Macauley Peterson

This is a segment from the 0xResearch newsletter. To read full editions, <a href="https://blockworks.co/newsletter/research">subscribe</a>.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Bitcoin maxis, it’s time to take notice — sBTC on Stacks is here, and it’s designed to let your bitcoin work overtime, according to Andre Serrano, head of product at Stacks.



&#8220;The nice thing about this is that you are eligible for this yield both by holding it as well as deploying it in DeFi,” Serrano told Blockworks.



Here’s the alpha:



<ol class="wp-block-list">
<li>Mint and hold sBTC — by bridging bitcoin into sBTC (a 1:1 bitcoin-backed asset secured via Stacks), users become eligible for rewards (bitcoinismore.org) paid out in bitcoin, not points or inflationary tokens. Rewards are distributed every two weeks —&nbsp; BTC in, BTC out — simple and clean</li>



<li>Deploy in DeFi — The rewards don’t need to stop there. Stacks-native DeFi protocols like <a href="https://www.zestprotocol.com/">Zest</a> offer additional incentives on top of the base 5%. For example, by supplying sBTC in Zest, a bitcoin liquidity protocol, users can stack another 6-7% APY in extra incentives. </li>
</ol>



The kicker? Unlike other BTC-pegged solutions, sBTC stays liquid — you don’t need to stake or lock it up to earn rewards. However, there’s one caveat: Withdrawals back to the Bitcoin network will only be enabled in March 2025. So, for the most trust-minimized way to bridge back, you’ll need to wait.



But sBTC is expected to soon be bridgeable to chains like Solana and Aptos via Axelar, anticipated for January. So, there could be a circuitous route back to Bitcoin via these protocols, subject to liquidity constraints.



On Stacks, sBTC currently relies on a threshold signature 15-key multisig setup, where 15 signers from the community manage deposits and withdrawals. This operates under an honest majority assumption, meaning at least 11 of the 15 signers must act honestly for the system to remain secure.



To bolster trust, Stacks has onboarded reputable, professional signers like Blockdaemon and Kiln, firms known for securing billions in assets across multiple chains. These signers also post collateral and earn bitcoin rewards for maintaining the protocol, aligning incentives to ensure security.



Looking ahead, the plan is to gradually decentralize the system by integrating sBTC into the Stacks consensus mechanism, where all Stacks signers will eventually participate. This will further enhance security, bringing trust assumptions closer to those of Stacks itself.



Updated Dec. 17, 2024 at 3 pm ET: Clarified the honest majority assumption has a 70% majority threshold — meaning 11 out of 15 signers must act honestly, rather than 8 as previously stated. 



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/thebreakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/empire">Empire</a>: Crypto news and analysis to start your day.</li>



<li><a href="https://blockworks.co/newsletter/forwardguidance">Forward Guidance</a>: The intersection of crypto, macro and policy.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha directly in your inbox.</li>



<li><a href="https://blockworks.co/newsletter/lightspeed">Lightspeed</a>: All things Solana.</li>



<li><a href="https://blockworks.co/newsletter/thedrop">The Drop</a>: Apps, games, memes and more.</li>



<li><a href="https://blockworks.co/newsletter/supplyshock">Supply Shock</a>: Bitcoin, bitcoin, bitcoin.</li>
</ul>

0xResearch Newsletter

Double-dipping with sBTC on Stacks

This is a segment from the 0xResearch newsletter. To read full editions, <a href="https://blockworks.co/newsletter/research">subscribe</a>.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Stacks, a Bitcoin-adjacent network often referred to as a layer-2, executed a scheduled hard fork early Tuesday following the September <a href="https://blockworks.co/news/stacks-nakamoto-upgrade-bitcoin-layer-2s">Nakamoto upgrade</a> activated by network miners.



“I think it went as smoothly as we could have hoped,” said Muneeb Ali, Stacks co-founder, on a live <a href="https://x.com/Stacks/status/1851267796706943449">X space</a>. He added that developers in New York were up all night monitoring the fork.



The Nakamoto upgrade increased the alignment of Stacks with Bitcoin’s finality by further binding Stacks blocks to Bitcoin blocks. Stacks uses a consensus mechanism called <a href="https://docs.stacks.co/concepts/stacks-101/proof-of-transfer">Proof of Transfer</a> (PoX), where transactions and Stacks blocks are anchored to Bitcoin.



With the Nakamoto upgrade, this connection is strengthened. So a reorg in the Stacks blockchain would now require changes in the Bitcoin blockchain, according to Rena Shah, VP of product and operations at Trust Machines.



“It is a fundamental shift,” Shah told Blockworks. “You have to try to <a href="https://app.blockworksresearch.com/glossary##">51% attack</a> Bitcoin L1 before you&#8217;re able to do the same activity on Stacks.”



This dependency on Bitcoin makes the Stacks blockchain more secure, as Bitcoin’s high security and resistance to reorgs (given the substantial <a href="https://app.blockworksresearch.com/glossary/#hash-ratepower">hash power</a> of bitcoin miners) provide Stacks with added resilience.&nbsp;



Attempting a reorg of the Bitcoin blockchain is extremely challenging, due to both the financial and computational costs involved. This means Stacks is indirectly protected by Bitcoin’s immutability, so the Nakamoto upgrade effectively made Stacks reorg-proof.



“That might be the beauty of Stacks as an L2 for Bitcoin because it’s always kind of adhered to the ethos of Bitcoin,” Shah said. She noted the upgrade paves the way for sBTC, Stacks’ version of bitcoin, the asset.



Other features of the upgrade include faster transaction processing — Stacks now produces blocks approximately every six seconds — which enhances usability for developers and users, and improves the overall experience on the Stacks network. The upgrade also limits opportunities for miners to profit from rearranging or prioritizing transactions (<a href="https://app.blockworksresearch.com/glossary/#miner-extractable-value-mev">MEV</a>), which contributes to a fairer, more transparent network.



<h2 class="wp-block-heading">The future of sBTC</h2>



Granite, a new Bitcoin-focused DeFi protocol incubated by Trust Machines, <a href="https://www.granite.world/blog/granite-bitcoin-defi">came out of stealth</a> last month, aiming to address the limitations of custodial BTC offerings for use in DeFi. The not-yet-launched app will leverage the sBTC Bitcoin bridge enabled by the Nakamoto upgrade.



The platform should allow BTC to interact directly with DeFi dapps in a decentralized and permissionless manner. Like <a href="https://blockworks-research.beehiiv.com/p/bitcoin-defi-expands-bob">other new noncustodial offerings</a>, sBTC users will be able to lend, borrow and earn yield on their bitcoin while minimizing counterparty risk.



Traditionally, using BTC in DeFi has required custodial solutions or <a href="https://blockworks.co/news/bitgo-wbtc-custodial-changes">wrapped BTC</a> assets, exposing users to substantial counterparty risks.



More recently, Babylon has <a href="https://blockworks.co/news/0xresearch-newsletter-babylon-btc-staking-deposits">attracted interest</a> as a way to direct staking yields to BTC holders, albeit with a risk of <a href="https://blockworks.co/news/bitcoin-staking-babylon">slashing</a>.



Granite, however, follows a no-rehypothecation model. User collateral remains untapped and fully controlled by the owner, ensuring that BTC does not become entangled in protocol dependencies, or what its developers call a &#8220;borrower-centric&#8221; DeFi model.



Granite also introduces &#8220;soft liquidations,&#8221; an approach <a href="https://resources.curve.fi/crvusd/liquidations/">pioneered by Curve</a> that allows collateral to be liquidated only enough to maintain solvency and prevent catastrophic losses. Additionally, position tracking and push notifications allow users to manage positions without constant monitoring, a quality-of-life feature that’s uncommon in DeFi.



Another defining characteristic of Granite is its risk-tranched liquidity provisioning, which allows liquidity providers (LPs) to tailor their risk exposure. By choosing junior or senior tranches, LPs can manage their participation according to risk tolerance, with a reserve protecting all LPs as a first line of defense against market downturns.



Historically, only about 1% of BTC has been engaged in DeFi due to security concerns, according to Ali. “Granite’s security-oriented approach creates an opportunity to begin unlocking the remaining 99% of BTC capital,” he said. As with many other “<a href="https://blockworks-research.beehiiv.com/p/bitcoin-defi-is-heating-up">Bitcoin DeFi</a>” endeavors, Granite aims to make bitcoin a productive asset within the DeFi space, rather than merely “digital gold,” driving new waves of adoption in the process.



“The base case of bitcoin as money becomes more solidified when things like Stacks happens, so this is going to be good for Bitcoin,” Ali said.



Stacks is also <a href="https://x.com/Stacks/status/1837125070453403845">working</a> to bring sBTC to Solana.



