sBTC User Guide | Analyzing sBTC Ecology from Mechanism, Revenue, Use Cases, etc.

Author: Maggie

From a certain perspective, the $2.1 trillion market capitalization of Bitcoin (latest CoinGecko data as of December 18, 2024) is indeed the largest ‘sleeping fund pool’ in the crypto world.

Unfortunately, most of the time it has neither brought profits to the holders nor injected vitality into the on-chain financial ecosystem. Although there have been many attempts to release the liquidity of Bitcoin assets after the start of the DeFi Summer in 2020, most of them are simply reinventing the wheel, and the overall attraction of BTC funds inflow is very limited, and they have never truly leveraged the BTCFi market.

In this context, sBTC, which has just launched on the Stacks mainnet, is an asset supported 1:1 by Bitcoin on the Stacks L2. It 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 fully revitalizing the Bitcoin economy.

Currently, sBTC is operated by a large-scale signatory 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 the DeFi, dApps, and other fields. This article will further explore the specific operational mechanisms and relative advantages of sBTC.

How does sBTC work?

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

After the BTC is deposited, 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 into sBTC. In the future, sBTC is expected to become the fee token on Stacks, further enhancing user experience.

Is there a deposit limit for sBTC?

At this stage, the deposit limit is 1,000 BTC, in order to conduct controlled testing and gradually enhance security.

Withdrawals are temporarily unavailable in the early stages, only deposits are supported.

Will sBTC generate profits?

Imagine, just holding BTC can earn Bitcoin income.

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

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

The sBTC reward program is supported by ‘Stacking’ STX stackers.

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

BTC from the reward pool will be directly deposited into a smart contract, which will convert the BTC into sBTC and distribute 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 receive a share of trading fees.

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

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

Bitflow Runes AMM

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

Zest - Loan Market

sBTC will be available on the first day of listing on Zest Protocol’s lending market.

On the first day of launch, Zest Protocol will start an enhanced yield activity, offering up to 10% BTC yield for provided sBTC.

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

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

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

Stake USDh in Hermetica and earn up to 25% annualized yield.

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

stSTXbtc is a new liquid staking token that users can apply in Stacks’ DeFi ecosystem. Users holding the token will earn up to 10% APY through staking rewards, which will be paid directly to their wallets in 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 token or other incentive rewards.

Staking: If Velar offers the staking option for sBTC, users can lock their sBTC in the staking contract to earn rewards, such as additional tokens or a percentage of the profits 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 against their Bitcoin holdings.

ALEXDEX

Users can deposit sBTC into ALEX’s liquidity pool and pair it with other assets like STX or stablecoins. In doing so, 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 campaign. 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 earn income by providing stablecoins to the protocol.

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

Liquidation participants: Users can act as liquidators, repay part of the insufficiently collateralized loans, and receive collateral and rewards, thus earning profits through the liquidation process.

Granite currently has a waiting list that allows 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 are the differences between sBTC and other BTC assets?

These BTC assets usually require sending BTC to an intermediary or relying on a trusted signer consortium / small multi-signature institution.

sBTC will initially rely on 15 signatories, including enterprise-level institutions such as BlockDaemon, Figment, Luganodes, and Kiln, to handle asset anchoring and unlocking. Over time, this responsibility will gradually shift to all Stacks signatories, allowing anyone to participate in the security and decentralization of the network. Institutions such as BitGo and the Aptos Foundation 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 can become an independent signer as long as they stake enough STX, similar to the concept of validators.

Other information:

1. sBTC Relevant Information:

sBTC Website:

sBTC Documentation:

sBTC Presentation: -deck

2. Nakamoto upgrade information:

Nakamoto Website:

Document:

Nakamoto’s upgrade is crucial because it brings:

Fast blocks (reduced from the current 10 minutes to less than 1 minute, with ongoing optimizations)

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.

Stacks’ DeFi ecosystem has grown rapidly this year, and now it only takes a few seconds to apply DeFi strategies, making it easy for users to quickly onboard and retain.

Prior to the Nakamoto hard fork, Stacks’ blocks were settled synchronously with Bitcoin blocks (10 minutes on average), which made the chain slower and unable to meet the demands of DeFi activity. This limitation no longer exists. Conversely, Stacks’ blocks can now be completed in seconds, and performance gains occur regularly. At the same time, Stacks still relies on Bitcoin’s security once the Bitcoin block is settled.

100% Bitcoin final determinism: With the Nakamoto upgrade, transactions on Stacks L2 will leverage Bitcoin’s 100% security budget, which means 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 miners’ terms, during which they mine multiple Stacks blocks that settle within seconds.

There are currently 50 signers, including enterprise-level institutions such as BitGo, Aptos, Luganodes, Kiln, etc., responsible for verifying and approving the blocks generated by each miner during their tenure.

The fast block time and finality of Bitcoin make Stacks the most secure and scalable Bitcoin L2, supported by a decentralized network of signers. In the future, it will achieve decentralized liquidity for Bitcoin through the upcoming sBTC upgrade.

3. Stacks Data Analytics Platform:

Signal 21:

DefiLlama:

Stacks Block Explorer: