- Stacks’ Nakamoto upgrade has started.
- The upgrade will introduce a DeFi-compatible version of Bitcoin on the Stacks blockchain.
- It joins several other projects vying for a share of the booming Bitcoin DeFi market.
Stacks, a long-running project aimed at giving users the ability to leverage their Bitcoin in DeFi, has just launched its Nakamoto upgrade.
The project released the new version of its software, giving network validators a two-week window to upgrade.
Muneeb Ali, co-creator of the Stacks blockchain, said the most anticipated feature is the introduction of sBTC, a Bitcoin-pegged asset secured by the Bitcoin network.
Until now, Bitcoin was absent from the Stacks blockchain.
“sBTC is what’s going to matter,” Ali said DL News“Until sBTC is live, I personally don’t pay any attention to statistics.”
Stacks, along with more than a dozen competing projects, is creating workarounds to overcome Bitcoin’s incompatibility with major DeFi ecosystems.
sBTC is one such workaround, allowing users to use Bitcoin in activities like lending and staking on Stacks.
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If just 5% of all Bitcoin managed to reach Layer 2s like Stacks, which Ali says is a realistic goal over the next two years, that would still represent a market worth around $70 billion.
“Right now, it’s not even 1% of Bitcoin,” Ali said.
Slowly but surely
But the competition is tough.
Attention is shifting quickly and incentives have become a popular strategy to attract deposits and users. Often, the quality of a project’s marketing is more important than its technology.
In recent months, a rival project called Merlin Chain saw its deposits surge to $2.6 billion after incentivizing users with a points campaign and airdrop.
Stacks’ deposits, on the other hand, have fallen about 49% since April, to just $95 million.
But Ali said he was not convinced such incentives would be beneficial in the long run.
“We don’t offer incentives because of the way Stacks started,” he said, noting that the project in 2019 became the first to conduct a token offering regulated by the U.S. Securities and Exchange Commission.
“We don’t have a lot of cash, it’s very decentralized. Those things really matter a lot,” Ali said.
It’s not just repositories that are declining. According to Electric Capital’s Developer Report, the number of developers building on stacks has dropped 24% over the past two years.
Stacks is banking on Nakamoto and the introduction of sBTC to reverse these trends. But with many of its competitors already fully operational, there’s no guarantee it can catch up.
More decentralized
One reason for Stacks’ slow progress is its commitment to decentralization.
The easiest and fastest way to make Bitcoin compatible with DeFi is to entrust the custody of Bitcoin deposits to a trusted company and issue equivalent tokens on another blockchain.
This custody approach, however, often compromises security and decentralization.
Ethereum DeFi protocol Sky, formerly MakerDAO, recently limited its exposure to Wrapped Bitcoin due to custody issues.
Stacks’ sBTC leverages the security of the Bitcoin network directly, using smart contracts. These lines of code implement strict rules, eliminating the need to trust a custodian.
“This is not just a Bitcoin asset,” Ali said. “It’s actually secured by on-chain consensus.”
Stacks isn’t the only project hoping to attract users by eliminating custodians.
Rootstock, another blockchain that relies on the Bitcoin network for its security, uses a similar technique to secure deposits.
For Ali, there is one difference that he believes matters.
According to Nakamoto, Stacks cannot be attacked if its own validators were to hypothetically collude with each other — a high-level security guarantee he says is unique to the network.
However, this enhanced security means Stacks is less agile than its competitors.
However, Ali remains confident about the future.
“We have a history of doing difficult things the right way,” he said. “I just want to remind people that sometimes things take longer than they think.”
The Nakamoto upgrade is expected to be completed by mid-September.
Tim Craig is DL News DeFi correspondent based in Edinburgh. Feel free to share your tips with us at tim@dlnews.com.
