, reducing counterparty risk and enhancing security.

sBTC works by utilizing a two-way peg system secured by a decentralized network of signers. When a user wants to convert BTC into sBTC, they send their Bitcoin to a special multi-signature wallet controlled by these signers, who verify the transaction and issue an equivalent amount of sBTC on Stacks.

When a user wishes to redeem their BTC, the process is reversed, with signers releasing the locked Bitcoin back to the user while burning the equivalent sBTC supply. This mechanism ensures a one-to-one backing of sBTC with Bitcoin, providing transparency and decentralization.

How sBTC Compares to Centralized Bitcoin Wrappers

Centralized Bitcoin wrappers rely on custodians who can freeze assets, block transactions, or even roll back transactionsbased on external pressures or compliance requirements. This creates systemic risks, as seen in past incidents where centralized entities faced insolvency or regulatory intervention.

sBTC, in contrast, is secured by a decentralized federation of signers and smart contracts, eliminating reliance on a single trusted entity. This model ensures that Bitcoin remains permissionless, censorship-resistant, and more aligned with its original ethos.

What Can You Do with sBTC?

The expanded sBTC cap means more opportunities for users to deploy their Bitcoin in DeFi. Here are some of the top use cases:

Deposit sBTC on Zest to earn additional yield and accumulate Zest Points. Currently, ~40% of sBTC is deposited on Zest, so as more sBTC is minted, it will directly increase TVL on Stacksas holders put their sBTC to work on the Stacks network.

Provide sBTC liquidity on decentralized exchanges (DEX AMMs) like Bitflow, ALEX and Velar, earning trading fees while supporting on-chain Bitcoin liquidity.

Utilize sBTC in lending markets, unlock new leverage strategies, and explore new DeFi primitives built on Stacks.

Risks to Consider

While sBTC presents a decentralized alternative to custodial Bitcoin wrappers, it remains a relatively new protocol. Users should be aware of potential smart contract risks, bugs, or vulnerabilitiesthat could emerge as the ecosystem evolves. As always, using new DeFi protocols comes with inherent risks, and it’s important to DYOR (Do Your Own Research) before engaging.

Additionally, withdrawals are not yet enabled, but this is expected to activate in March. Once withdrawals are enabled, the cap will be lifted entirely, allowing more than 3,000 BTC to flood into the ecosystem in late Q1 / early Q2.

Market Opportunity

Bitcoin represents a latent value of $2 trillion, yet currently, only about 1-2% of BTC is utilized in DeFi. In contrast, approximately 25% of ETH is actively deployed in DeFi, enabling lending, borrowing, and liquidity provisioning. If Bitcoin adoption in DeFi were to match Ethereum’s levels, this would represent a $500 billion opportunity, significantly expanding the ecosystem and unlocking new financial applications.

sBTC plays a critical role in bridging Bitcoin to DeFi, providing a trust-minimized, decentralized alternative to existing custodial solutions. With the upcoming cap increase and withdrawal activation, sBTC is positioned to capture a significant share of this growing market.

The Future of sBTC

With the cap increasing to 3,000 BTC on February 25th, the next phase of sBTC adoption will be crucial in proving its scalability and robustness. As more protocols integrate sBTC and new use cases emerge, it has the potential to become the dominant decentralized Bitcoin layer for DeFi.

For those looking to put their Bitcoin to work without the risks of centralized custody, sBTC is an exciting opportunity that continues to gain momentum.

Stay tuned for more updates as we build the future of Bitcoin DeFi together!

The Stacks DeFi Show #53

On the latest episode of the Stacks DeFi Show, Stacking DAO core contributors Philip and Leeor discussed blockchain gaming and consumer crypto wallets with Xenitron and Louise from Skullcoin and Ryder. Click here to listen to the episode!

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