The launch comes as <a href="https://blockworks.co/news/bitcoin-price-predictions-election">BTC is retesting</a> its June highs above $71,100. Stacks’ native token, STX, is up over 5% on the day, although it is still down about 50% from its all-time high of $3.84 reached April 1 this year.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/thebreakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/empire">Empire</a>: Crypto news and analysis to start your day.</li>



<li><a href="https://blockworks.co/newsletter/forwardguidance">Forward Guidance</a>: The intersection of crypto, macro and policy.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha directly in your inbox.</li>



<li><a href="https://blockworks.co/newsletter/lightspeed">Lightspeed</a>: All things Solana.</li>



<li><a href="https://blockworks.co/newsletter/thedrop">The Drop</a>: Apps, games, memes and more.</li>



<li><a href="https://blockworks.co/newsletter/supplyshock">Supply Shock</a>: Bitcoin, bitcoin, bitcoin.</li>
</ul>

Stacks fortifies Bitcoin ties with Nakamoto upgrade

Bessie Liu

Bitcoin layer-2 solution Stacks initiated the rollout of its Nakamoto upgrade shortly after the halving last Friday. This significant development is designed to enhance transaction throughput and unlock Bitcoin finality for layer-2 transactions.&nbsp;



The Nakamoto upgrade aims to enable faster block processing and ensure all settlements are finalized on the layer-1. This will allow Bitcoin to remain secure while being programmable, similar to Ethereum and Solana Virtual Machines.&nbsp;



Muneeb Ali, the co-founder of Stacks, told Blockworks that the Nakamoto upgrade and the general growth of <a href="https://blockworks.co/tag/bitcoin">Bitcoin</a> layer-2 infrastructure may revive interest in the Bitcoin blockchain itself.



Read more: <a href="https://blockworks.co/news/bitcoin-halving-2024-occurs">Bitcoin’s block reward slashed by 50% following 2024 halving</a>



“Users are finally separating BTC the asset from Bitcoin as the rails,” Ali said. “BTC is the only digital asset that has proved itself as a hedge or store of value. This has created nearly $1 [trillion] in capital just sitting there. I believe the significant advancements made by [layer-2s], like Stacks’ Nakamoto upgrade, are a large contributor to this resurgence.”



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">🧵1/12 <a href="https://twitter.com/Stacks?ref_src=twsrc%5Etfw">@Stacks</a> 2.5 Activation Thread The first step with the most awaited <a href="https://twitter.com/search?q=%24STX&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$STX</a> Nakamoto upgrade is happening on <a href="https://twitter.com/hashtag/Bitcoin?src=hash&amp;ref_src=twsrc%5Etfw">#Bitcoin</a> block 840360. Here&#39;s a MEGA thread on what you need to know.☝️ <a href="https://t.co/d0AHD3DaqS">pic.twitter.com/d0AHD3DaqS</a>&mdash; Louise | CEO @Ryder (@louiseivanvp) <a href="https://twitter.com/louiseivanvp/status/1782321362037510264?ref_src=twsrc%5Etfw">April 22, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



According to the <a href="https://blockworks.co/tag/stacks">Stacks</a> team, the Nakamoto upgrade rollout will continue over the next month, improving block times from the current 10-30 minutes to around five seconds. Ali notes that these improvements will enable Bitcoin <a href="https://blockworks.co/tag/layer-2-2">layer-2s</a> to support the growing DeFi applications that are being built.



“I think the market is awakening to the fact that Bitcoin can be the base layer for our industry. Bitcoin is the apex crypto asset, and [layer-2s] are enabling an economic flywheel around BTC through apps and smart contracts,” he said.



Read more: <a href="https://blockworks.co/news/bitcoin-halving-layer-2-impact-stacks">Q&amp;A: What will the Bitcoin halving mean for Bitcoin L2s?</a>



In addition to improved Bitcoin layer-2 infrastructure, Ali notes that other types of innovations are also gaining significant interest in the Bitcoin blockchain. These include ordinals and BRC-20s, which saw a <a href="https://blockworks.co/news/bitcoin-ordinals-trading-frenzy">spike in interest </a>following Bitcoin’s all-time high last month.



“Experimentation is good for Bitcoin and Bitcoin [layer-2s], so we should encourage more R&amp;D around [layer-2s], Ordinals, Runes and other innovations. I predict that post-halving we will see a [layer-2] summer where the Bitcoin developer ecosystem and competition heats up,” Ali said.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/thebreakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/empire">Empire</a>: Crypto news and analysis to start your day.</li>



<li><a href="https://blockworks.co/newsletter/forwardguidance">Forward Guidance</a>: The intersection of crypto, macro and policy.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha directly in your inbox.</li>



<li><a href="https://blockworks.co/newsletter/lightspeed">Lightspeed</a>: All things Solana.</li>



<li><a href="https://blockworks.co/newsletter/thedrop">The Drop</a>: Apps, games, memes and more.</li>



<li><a href="https://blockworks.co/newsletter/supplyshock">Supply Shock</a>: Bitcoin, bitcoin, bitcoin.</li>
</ul>

Bitcoin

Stacks Nakamoto upgrade unfolds a new era for the Bitcoin L2

Bitcoin was developed to emulate the scarcity and finite nature of resources like gold, thereby ensuring a limited supply. Satoshi Nakamoto, the founder of Bitcoin, intended that the maximum currency supply would be capped at 21 million coins. Every four years, the network cuts the reward for mining bitcoin transactions by 50% via a process known as the halving. This is meant to slow down the influx of new coins and preserve the currency&#8217;s scarcity over time. It also ensures that <a href="https://blockworks.co/tag/bitcoin">Bitcoin</a>&#8216;s total finite supply approaches the 21 million cap gradually and predictably.



Following the <a href="https://blockworks.co/tag/bitcoin-halving">halving</a> next month, the block reward will be reduced to 3.125 bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>).



Given that the Bitcoin halving is just around the corner, <a href="https://blockworks.co/news/mining-firms-prepare-for-bitcoin-halving">concerns about mining revenue</a> have been top of mind. Blockworks consulted Rena Shah, the vice president of products and operations at Trust Machines — an infrastructure technology company that aims to expand Bitcoin capabilities — to see what she believes the halving means for Bitcoin <a href="https://blockworks.co/tag/layer-2-2">layer-2s</a>.



Keep reading for excerpts from Blockworks’ interview with Shah.&nbsp;



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Blockworks: Why was Bitcoin designed to be halved every few years?



Shah: Bitcoin was designed to counteract inflation. The halving cycles maintain scarcity and allow for a lower available new supply to be matched by increased prices based on demand. Having worked through multiple halving events, it’s inspiring that the protocol still sets the rules after so many years into this experiment, and participants continue to listen. Bitcoin’s mission matters to its users.



Blockworks: Will miners continue to want to mine bitcoin if their rewards are halved?



Shah: We have around 10 years before newly minted BTC become relatively small incentives for miners. It’s been a focus of our mission at Trust Machines and the mission for advocating layer-2 scalability for Bitcoin.&nbsp;



Developing a robust BTC fee market through <a href="https://blockworks.co/tag/ordinals">Ordinals</a>, Runes and other activity from Bitcoin layers will give a clear path for long-term Bitcoin security and for <a href="https://blockworks.co/tag/mining">mining</a> incentives beyond newly minted BTC. Another part of the story is transaction fee revenue. It&#8217;s a vital stream that&#8217;s needed. Fresh BTC entering the market drops 50% every four years, and roughly in 12 years, these rates will effectively be zero.&nbsp;



The Bitcoin network will run mainly on transaction fees where miners will earn revenue from validation. The layer-1 will still be needed for high-value transactions, while micro-transactions will be pushed to cheaper and faster layer-2s.”



Blockworks: What does the Bitcoin halving mean for Bitcoin layer-2s, if anything?



Shah: The interest in and demand for Bitcoin <a href="https://blockworks.co/news/institutions-wallstreet-crypto-adoption-das-london">has already increased so much</a> in 2024 (spot ETF, ATH, etc.), and the halving events always attract attention from a wider audience. However, a billion people still cannot use Bitcoin <a href="https://blockworks.co/tag/layer-1">layer-1</a> directly.&nbsp;



The only path forward is layer-2s, the halving will just reinforce that need. Today&#8217;s market reality is that alternative layer-1s, think Ethereum, Solana and others, are better developed and more mature than Bitcoin layer-2s. They give users and developers a better experience and tools.&nbsp;



Read more: <a href="https://blockworks.co/news/bitcoin-halving-impact-on-layer-2s">How will the Bitcoin halving impact Bitcoin L2s?</a>



Stacks’ Nakamoto release recently is proof that Bitcoin builders are rushing to develop solutions ahead of the halving. Further, with advances in BitVM-like approaches at the layer-1, the trust-minimization of layer-1 to layer-2 BTC movement can significantly improve far after the halving event.



Blockworks: What does the Bitcoin halving mean for <a href="https://blockworks.co/tag/stacks">Stacks</a>?



Shah: Stacks (<a href="https://blockworks.co/price/stx">STX</a>) is the only digital asset with a native BTC yield, with approximately $200 [million] in BTC yield going out to users this year, at current levels. Now add in even half the predicted interest that the Bitcoin halving will bring. You realize that we’re still early. As network usage grows and more users pay gas fees, the BTC yield increases, and the Bitcoin economy grows. Stacks is part of this positive economic loop.



The upcoming Nakamoto Release for Stacks will improve some mining inefficiencies, directly benefiting the BTC yield from consensus. The Nakomoto update fixes this, resulting in approximately 30-40% higher BTC yield per cycle.



This interview has been edited for brevity and clarity.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/thebreakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/empire">Empire</a>: Crypto news and analysis to start your day.</li>



<li><a href="https://blockworks.co/newsletter/forwardguidance">Forward Guidance</a>: The intersection of crypto, macro and policy.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha directly in your inbox.</li>



<li><a href="https://blockworks.co/newsletter/lightspeed">Lightspeed</a>: All things Solana.</li>



<li><a href="https://blockworks.co/newsletter/thedrop">The Drop</a>: Apps, games, memes and more.</li>



<li><a href="https://blockworks.co/newsletter/supplyshock">Supply Shock</a>: Bitcoin, bitcoin, bitcoin.</li>
</ul>

bitcoin halving

Q&A: What will the Bitcoin halving mean for Bitcoin L2s?

Blockchain scaling and privacy infrastructure company Espresso Systems will release its third testnet of the Espresso Sequencer for OP stack builders.



The testnet, named Cortado, will include work for an Optimism Request for Proposal (<a href="https://github.com/ethereum-optimism/ecosystem-contributions/issues/63">OP RFP</a>) that aims to decentralize sequencers.&nbsp;



Rollup solutions today run their own sequencers that have their own execution environments. These sequencers are responsible for ordering transaction information that is then sent to a virtual machine.



To ensure there is no single authority that orders these transactions, projects such as Espresso Systems are exploring ways to diversify these sequencers.&nbsp;



The initial release will be a locally hosted demo version of an OP stack rollup running on Espresso that enterprises can test.&nbsp;



Over the coming weeks, a publicly hosted canonical OP stack testnet will be released. This testnet will be similar to the testnet <a href="https://blockworks.co/news/shared-sequencer-tech-goes-live">Doppio</a>, which went live in July, according to Jill Gunter, chief strategy officer at Espresso Systems.



This publicly hosted testnet will be deployed in partnership with Caldera. The one-click rollup deployment allows developers to choose the different layers to build a blockchain.



<h2 class="wp-block-heading">Decentralizing sequencers before decentralizing fraud proofs</h2>



A popular narrative within crypto circles raises the concern that without fraud-proofs — a mechanism that can challenge the accuracy of a transaction — shared sequencing solutions will still have to include potentially fraudulent transactions in a rollup sent to the layer-1.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Optimistic rollups without fraud proofs are just google sheets with extra steps <a href="https://t.co/KavMYbuN8T">https://t.co/KavMYbuN8T</a>&mdash; joseph.eth (@josephdelong) <a href="https://twitter.com/josephdelong/status/1690537453961064448?ref_src=twsrc%5Etfw">August 13, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Gunter told Blockworks that decentralizing a sequencer does not mitigate the need for fraud proofs, but the two play separate important roles.&nbsp;



“Decentralizing the sequencer will help mitigate the risk that this centralized entity running the sequencer is going to be persistently ignoring transactions or leaving them out,” Gunter said.



Although it’s understandable that there are debates as to whether or not the development of shared sequencers should be prioritized before fraud proofs have even been shipped, Gunter believes that all of these different aspects play an important role in ensuring that blockchains become more decentralized.



“Eventually these things will all need to be on the roadmap,” she said. “A big part of what our motivation has been at Espresso Systems is to help rollups accelerate the roadmap towards mainstream adoption.”



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/thebreakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/empire">Empire</a>: Crypto news and analysis to start your day.</li>



<li><a href="https://blockworks.co/newsletter/forwardguidance">Forward Guidance</a>: The intersection of crypto, macro and policy.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha directly in your inbox.</li>



<li><a href="https://blockworks.co/newsletter/lightspeed">Lightspeed</a>: All things Solana.</li>



<li><a href="https://blockworks.co/newsletter/thedrop">The Drop</a>: Apps, games, memes and more.</li>



<li><a href="https://blockworks.co/newsletter/supplyshock">Supply Shock</a>: Bitcoin, bitcoin, bitcoin.</li>
</ul>

Espresso Systems

A shot of Espresso, please: Blockchain scaler to offer third testnet integration

Darren Kleine

DeFi has long been at home on smart contract-capable virtual machine protocols like Ethereum and Solana. Bitcoin has generally been perceived as a tool for storing value, at least until the recent Ordinals craze got people thinking about what it could become.&nbsp;



The <a href="https://blockworks.co/tag/defi">DeFi</a> realm that once existed outside of the <a href="https://blockworks.co/tag/bitcoin">Bitcoin</a> domain has been made available through solutions that operate on top of the protocol, with the advantages of security and liquidity built into the Bitcoin network.&nbsp;&nbsp;



Retro-fitting modern scaling mechanisms to the slow-moving “<a href="https://blockworks.co/news/gold-bitcoin-fed-winners">digital gold</a>” blockchain has proven technically challenging. But do people really want DeFi on Bitcoin?&nbsp;



DeFi apps with slick interfaces and robust smart contract options are commonplace elsewhere. But, according to Muneeb Ali, the most popular will inevitably find themselves on Bitcoin.



The co-creator of <a href="https://www.blockworksresearch.com/research/stacks-the-difficulties-of-scaling-bitcoin">Stacks</a> and CEO of Trust Machines spoke to Blockworks on the 0xResearch podcast (<a href="https://open.spotify.com/episode/1MxzoWU6keVk0SIjjS4hs8?si=32f7b7e5cc734085">Spotify</a> / <a href="https://podcasts.apple.com/us/podcast/stacks-is-bitcoin-defi-overhyped-underrated-or-a/id1651683074?i=1000617866673">Apple</a>) about the “Bitcoin thesis” — the long-standing argument among loyalists that says any useful application on another chain will eventually come to Bitcoin.



And any app or asset that makes its way to the network will also be more valuable, he says, “because they will benefit from the security of Bitcoin, the durability of Bitcoin, but above all the liquidity of Bitcoin.”



<h2 class="wp-block-heading">I’m very confident in the ‘yet’</h2>



Ali says market data previously demonstrated a lack of interest in building for such use-cases on Bitcoin, but that’s changing. “This year, with <a href="https://blockworks.co/tag/ordinals">Ordinals</a> and <a href="https://blockworks.co/news/defi-on-bitcoin">more recently with BRC-20</a>, part of the thesis is actually coming true.”



This is “literally the case” with <a href="https://blockworks.co/tag/nfts">NFTs</a>, he says. Once inscribed on Bitcoin, the market assessed some previously <a href="https://blockworks.co/tag/ethereum">Ethereum</a>-based tokens with hefty <a href="https://nftnow.com/guides/bitcoin-nfts-most-notable-ordinals-inscriptions/">prices</a> earlier this year.



Trailing Ethereum alone, “Bitcoin is now number two in terms of trading volumes of NFTs. And <a href="https://blockworks.co/tag/solana">Solana</a> is number three,” he says. “Six months ago, this would be unimaginable. Bitcoin was not even on the map.”



It hasn’t played out in DeFi — yet. “I&#8217;m very confident in the ‘yet’,” Ali says.



“Bitcoin is the more pristine capital,” Ali says. More people have bought into the idea of bitcoin as money or as a potential reserve currency, he says.



But not for much else.&nbsp;



That’s not the fault of Bitcoin, according to Ali. It’s mostly due to lack of infrastructure — tooling, wallets, and the developer community around Bitcoin — as opposed to a lack of interest, he says.



<h2 class="wp-block-heading">People will use Bitcoin</h2>



Ali argues there’s plenty of demand for smart contract solutions on Bitcoin. He gives the example of <a href="https://www.blockworksresearch.com/assets/rbtc">RSK</a>, or Rootstock, a smart contract competitor to Stacks that’s been building on the network for years. “They did their fundraising in Bitcoin and I think 25,000 <a href="https://blockworks.co/price/btc">BTC</a> came into that raise.”



<iframe loading="lazy" frameborder="0" height="200" scrolling="no" src="https://playlist.megaphone.fm/?e=BWG2460699237" width="100%"></iframe>







Stacks differs from RSK in a few key ways, with its “novel consensus mechanism, ambitious plans for subnets,” and in particular, its “unique BTC bridge” that does not rely on “a trusted set of signers,” according to <a href="https://www.blockworksresearch.com/research/stacks-the-difficulties-of-scaling-bitcoin">Blockworks Research</a>.



Ali mentions examples of applications like privacy tumblers that have seen large volumes of bitcoin being used, despite them being “really clunky.”&nbsp;



“It&#8217;s the best you can do on [layer-1],” he says, “but it&#8217;s nothing close to a <a href="https://blockworks.co/news/zk-rollups-future-of-smart-contract-blockchains">zero-knowledge-based solution</a> that has great UX” — something that is more likely to be found on Ethereum or Solana. For now, anyway.



“If you start bringing those use cases,” he says, “it&#8217;s as obvious as putting two and two together that people will use Bitcoin.”



“The challenge really is in the infrastructure tooling, devs, and UX wallets,” he says. “I think that needs to be much more mature than the state we are in today.”



