Despite being the world’s most valuable and recognizable cryptocurrency, Bitcoin remained on the sidelines as the DeFi revolution commenced in 2019. For the most part, this was not a conscious decision on the part of bitcoiners, many of whom ‘filled their bags’ on Ethereum and its multitudinous Layer-2s. Rather, the design of Bitcoin’s Proof-of-Work (Pow) blockchain – geared towards security and stability rather than programmability – made it incompatible with DeFi’s smart contract-based environment.
In the six years since that’s all changed. Following a pandemic that saw the price of Bitcoin slip below $4,000, before rebounding healthily in the years after, we’ve witnessed its value proposition strengthen and utility increase, a consequence of its expanding L2 innovations.
Recent research from Galaxy Digital underscores the potential impact of these solutions: the company estimates that around $47 billion in BTC liquidity could flow into Bitcoin’s L2s by 2030. A forecast that reflects growing confidence in projects like Stacks and its programmable Bitcoin asset, sBTC.
sBTC: Fully Backed by Bitcoin
Introduced by Bitcoin Layer-2 blockchain Stacks following its Nakamoto Upgrade in late 2024, sBTC (Stacks Bitcoin) is, like leading stablecoins USD Coin (USDC) and Tether (USDT), backed 1:1 by the underlying asset whose utility it aims to strengthen. Where it differs is that it enables bitcoiners to participate in DeFi activities without sacrificing their hoarded digital gold or foregoing the security guarantees of the base layer.
By facilitating the seamless movement of BTC across layers without compromising its fundamental properties, sBTC has the potential to activate over $1.9 trillion in previously dormant capital.
Unlike Wrapped Bitcoin (wBTC), a popular version of tokenized Bitcoin on the Ethereum network, sBTC does not depend on a trusted custodian to hold on to the reserve asset. Instead, it achieves decentralization via Stacks’ own network of independent signers/validators who operate on a similar (but not identical) incentivization model to Bitcoin miners. This trustless peg is central to the asset’s appeal.
The security of sBTC is, moreover, reinforced by its direct settlement on Bitcoin’s Layer-1, ensuring all transactions benefit from the unbeatable security of the base layer’s consensus mechanism. This architecture provides users with the highest grade of protection while enabling enterprising builders to create apps backed by Bitcoin, from DEXs to AI bots.
In addition to dispensing with a centralized custodian and assuring security, sBTC eliminates the fees incurred by users looking to convert between BTC and its DeFi equivalent, removing another possible barrier to entry.
Stacks Bitcoin in the Wild
Lending and borrowing protocol Zest has emerged as an attractive option for bitcoiners looking to belatedly board the DeFi bandwagon, and to do so by leveraging Proof-of-Work.
Among other things, the open-source liquidity protocol lets users deposit their sBTC to earn sustainable yield in Bitcoin via Stacks’ dedicated staking system, Babylon. In essence, Zest empowers users to ‘stack sats’ while getting their DeFi fix. They can also participate in lending activities, one of the key pillars of the decentralized finance movement.
The synergistic relationship between Zest, Stacks and Babylon creates fresh opportunities for bitcoiners to generate passive revenue, while tapping into the robust security that the eponymous network is famous for. The latter aspect is particularly notable given the misgivings of some investors due to well-documented hacks and breaches of previous DeFi protocols.
The Beginning of a New Era?
While it’s only been around since late 2024, the successful implementation of Stacks Bitcoin in the world of DeFi could mark the dawn of a new era for crypto’s favorite digital currency.
As for why it matters, isn’t it obvious? Broadening Bitcoin’s utility makes it more attractive for today’s hodlers and tomorrow’s, as well as businesses and investors who admire Bitcoin but are wary of DeFi. In short, it supercharges its value proposition.
Bit by bit, Bitcoin is proving that its merits go beyond being a store of value, and it is largely thanks to innovations such as Stacks, Zest and others like them.
Expect ‘gold’ liquidity to continue flowing into Bitcoin Layer-2, giving the asset’s believers the opportunity to have their (crypto) cake and eat it.
| Disclaimer: The text above is an advertorial article that is not part of Coincu.com editorial content. |
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