What is sBTC?
In the fast-evolving world of web3, new innovations are continually emerging. One such innovation is sBTC --- short for Stacks Bitcoin --- a Bitcoin derivative that enables decentralized movement of BTC in and out of Bitcoin layers.
sBTC (not to be mistaken with SBTC, Super Bitcoin) is a novel synthetic asset designed to enable a trustless two-way Bitcoin peg system. This system serves as a crucial tool in realizing the complete Stacks vision, as it allows for trustless writing to the Bitcoin network. Stacks 2.0 introduced Clarity and 'read' access; sBTC represents the final component needed to achieve a fully expressive Bitcoin layer with the capability to tap into vast amounts of Bitcoin capital, amounting to hundreds of billions.
Bitcoin layers hold the potential to facilitate DeFi and various BTC-based applications, but there is a significant drawback: there is currently no trustless method for users to employ their BTC within applications and smart contracts. Stacks has persistently strived to make Bitcoin fully programmable, but Bitcoin's inherent design limits it with a constrained scripting language. As a result, conducting activities such as writing to Bitcoin or working with Bitcoin assets in a manner akin to smart contracts on ETH or fully operational applications has been either impossible or exceedingly challenging.
sBTC seizes the opportunity to enable trustless writing to Bitcoin via a two-way peg mechanism. So far, previous attempts have typically relied on federated or centralized approaches. The sBTC price peg system has the potential to elevate the security and functionality of Bitcoin layers, akin to the developments witnessed in Ethereum with technologies like Arbitrum and Optimism. This means that users not only gain access to comprehensive smart contracts at Layer 2 but can also effortlessly transfer their assets in and out of the layer in a decentralized fashion and in real-time, with their transactions benefiting from the rock-solid security of the Bitcoin base layer. In Ethereum, multiple layers primarily enhance scalability but with Bitcoin, the Bitcoin layers take on heightened importance, given the inherent limitations on the main chain.
sBTC features and potential
The whitepaper for Stacks Bitcoin and the Nakamoto release covers the benefits and more technical aspects of sBTC, so here are a few key takeaways. The Stacks layer and sBTC state automatically forks with Bitcoin L1. All transactions settle to the Bitcoin L1 with total Bitcoin finality, giving strong security guarantees. The network is open and decentralized, operated by a dynamic set of economically incentivized open-membership signers. Because all sBTC operations happen on the main chain, external actors in the layer can't censor those operations, making sBTC censorship resistant. sBTC could also help scale Bitcoin Ordinals: as they continue to grow, moving certain functions to the L2 can enable faster, richer and and cheaper experiences for users.
sBTC has a number of use cases, including Bitcoin DeFi, which will enable decentralized ways to earn yield on BTC. Applications powered by sBTC can enhance the safety of using BTC as collateral for borrowing. With Bitcoin's constrained circulating supply and rapid transferability, it serves as an ideal asset for borrowing purposes (as a reminder, Bitcoin's total supply is limited to 21M coins). Users can securely lock up their Bitcoin within smart contracts and borrow funds from a diverse network of lenders, including both institutions and individuals. sBTC also facilitates asset swaps, enabling users to exchange their BTC for other assets in a decentralized manner, eliminating the need to rely on centralized exchanges such as Binance. Given the volatility of Bitcoin price, sBTC offers users a means to effectively manage their BTC exposure by swapping it for stablecoins (which are pegged to fiat currencies such as USD and EUR) during periods of heightened volatility.
While sBTC is not the only Bitcoin derivative in the market, its unique functionality sets it apart. Unlike Wrapped Bitcoin (WBTC) which relies on custodians to lock up actual BTC, sBTC operates on-chain, offering a higher level of decentralization. This distinction is essential for users who value security and trustlessness. Keep it on your watchlist!
What is Stacks?
We've been discussing how sBTC helps realize the Stacks vision, but what is Stacks?
The Stacks blockchain leverages the security of Bitcoin while introducing the capability to create smart contracts. These smart contracts utilize a user-friendly and easily readable language known as Clarity. Despite Bitcoin (BTC) being the most widely recognized blockchain and the largest cryptocurrency with the biggest market cap in US dollars, its potential for smart contract applications has been constrained due to scalability, speed, and syntax limitations. The Stacks network aims to change this and unlock Bitcoin's full potential.
Stacks operates on the Proof of Transfer (PoX) consensus mechanism, where miners use BTC to mint new STX crypto tokens. It relies on the Bitcoin blockchain, functioning somewhat like a Layer 2 solution, yet it is distinct from Bitcoin, has its own set of rules and is maintained by Stacks nodes, exclusively for the Stacks ecosystem. This separation is intentional, as Stacks developers aim to enable programmability for Bitcoin without altering the core Bitcoin protocol. Stacks blocks are securely recorded on the Bitcoin base-layer blockchain.
Thanks to its smart contract functionality, Stacks allows developers to build dApps, DeFi apps, DAOs, and NFTs. Because of the unique properties of Stacks, builders can create applications with sBTC that leverage the built-in bitcoin yield of the protocol to reward users, bootstrap liquidity, & more.