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/thebreakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/empire">Empire</a>: Crypto news and analysis to start your day.</li>



<li><a href="https://blockworks.co/newsletter/forwardguidance">Forward Guidance</a>: The intersection of crypto, macro and policy.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha directly in your inbox.</li>



<li><a href="https://blockworks.co/newsletter/lightspeed">Lightspeed</a>: All things Solana.</li>



<li><a href="https://blockworks.co/newsletter/thedrop">The Drop</a>: Apps, games, memes and more.</li>



<li><a href="https://blockworks.co/newsletter/supplyshock">Supply Shock</a>: Bitcoin, bitcoin, bitcoin.</li>
</ul>

0xResearch

DeFi is possible on Bitcoin, but does anybody want it?

Sebastian Sinclair

The native token of Bitcoin layer-2 protocol Stacks (STX) has seen its value soar this year with its performance continuing to carry over into March, edging it to a top spot this week.



Following the buzz generated by the <a href="https://blockworks.co/news/play-doom-bitcoin">Ordinals on Bitcoin</a>, which opened the floodgates for non-fungible token use cases on the world’s oldest blockchain, STX is riding shotgun.



Stacks and Ordinals are different and separate protocols, both utilizing the Bitcoin blockchain. Stacks allows for the creation of complex dApps, while Ordinals provide a simple way to inscribe data in Bitcoin blocks.&nbsp;



STX is changing hands for $0.83, up 2.7% in the past 7 days, despite a lackluster performance in the broader digital asset market (BTC itself is down -6.5%) over the same period. In year-to-date terms, STX has climbed about 300% — most of that coming in late February — alongside a $900 million injection in its total market cap over the same period.



Perhaps most notably, it&#8217;s up about 200% against BTC in the past month.



As the bitcoin halving steadily approaches, investors like Hal Press, founder of crypto investment firm North Rock Digital, believe there exists a “relatively untapped” market opportunity for the project.



“The team is very strong, ecosystem is growing and tokenomics are favorable,” Press said in a <a href="https://twitter.com/NorthRockLP/status/1629490053692149760?s=20" target="_blank" rel="noreferrer noopener">tweet</a>, last week. “Relatively few active funds own the token but many more will as we approach the halving.”



STX has the potential to play a similar role for the halving as the Ethereum liquid staking solution Lido DAO did for the Merge, Press said in an accompanying <a href="https://medium.com/@halp1120/stacks-thesis-62ce0599c77f" target="_blank" rel="noreferrer noopener">blog post</a>. Lido’s stETH, <a href="https://blockworks.co/news/liquid-staking-derivatives-shanghai-upgrade">and other liquid staking derivatives</a>, let users engage in the operation of Ethereum&#8217;s proof-of-stake chain and earn daily rewards in return.



During the lead-up to the <a href="https://blockworks.co/tag/ethereum-merge">Ethereum Merge</a> in July and August of last year, LDO saw a 600% boost in its token price over a six-week period.



Andrew Kang, founder of crypto investment firm Mechanism Capital, agrees with Press’ assessment. Stacks appeals to long-term investors, including bitcoin holders and venture funds, from an allocation perspective, he said.



Since lightning does not have its own token, Stacks has emerged as the primary focus for capital flows that are tied to the halving and the BTC economy, Kang said in a <a href="https://twitter.com/Rewkang/status/1630031466858967040?s=20" target="_blank" rel="noreferrer noopener">tweet</a> responding to Press’ statements.



While Ordinals and STX have no connection to each other, the bitcoin community has developed a growing interest in NFTs and DeFi, <a href="https://www.blockworksresearch.com/">Blockworks Research</a> analyst <a href="https://twitter.com/swmartin19" target="_blank" rel="noreferrer noopener">Sam Martin</a> said.



NFTs (Ordinals) on the Bitcoin blockchain may also bring more financial use cases to the network and drive more demand for block space, Ho Chan Chung, head of marketing at on-chain analysis platform CryptoQuant told Blockworks.



“As a result, this will increase miners&#8217; fees and bolster their long-term sustainable growth.” That could also drive other projects seeking to piggyback on whatever the current narrative might be surrounding bitcoin’s ecosystem.



