sBTC complete guide | Analyzing sBTC ecosystem from mechanisms, benefits, use cases, etc.

Author: Maggie

In a sense, the Bitcoin with a market cap of 2.1 trillion US dollars (according to the latest CoinGecko data on December 18, 2024) is the largest 'sleeping fund pool' in the crypto world.

Unfortunately, most of the time it has not brought profits to the holders, nor has it injected vitality into the on-chain financial ecosystem. Although there have been many attempts to release the liquidity of Bitcoin assets since the start of DeFi Summer in 2020, most of them are simply reinventing the wheel, and the overall attraction of BTC funds is very limited, which has never really leveraged the BTCFi market.

In this context, the just-launched sBTC on the Stacks mainnet, as an asset supported 1:1 by Bitcoin on Stacks L2, is committed to leveraging the security of Bitcoin (100% Bitcoin finality) and fast transactions to unlock BTC capital and open up new use cases, thereby thoroughly revitalizing the Bitcoin economy.

Currently, sBTC is operated by a large-scale signer network composed of institutions such as BitGo, Asymmetric, and Ankr. It is expected to become one of the most decentralized L2 Bitcoin assets, bringing unprecedented opportunities to DeFi, dApps, and other fields. This article will further explore the specific operation mechanism and relative advantages of sBTC.

How does sBTC work?

Users first deposit BTC via the Bitcoin mainnet transaction into a multi-signature protocol monitored by the Stacks decentralized signing group.

After depositing BTC, sBTC is minted on Stacks, and users can interact with DeFi dApps.

Users can seamlessly use Bitcoin DeFi, for example, Zest Protocol will support depositing mainnet BTC and automatically convert it to sBTC. In the future, sBTC is expected to become the fee token on Stacks, further enhancing the user experience.

Will there be a deposit limit for sBTC?

At this stage, the deposit limit is 1,000 BTC for controlled testing and gradual security enhancement.

In the early stage, only deposit is supported, and withdrawal is temporarily unavailable.

Will sBTC generate profits?

Imagine just holding BTC and earning Bitcoin yield.

No collateral, no points, no complicated process, only holding BTC can get rewards. Early users of sBTC will receive a 5% annualized Bitcoin reward by connecting their wallets to 12th December 17, 22:00 (UTC+8).

Now, through the sBTC reward program, all this becomes possible. Early users can earn BTC rewards simply by holding sBTC, which will be distributed in the form of sBTC.

The sBTC reward plan is supported by stackers of 'Stacking' STX.

When staking STX, stakers earn BTC through the consensus mechanism of Stacks. To enable the sBTC reward program, these stakers will transfer proof of BTC rewards to the sBTC reward pool accordingly.

BTC from the reward pool will be directly deposited into a smart contract that puts the BTC into sBTC and distributes rewards to sBTC holders proportionally. The protocol takes a daily snapshot of users' sBTC holdings and distributes rewards every two weeks, which is the length of a PoX cycle.

The current estimated annualized BTC reward is 5%, and the reward will be distributed every two weeks.

sBTC Key Features:

Where can sBTC be used?

Multiple DeFi protocols will support sBTC, allowing users to earn additional income on top of a 5% APY.

Bitflow DEX

Liquidity Pool: Users can deposit sBTC into Bitflow's liquidity pool to facilitate trading and earn a share of transaction fees.

Yield Farming: Liquidity providers can stake their LP (Liquidity Provider) tokens in yield farming projects to earn additional rewards, which often come from trading activities or platform incentives.

Early forecast: Deploying sBTC may bring an additional annualized yield of 10%-30%.

Bitflow Runes AMM

Bitflow has launched the Runes AMM (Automatic Market Maker) for Stacks L2, allowing users to bring Runes to L2 and enjoy a better user experience.

Zest - Loan Market

sBTC will be available on the first day of its launch on the Zest Protocol lending market.

Zest Protocol will launch an enhanced yield farming activity on the first day of its launch, offering up to 10% BTC yield for providing sBTC.

Zest will also unlock more DeFi strategies related to sBTC, such as:

Deposit sBTC and earn up to 10% annualized BTC yield;

Borrow USDh stablecoin by using BTC (or other stablecoins) as collateral, and exchange it for USDh;

Stake USDh in Hermetica to earn up to 25% APY.

Reminder: Hermetica's DeFi protocol provides USDh, which is the first yield-based stablecoin backed by Bitcoin. This income is generated sustainably through perpetual contract funding fees on centralized exchanges and is paid daily.

stSTXbtc is a new liquid staking token that users can use in Stacks' DeFi ecosystem. Users holding the token will earn up to 10% annualized returns through staking rewards, which will be paid directly to their wallets in the form of sBTC.

Velar DEX

Liquidity provision: Users can provide sBTC to Velar's liquidity pool to facilitate trading and earn a share of the platform-generated trading fees.

Yield Farming: By participating in the Yield Farming project, users can stake the liquidity provider (LP) tokens obtained by providing sBTC liquidity to earn Velar's native tokens or other incentive rewards.

Pledge: If Velar offers the option to pledge sBTC, users can lock their sBTC in the pledge contract to earn rewards, such as additional tokens or a percentage of the revenue supporting network operations.

Velar will launch its own incentive program, allowing users to earn Velar's native token VELAR by deploying sBTC into its DEX pool.

Arkadiko- USDA stablecoin

Arkadiko will allow sBTC to be used as collateral in its protocol through governance voting, enabling users to borrow USDA or other assets with their Bitcoin holdings as collateral.

ALEXDEX

Users can deposit sBTC into ALEX's liquidity pool and pair it with other assets such as STX or stablecoins. In this way, they provide liquidity for the platform's trading and earn a portion of the transaction fees from the pool.

ALEX will provide additional bonus rewards through its native token ALEX as part of the Surge event. This means that in addition to the 5% annualized return of the sBTC reward program, users can also earn additional ALEX token rewards by providing sBTC liquidity.

Granite - Loan agreement (not yet online)

Borrowers can obtain stablecoin loans by using Bitcoin as collateral, while liquidity providers can earn income by providing stablecoins to the protocol.

Borrow: Users can borrow stablecoins by using sBTC as collateral, and then use them for various DeFi strategies to earn profits.

Liquidation Participation: Users can act as liquidators to repay part of the insufficient collateralized loans, obtain collateral and rewards, and earn profits through the liquidation process.

Granite currently has a waiting list, allowing early registered users to access it in advance. Eventually, the system will introduce a points system, bringing additional benefits, and early registered users will have a significant advantage.

Granite Waiting List

What is the difference between sBTC and other BTC assets?

These BTC assets typically require sending BTC to intermediaries or relying on a trusted signer alliance / small multi-signature institution.

sBTC will initially rely on 15 signers, including BlockDaemon, Figment, Luganodes, and Kiln, to handle asset anchoring and unlocking. Over time, this responsibility will gradually transition to all Stacks signers, allowing anyone to participate in the network's security and decentralization. BitGo, Aptos Foundation, and other institutions are also expected to join this process.

In addition, thanks to the design of Stacks, sBTC will achieve 100% bitcoin finality, which means that transactions on the Stacks layer will be as irreversible as bitcoin.

Reminder: Signers are responsible for verifying and approving each produced block; anyone who stakes enough STX can become an independent signer, similar to the concept of validators.

Other Information:

1. sBTC related information:

sBTC website:

sBTC Documentation:

sBTC Presentation: -deck

2. Nakamoto Upgrade Information:

Nakamoto Website:

Document:

Nakamoto's upgrade is very important because it brings:

Fast blocks (reduced from the current 10 minutes to less than 1 minute, optimization is still ongoing)

100% Bitcoin Final Determinism

Fast Block: Fast Block brings a trading experience similar to Solana and Bitcoin DeFi interaction, greatly improving the overall user experience with Stacks L2.

The DeFi ecosystem of Stacks has grown rapidly this year, and now applying DeFi strategies only takes a few seconds, making it easy for users to join and retain.

Before the Nakamoto hard fork, Stacks blocks were settled in sync with Bitcoin blocks (averaging 10 minutes), which made the chain slow and unable to meet the demands of DeFi activities. This limitation no longer exists. Instead, Stacks blocks can now be completed in a matter of seconds, with performance improvements made regularly. At the same time, Stacks still relies on the security of Bitcoin once Bitcoin blocks are settled.

100% Bitcoin finality: With Nakamoto upgrades, transactions on Stacks L2 will leverage Bitcoin's 100% secure budget, meaning that once Bitcoin's subsequent block settlement occurs, Stacks transactions will also be irreversible, just like Bitcoin.

Unlike binding a single Stacks block to a single Bitcoin block, Bitcoin blocks are now bound to the miner's term, during which they mine multiple Stacks blocks that settle within seconds.

There are currently 50 signatories, including BitGo, Aptos, Luganodes, Kiln, and other enterprise-level institutions, responsible for verifying and approving the blocks generated by each miner's term.

The fast block time and Bitcoin's ultimate determinism make Stacks the most secure and scalable Bitcoin L2, supported by a decentralized signer network. In the future, it will achieve decentralized liquidity of Bitcoin through the upcoming sBTC upgrade.

3. Stacks Data Analysis Platform:

Signal 21:

DefiLlama:

Stacks Block Explorer: