TokenDocs

Stacks (STX)

Date of Research: November 4, 2024

Stacks is an open-source layer 2 on the Bitcoin blockchain that uses a coding language called Clarity. Its mainnet was launched in 2018 and one of its major upgrades was Nakamoto released in Q4 2024. Nakamoto enabled Bitcoin finality and smart contract functionality, setting up the launch of sBTC, a 1:1 Bitcoin-backed asset. The community is excited about this upgrade but as of a week after its launch, the promised lower-fees and faster transaction finality has yet to be fully realized. Previously, Stacks received a lot of attention and inflow because of Ordinals, but interest has been waning and there are some concerns about tokenomics, trustworthiness, and long-term viability (see Conclusion). Generally speaking, the chain is probably safe and has decent underlying tech, but the main thing going against it is that there are already well established smart contract networks off Bitcoin’s ecosystem – so there isn’t really a reason for people to use this. That’s reflected in its steady market cap and relatively slow growth.

Fundamental Analysis

Website

https://www.stacks.co/

Creation date: 2011-09-16

Whitepaper

https://gaia.blockstack.org/hub/1AxyPunHHAHiEffXWESKfbvmBpGQv138Fp/stacks.pdf

Team

Funding

According to CMC, they had venture capital such as Union Square Ventures and Winklevoss Capital. They had the first-ever SEC qualified ICO with over 4500 participants.

  • Possible seed round in 2014, under the open-source identity protocol OneName. While this wasn’t strictly for Stacks, it was $1.3M for the same two creators: Muneeb and Ryan
  • Funding Round in 2017 – $4M

Goals & Purpose

What is the goal of the project?

“The mission of the Stacks project is to enable a better internet through decentralized apps. To do it, we’re expanding the Bitcoin economy and enabling more functionality as a Bitcoin layer.”

  • Specifically from the whitepaper: “The goal of the Stacks layer is to grow the Bitcoin economy, by turning BTC into a productive rather than passive asset, and by enabling various decentralized applications.”

What problem is the project trying to solve?

Bitcoin’s mainnet is slow, unscalable, and not capable of having smart contracts.

How do they plan to solve the problem?

By creating a layer 2 that uses a two-way BTC peg, transactions secured by Bitcoin finality, and fast transactions between Bitcoin blocks. All while enabling smart contracts using their unique coding language, Clarity.

Feasibility

Is this a new idea or has it been done before?

There are other Bitcoin L2s such as Lightning Network (faster, smaller fees), Rootstock (“RSK”; first smart contract L2 on Bitcoin; first 1:1 BTC peg with rBTC), and Liquid Network (confidentiality). 

  • They address these similarities in the whitepaper as: “Like sidechains such as RSK and Liquid, the Stacks layer has its own global ledger and execution environment, to support smart contracts and to not overwhelm the Bitcoin blockchain with additional transactions. However, the Stacks layer is unique as it has most of the ideal properties that native Bitcoin smart contracts would have. It also provides mechanisms for higher performance, such as fast blocks, the decentralized peg (Section 2.3), and subnets (Section 3.1).”
    • “ideal properties that native Bitcoin smart contracts would have” – this isn’t really a qualifiable statement as Bitcoin was never created with the ability to have smart contracts, so who knows what the ideal properties would be?
  • They also note that STX is its own native asset, which RSK and Liquid apparently don’t have. But with the upcoming release of sBTC (completely comparable to Rootstock’s rBTC as far as we can tell), it’s not totally clear how useful STX will be. Even without rBTC, the main use of STX is marketed as a way to earn BTC, which seems circular as most people would just buy or mine BTC natively on Bitcoin.
  • Proof of Transfer (PoX), their consensus mechanism, is unique to Stacks. However, they describe it as an extension of Proof of Burn (more below).

Have they actually created the infrastructure/code/whatever is necessary for this idea, or is it still just an idea?

It was initially launched as “Blockstack” in 2018 and has been further developed ever since.

Do you think other people would buy in?

Yes, they have, and significantly more so thanks to Ordinals and the new interest (though split) in having Bitcoin more functional with smart contracts etc. While its market cap is high for Bitcoin sidechains, it is very low compared to competitors outside of the Bitcoin ecosystem. It’s not really clear why this is needed, which is why there is less interest than they’d hoped.

Audit & Security

The project has been audited multiple times, though perhaps not since 2020. Devs and community members can discuss concerns and solutions on their Github.

You can see the list of audits at the link below, including the issues and status. All have been resolved.

https://stacks.org/audits

Sentimental Analysis

Social media: Twitter, Reddit

Social media creation date: July 2015

Is it active?

Yes, kind of.

Are people talking about the project off its own pages?

A bit, not much.