On the other hand, inscribing non-fungible characteristics to satoshis could negatively affect privacy and fungibility, Chung said.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/thebreakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/empire">Empire</a>: Crypto news and analysis to start your day.</li>



<li><a href="https://blockworks.co/newsletter/forwardguidance">Forward Guidance</a>: The intersection of crypto, macro and policy.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha directly in your inbox.</li>



<li><a href="https://blockworks.co/newsletter/lightspeed">Lightspeed</a>: All things Solana.</li>



<li><a href="https://blockworks.co/newsletter/thedrop">The Drop</a>: Apps, games, memes and more.</li>



<li><a href="https://blockworks.co/newsletter/supplyshock">Supply Shock</a>: Bitcoin, bitcoin, bitcoin.</li>
</ul>

STX Price Stacks Up Well, Outperforming Bitcoin

Shalini Nagarajan

<div id="highlights-block_62bc3419ee5ae" class="highlights">
 <ul>
 <li>Asiff Hirji will join as an advisor, and Manas Mohapatra comes onboard as general counsel</li>
 <li>The announcement comes as several crypto heavyweights announce layoffs due to difficult market conditions</li>
 </ul>
 
</div>



Blockchain startup Trust Machines has hired former Coinbase executive <a href="https://www.linkedin.com/in/asiff-hirji/">Asiff Hirji</a> and former BNY Mellon deputy general counsel <a href="https://www.linkedin.com/in/manasmo/" target="_blank" rel="noreferrer noopener">Manas Mohapatra</a>.



Hirji, who served as president and chief operating officer at Coinbase between 2017 and 2019, joins the company as an advisor. He has held multiple director positions across various industries, briefly worked in an advisory role for venture capital firm a16z and currently holds a similar position at Warren Buffett-backed Nubank.



Mohapatra joins Trust Machines as general counsel. Among other roles, he’s previously worked as associate general counsel for Twitter for more than four years and as a senior attorney for the US Federal Trade Commission.



Another staff addition is <a href="https://www.linkedin.com/in/igorsyl/" target="_blank" rel="noreferrer noopener">Igor Sylvester</a>, who will be joining the company’s engineering team. Prior to this role, he worked as a software engineer at Reddit and led a machine-learning team at Facebook.



“I’m excited to share that Trust Machines continues to attract world-class talent during this bear market to help build the world’s largest ecosystem of Bitcoin applications,” Muneeb Ali, CEO of Trust Machines, said in a statement.&nbsp;



Launched in early 2022, the company was co-founded by Ali — who also founded <a href="https://cms.blockworks.co/?s=Stacks" target="_blank" rel="noreferrer noopener">Stacks</a> — and Princeton University computer science professor JP Singh. It <a href="https://finance.yahoo.com/news/trust-machines-raises-150m-funding-212500209.html" target="_blank" rel="noreferrer noopener">raised $150 million</a> in February, counting Breyer Capital, Digital Currency Group and GoldenTree among participant investors.



The name &#8220;trust machines&#8221; is a&nbsp;play on Turing machines — the first computer invented by Alan Turing at Princeton.



The company said it plans to make further key hires in the second half of this year. New hires in the cryptoasset industry have dwindled as more companies announce cost-cutting measures and slow down hiring efforts in a challenging macroeconomic environment. Heavyweight names such as <a href="https://cms.blockworks.co/coinbase-cut-workforce-ceo-wary-of-potential-recession/" target="_blank" rel="noreferrer noopener">Coinbase</a> and <a href="https://cms.blockworks.co/gemini-joins-growing-list-of-crypto-exchanges-cutting-staff-amid-downturn/">Gemini</a> have announced plans to cut staff.



But not everyone in the industry appears to be significantly affected. Earlier this month, Immutable’s co-founder Robbie Ferguson <a href="https://cms.blockworks.co/now-is-not-the-time-to-take-our-foot-off-the-pedal-says-immutable-co-founder/" target="_blank" rel="noreferrer noopener">told Blockworks</a> it was on a hiring spree and “now is not the time to take our foot off the pedal.”&nbsp; Exchanges OKX and Bitget too have announced plans to <a href="https://cms.blockworks.co/latest-in-crypto-hiring-okx-bitget-among-companies-boosting-headcount/" target="_blank" rel="noreferrer noopener">significantly boost</a> their headcounts.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/thebreakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/empire">Empire</a>: Crypto news and analysis to start your day.</li>



<li><a href="https://blockworks.co/newsletter/forwardguidance">Forward Guidance</a>: The intersection of crypto, macro and policy.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha directly in your inbox.</li>



<li><a href="https://blockworks.co/newsletter/lightspeed">Lightspeed</a>: All things Solana.</li>



<li><a href="https://blockworks.co/newsletter/thedrop">The Drop</a>: Apps, games, memes and more.</li>



<li><a href="https://blockworks.co/newsletter/supplyshock">Supply Shock</a>: Bitcoin, bitcoin, bitcoin.</li>
</ul>