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    0xResearch

    Stacks: Is Bitcoin DeFi Overhyped, Underrated Or A Pipe Dream? | Muneeb Ai

    Wed Jun 21 2023

    DeFi Updates

    00:00 - 06:48

    • Stacks could evolve into a sovereign rollup before new opcodes come.
    • MakerDAO pushed their DSR update, which went live on June 19th.
    • Aave's Go Mainland is approaching launch after Aave companies posted that it was ready for production.
    • Osmosis has updated its inflation schedule and reduced the amount of inflation going to the community pool with more flowing to LPs and Saakers.
    • DeFi governance updates highlight the importance of DeFi governance.

    Bitcoin and Crypto Market

    06:21 - 13:23

    • BlackRock filed for a Bitcoin spot ETF and is partnering with Coinbase Custody and Nasdaq to alleviate market manipulation concerns.
    • Fidelity is potentially looking to convert the grayscale Bitcoin trust into an ETF.
    • Citadel, Fidelity, and Charles Schwab launched the EDX exchange designed to facilitate trades between fiat and digital assets like ETH, Litecoin, Bitcoin, and Bitcoin Cash.
    • Bitcoin dominance is edging over 50% for the first time in quite a while.
    • The OP sack on the cold throne segment has been upgraded with about 50-60% savings in terms of gas costs for users compared to the legacy system. Binance announced OP B&B which is their scaling solution based on a fork of the OP stack tailored to gaming workloads optimized for fast transaction finality and support gaming-focused features or customizations.

    Optimism and Stacks

    12:54 - 20:18

    • By Dance forked the open source tech of Optimism for their own benefit without any direct compensation going back to Optimism.
    • The more chains that use the OP stack and build over there, the better it is even before interoperability standards are established.
    • AVO is the first app using the OP stack. Once other apps start using it, network effects will add value to the token.
    • Binance Chain uses OP as a scaling solution on top of BNB, which is centralized.
    • If all activity from BNB chain shifts up to OP and then successfully migrates to Ethereum, it would be interesting.
    • Optimism has A16Z, World Coin, and Bass bullish on its rollup with an OP stack.
    • Frax's Orberos Capital wants more aggressive buybacks because he's underwater. The team should focus on getting their collateral ratio up to 100% instead of buybacks.

    Crypto Projects and Tokens

    19:56 - 26:35

    • FxS is not well-regarded on Twitter and people are always defending themselves for liking it.
    • Frax is making 10-20 times more revenue than anything in the Cosmos ecosystem.
    • BitDow is rebranding to Manto and converting BitToken to Manto. For every BitToken, you get one Manto.
    • All of the supply becomes circulating in one day whenever that token conversion happens.
    • The market cap of VIT is 752 million, the FDB is 4 million. So that's a lot of like, uncirculating supply.
    • BidDow has one of the largest treasuries in all of crypto with 3.2 billion held today.
    • Mantle core contributor team shall be authorized to determine the optimal timing and sequence for delisting pit tokens, listing of MNT tokens, opening of conversion channels, and the Mantle network mainnet.
    • Accelerated resting schedule may have some shenanigans but it also aligns them with L2 mantle and opens up more token growth initiatives.
    • Atom Economic Zone becoming an attractive environment for developers to build due to replicated security simplifying app chain creation and IBC giving flexibility for interoperability.
    • Neutron now has over $14M TVL largely driven by Astroport with over half their TVL migrated to Neutron.

    Stacks and Bitcoin L2

    26:13 - 33:14

    • Stride is pioneering liquid staking for the Cosmos ecosystem.
    • Native USDC will be available soon via Noble, providing a trusted source of value for stable coins.
    • The Adam accelerator is offering grants ranging from $10,000 to $1 million on a rolling monthly basis for those who can add value to the Cosmo Seaco system.
    • Stacks is a Bitcoin L2 solution that enables scalability and new functionality without expensive smart contracts.
    • Fast blocks are being proposed to address the issue of 10-minute block times in Bitcoin L1.
    • Clarity is being used as the programming language for Stacks, which presents challenges in bootstrapping an ecosystem around it.

    Clarity and Proof of Transfer

    33:01 - 40:42

    • Developers are able to overcome the challenges of using Clarity for smart contracts with some effort.
    • Clarity has better UX than other languages because it is not compiled and has post conditions that can surface useful information to the user.
    • There are currently 60,000 smart contracts published on Stacks L2.
    • Integrating with third-party providers is a bigger challenge, but if the carrot is big enough, they will do it.
    • Stacks Alco ecosystem views Bitcoin as a source of truth and settles transactions on Bitcoin for reorg resistance and independent verification.
    • Atomic swaps allow swapping BTC with an asset on Stacks L2 by triggering a contract through full visibility into Bitcoin transactions.

