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.
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 has averaged 10.02% APY, paid in additional STX tokens. Stack Today!
With the goal of broadening Bitcoin’s utility and accessibility within the DeFi ecosystem, Stacks has introduced SIP-028, a proposal for sBTC, a wrapped Bitcoin asset designed for the Stacks blockchain.
sBTC aims to bridge the gap between Bitcoin and decentralized applications (dApps), allowing users to seamlessly move BTC into the Stacks ecosystem and engage with it in a smart contract-compatible environment.
With SIP-028, Stacks sets the stage for Bitcoin to become programmable and useful in applications that have, until now, been limited by Bitcoin's own scripting restrictions.
At its core, sBTC is a SIP-10 token, meaning it adheres to the fungible token standard on Stacks, and is fully backed by BTC on a 1:1 basis.
Through a sophisticated mechanism involving decentralized threshold signers, users can lock up their Bitcoin on the Bitcoin chain, mint an equivalent amount of sBTC on Stacks, use it within the Stacks network, and eventually redeem it back to Bitcoin whenever they choose.
This functionality is central to expanding Bitcoin’s role in smart contract interactions, DeFi applications, and new financial products within the Stacks ecosystem.
The primary goal of sBTC is to make Bitcoin functional within the Stacks ecosystem without compromising its inherent security.
By tapping into Stacks' unique design as a Bitcoin Layer 2 solution, sBTC offers advantages such as faster transactions and decentralized custodianship, enabling Bitcoin holders to interact with dApps securely and efficiently.
To manage the BTC underlying sBTC, SIP-028 proposes launching with a decentralized network of 15 independent entities, known as sBTC signers, who collectively hold BTC in an sBTC peg wallet on the Bitcoin chain.
This signer set operates with threshold signatures, requiring 70% approval (11 out of 15 signers) for any sBTC transaction, such as minting or redeeming sBTC. This ensures a high level of security and reduces reliance on a single custodian.
Over time, the sBTC system will transition to a fully permissionless signer set, where anyone can participate. This evolution toward an open and permissionless structure will drive further decentralization, enhancing both resilience and inclusivity within the Stacks ecosystem.
BTC to sBTC Conversion: Users initiate the process by locking their BTC in a designated peg wallet on the Bitcoin network, which is managed by the sBTC signers. Once locked, an equivalent amount of sBTC is minted on the Stacks blockchain, becoming available for use in Stacks-based dApps and DeFi protocols.
Utilizing sBTC on Stacks: Once minted, users can freely use their sBTC within the Stacks ecosystem. Because Stacks employs a more advanced smart contract language (Clarity), sBTC can engage with complex decentralized applications on Stacks, including lending, borrowing, staking, and other DeFi operations that previously weren’t possible directly with Bitcoin.
Redeeming sBTC Back to BTC: When users wish to convert back to BTC, they submit a redemption request. Once again, 70% of the signers must approve, after which the locked BTC is released from the peg wallet and transferred back to the user, minus transaction fees. This model guarantees the 1:1 parity between BTC and sBTC, minus minimal blockchain transaction fees.
Fast Transactions and Security: SIP-028’s functionality is further enhanced by the Stacks Nakamoto Upgrade, which allows for faster transaction times. Instead of waiting for 10-minute Bitcoin blocks, sBTC transactions on Stacks are confirmed in seconds, making interactions with BTC faster and more convenient for end users.
The Clarity smart contract language, native to Stacks, powers the programmability of sBTC, making it possible to encode complex logic and business rules that govern the sBTC token.
In addition to this, the upcoming Stacks Nakamoto Upgrade enhances transaction speed and introduces fast blocks, which drastically reduce transaction times for sBTC users on Stacks.
The threshold signature mechanism is at the heart of sBTC’s security model. The 15 signers collectively manage BTC through a democratic process where each operation must be signed off by at least 70% of the signers.
This structure balances security and decentralization, minimizing the risk of single-point failures while maintaining a robust peg between BTC and sBTC. Furthermore, in the unlikely event of extended signer inactivity, the protocol includes fail-safe conditions allowing users to reclaim their BTC.
The activation of sBTC is tied to the Stacks Nakamoto Upgrade (SIP-021). Once this upgrade stabilizes, sBTC will become operational. However, before it can go live, SIP-028 requires community approval. Both stackers (those who have locked STX in the PoX protocol) and liquid STX holders (who hold STX outside of the stacking protocol) will have the opportunity to vote on the proposal.
For stackers, the voting criteria require at least 80 million stacked STX votes, with a minimum of 70% approval. Liquid STX holders can vote through snapshot voting, which ensures that only the STX held at the beginning of the voting period counts, preventing vote manipulation. For SIP-028 to pass, 70% of liquid STX votes must favor the proposal.
While similar wrapped Bitcoin solutions exist, such as WBTC, tBTC, and rBTC, sBTC introduces unique features tailored to the Stacks ecosystem and Bitcoin's security model:
Spending Threshold: sBTC requires a higher threshold (11 of 15) compared to WBTC (2 of 3) or tBTC (51 of 100), reinforcing its commitment to decentralization.
Bitcoin Finality: Unlike tBTC and WBTC, which do not offer native Bitcoin finality, sBTC benefits from Bitcoin’s finality through its implementation on Stacks, giving it enhanced security guarantees.
Faster Deposits and Withdrawals: SIP-028 aims to reduce conversion time between BTC and sBTC to 0.5 hours for deposits and 1 hour for withdrawals, outperforming other wrapped Bitcoin assets.
Flexible Custodian Rotation: In the event that a signer’s circumstances change, the sBTC protocol supports custodian rotation, enabling a responsive and resilient system.
The Path Forward
SIP-028 represents a transformative moment for Stacks, combining the security and finality of Bitcoin with the programmability of Stacks’ smart contract layer.
This new functionality could foster a wide range of applications, from DeFi products to no-loss lotteries and novel financial instruments, allowing Bitcoin to play a central role in the evolving Web3 space.
On the latest episode of the Stacks DeFi Show, Stacking DAO core contributors Tycho and Philip discussed how to build engaged communities with Joe from LunarCrush, Reubs from StxTools, Offmylawn from Zest and TheAdvisor from Stacking DAO.
Click here to check out the episode!
Mint stSTX today and earn up to 10% yield on your STX: https://app.stackingdao.com/
Follow us on Twitter to always be up to date on Stacking DAO: https://twitter.com/StackingDao
For any questions or support, join our Discord community: https://discord.gg/KEQfXJnJYj
.png)
Everything you need to know about sBTC and its yield opportunities
stSTXbtc is a revolutionary product that redefines staking on Stacks by combining the power of liquid staking with Bitcoin rewards.
Welcome to the Stacking DAO Insider – your go-to source for all things Bitcoin, Stacks, and the future of DeFi!
