Unlocking Bitcoin Liquidity: How sBTC Will Catalyze Stacks DeFi

The interest in Bitcoin productive use cases and earning yield on BTC has never been so high.

Babylon’s recent launch proves it, attracting 22,891 BTC in just 1 hour and 27 minutes from 12,641 unique addresses. On top of that, it lead to the launch of protocols offering BTC liquid staking via Babylon, where users can earn yield while benefiting from liquid staking tokens across various chains.

Zest has enabled this on Stacks with BTCz, making it even easier to unlock BTC’s earning potential.

Similarly, the cbBTC launch saw around 6,000 BTC deployed across Ethereum and Base, with numerous DeFi protocols integrating it to unlock yield opportunities on BTC.

Yet, despite these groundbreaking initiatives, 99% of BTC remains idle.

How can the Stacks ecosystem replicate the success of Babylon and cbBTC to unlock even more Bitcoin liquidity? The answer lies in sBTC.

sBTC: Bringing BTC liquidity on Stacks

sBTC is a 1:1 Bitcoin-backed asset, making Bitcoin a fully programmable asset and unlocking $1Tn worth of BTC liquidity into DeFi and dApps.

Unlike other Bitcoin-backed assets, sBTC transactions will benefit from 100% Bitcoin finality with the Nakamoto upgrade, and sBTC is trust minimized by design as the network is operated by an open-membership of signers, not a set of centralized parties.

As the leading Bitcoin L2, once sBTC goes live on Stacks, it could be a viable option for those looking to put their holdings in productive use cases. Moreover, considering integrations with Solana and Aptos, the exposure and awareness of sBTC will be even higher.

The key to a successful sBTC launch and attracting liquidity is making sure users have already options to earn points and yield early on. This is why Stacks DeFi teams are already working on integrating sBTC in their protocols.

sBTC use cases

Most DeFi protocols on Stacks are planning to integrate sBTC, with Stacking DAO actively exploring various ways to leverage sBTC for Bitcoin yield features / products.

Here are some of the key ways users will be able to earn with sBTC:

1)Zest - Bitcoin lending

Users can deposit BTC to earn yield from borrowers and also use the liquidity as collateral for borrowing other tokens.

The process will be seamless, with BTC deposits performed from the L1, converted to sBTC automatically in the background.

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2)Granite - Bitcoin lending

Granite allows users to leverage sBTC to borrow stablecoins and earn sustainable yields from borrowers.

The protocol prioritizes safety by avoiding collateral rehypothecation to minimize risk, implementing soft liquidations to reduce losses, and providing push notifications for real-time position tracking.

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3)Bitflow - Bitcoin DEX

Bitflow will launch an sBTC pool so users can swap between sBTC, other Bitcoin-backed assets, and other Stacks tokens. Depositors in the pool, will be able to earn real BTC yield generated from the pool swaps.

Additionally, Bitflow plans to introduce BTC loans backed by stSTX, with the borrowed liquidity likely provided in sBTC.

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4)Velar - Bitcoin DEX

Velar will introduce BTC liquidity pools for their DEX, enabling users to earn yield (plus VELAR incentives) from sBTC pool swaps. Additionally, sBTC will serve as collateral for their upcoming perpetual DEX.

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