    Proof of Transfer and Stacks Security

    40:14 - 47:54

    • Atomic swaps allow for fully decentralized swapping of BTC for assets on Stacks L2
    • SPDC peg allows for moving BTC in a decentralized way to a more programmable layer like Stacks
    • Proof of transfer mechanism is similar to proof of work, but uses BTC as input instead of electricity
    • In proof of transfer, miners bid with BTC and have a random probability that increases if they bid more
    • Bitcoin is not destroyed in proof of transfer, but redirected to parties doing useful work for the protocol
    • Stacks currently has a separate security budget, but after the NACO Moto upgrade it will rely on Bitcoin's security

    Stacks Development and Governance

    47:31 - 54:47

    • Stacks has a separate security button which can prevent attack vectors on Bitcoin.
    • Roll-up solutions are going to follow Bitcoin, making stacks look closer to how it will look in the future.
    • Stacks could evolve over time and start looking like a sovereign rollup with 100% resistance on Bitcoin.
    • Currently, you can fork the stacks ledger based on how much mining power you have in stacks or burn to transfer it.
    • The upcoming release of Stacks has six block finality which is a big benefit as compared to 150 block finality.
    • There are ongoing proposals for improvement in the Stacks community forum.
    • Governance is one of the sectors in crypto that no one has an over-bullet for yet.
    • Bitcoin bridges haven't been done super well today but there is still demand to use Bitcoin and DeFi.

    Bitcoin's Role and Future

    54:26 - 1:01:44

    • Bitcoin's security, durability, and liquidity make it an attractive investment option.
    • Market data shows that Bitcoin is now the second most traded asset after excluding BRC 20s.
    • The infrastructure, tooling, UX wallet, and developer community around Bitcoin need to be more mature for it to be utilized more widely.
    • Subnets are a scalability solution that can be personalized and private. They can benefit from Bitcoin's liquidity and security guarantees.
    • Stacks increase bugs were identified in a research report published on Blockworks Research.com.
    • Proof of transfer is implemented as clarity.

    Stacks Bugs and Upgrades

    1:01:22 - 1:08:55

    • Proof of transfer is implemented as a Clarity contract, which is different from a normal contract published.
    • The PUX contract is written in class and has 4,000 reward slots used in the consensus mechanism to decide where Bitcoin goes.
    • There have been many proposals for improving the PUX contract over the year, leading to a new version called UX2.
    • A bug was triggered when someone called the function 'stacks increase', giving them more rewards slots than they should have had.
    • The bug impacted rewards that people were getting and caused their rewards for that cycle to go down.
    • The protocol reverted back to burning for one or two cycles before a new upgrade was shipped.

    Stacks Security and Attacks

    1:08:31 - 1:16:19

    • The bug in the STX contract would not trigger the SPDC impact unless it was a different type of attack where the SPDC specific information is corrupted.
    • Clarity and better testing can help uncover bugs before deploying code.
    • Real-world testing and use of the protocol can also help prevent bugs.
    • The current design of SBTC is evolving towards having 30% of the supply sitting with institutional custodians, which creates a backstop in case they get hacked.
    • Shorting STX to buy a lot is not a strong argument as even if you buy everything that's floating around, you wouldn't have majority pile around on the tag.
    • As long as the lock supply is very healthy, like a very large percentage is locked, there won't be any issues with shorting attacks on Staxby or Thor chain tokens.
    • The biggest mechanism to incentivize keeping STX token within the ecosystem is through Bitcoin yield.

    Stacks Ecosystem and Mining

    1:16:02 - 1:23:13

    • The largest number of users in the stack ecosystem are using Bitcoin yield.
    • As more capital is locked and more full nodes are present, it reduces the chance of attacks.
    • F2pool has been censoring out other proof of transfer for miners by only including their own transactions.
    • There is a proposal live to implement a minimum amount of Bitcoin that needs to be sent to STX stackers in order to ensure that they're earning their rightful yield.
    • If all Bitcoin miners become X miners, it's actually a good thing because now 100% of the Bitcoin hash power is securing L2.
    • With SVDC designs, the miners are able to do it because of the protocol rules. And with minor tweaks and those rules, you basically solve this problem.
    • Everyone had their own proposal on what can be done but all of them are trying to pick a point on a curve for how to set minimum bed double minus should be.
    • For any rational actor, they will only do it if it makes economic sense for them to do it.

    Transaction Confirmation and Mining

    1:30:02 - 1:31:39

    • F2Pool and MyDeFiPet are the only miners who have not confirmed transactions in a timely manner.
    • There is no advantage for miners to not confirm transactions.
    • The issue of slow transaction confirmation is not urgent because it does not involve a lot of money.
    • Decentralization of mining is important, and Stacks 3.1 allows for decentralized management.
    • Bitcoin fees may become a bigger problem than mining rewards.
    • Conti+ proposals aim to change how rollups work and make mining more decentralized.
    • Orphan blocks are not getting orphaned at a higher rate than before, but some individual blocks were deeper causing concern.
    • Orphan block issue will go away with an upcoming upgrade.
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