Is what they’re saying good or bad?

Not great. Very mixed. A lot of issues people are bringing up, including high fees (sometimes due to low liquidity when doing swaps), transactions dropped/failed, and price swings due to big sells/buys because of low market cap (see conclusion for more).

Are the people engaging with it paid to (promotors, influencers, sponsors etc)?

It doesn’t seem so, at least not much.

Where does this coin/token deserve to be on the list of top coins/tokens, if at all?

A CoinDesk article from early 2024 speculates it should be top 30, though it’s not clear what that’s based on. There’s not a lot of obvious use for this, and it’s been hovering in the 40s by market cap this year.

What’s happened on Google trends about the coin/token/project?

Not much. The interest has been pretty low actually, regularly with zero searches since the earliest data in Jan 2019.

[image of Google Trends, with link]

Technical Analysis

Data: https://www.coingecko.com/en/coins/stacks

Native network: Its own, layer 2 on Bitcoin.

Token usage (to pay fees or just an asset): transaction fees and “stacked” to earn BTC. Note that they have the halving schedule just like Bitcoin, max in 2050.

Consensus mechanism: Proof of Transfer (PoX)

  • They describe this as an extension of Proof of Burn. “PoX uses the proof of work cryptocurrency of an established blockchain to secure a new blockchain. However, unlike proof of burn, rather than burning the cryptocurrency, miners transfer the committed cryptocurrency to some other participants in the network.”
  • There are two network participants in PoX blockchains: miners (who mine BTC for Stacks) and stackers (who stake STX to earn BTC, and soon to earn sBTC).
    • Miners: send BTC to stackers, called “spending BTC”, which gives them the opportunity to become the “winning miner” who gets to write the next block. Miners earn STX through newly minting it, transaction fees and smart contract fees. Their chance of winning depends on how much BTC they transferred compared to other miners (weighted random function, also called a verifiable random function).
    • Stackers: Lock their STX for at least one cycle, either independently or in a pool. Rewards in BTC are sent to them by the miners as long as their stack is locked.

Can it be purchased in Centralized Exchanges?: Yep, many.

Active addresses: N/A

Tokenomics

Is this coin/token on its own blockchain or a different blockchain? It’s an L2 on Bitcoin

Is the coin/token inflationary or deflationary? Deflationary – a fixed supply and halves every 4 years.

When was the initial token distribution? This was hard to find. Only found it here, so not sure how legit it is, but they do link to credible news sources.

  • ICO in 2017 with the release of 440m tokens for $50m to venture capitalists (not SEC approved).
  • ICO 2019 that raised $18.6m to VCs (SEC approved – though the SEC investigated Stacks beginning in 2021 for these ICOs, they dropped the investigation in July 2024).

What was the form of the presale? (for instance, premine, airdrop, etc) private ICOs.

Was there/will there be a lockup period? If yes, for how long? 

  • The 2017 ICOs were partially locked. $10m was available immediately with the rest to be paid with certain milestones.
  • No lock of the tokens, which are released over a period of time, until ~2050.

Initial Coin Offering (ICO): No public ICO.

  • Who received it? N/A
  • How was the pool split? (for instance, if the founders got 20%, whitelisters got 20%, and public got 60%)
    • Private round (date?):
      • Treasury 22%
      • Series A Round 15.9%
      • Founders 13.5%
      • Private Round 13.3%
      • Other 34.93% 

What was the initial price of the coin/token? $0.30 (conflicting $0.37)

What was the initial liquidity of the coin/token? Not found.

Is there a limit to how many coins/tokens will be produced? Yep.

  • If yes, how many? 1.818b
  • If yes, when will that limit be reached? 2050

What are the top wallets currently holding the coin/token? Explorer. No place to view addresses.

Can the coin/token 10x, or has it already? It did already.

Conclusion

Some concerns:

  • Some drama around the bug bounty program. A person reported a possible dos attack and the community was split about how Stacks handled it.
  • An interesting question about the Nakamoto update in that gas fees may be payable in sBTC rather than STX. If that’s the case, no one would need to interact with STX. Formal discussion about this debate on their forums.
    • A good point was made though that other L2s like Arbitrum don’t use ARB as gas and it’s still successful so this may be a non-issue.
  • Slow transaction times, unclear gas fees, and some transactions being left out of blocks. This remains true in the first few weeks after the Nakamoto release.
  • The transaction throughput is wildly inconsistent (and low). Each block has anywhere between 1-625 transactions. This may be due to low network usage, and interested parties should pay attention to the daily trade volume and amount in each transaction.
  • Clear roadmap into Q4 2024 but nothing beyond that. Curious what the long-term goals of this project are and why they aren’t specified.
  • PoX seems wildly inefficient and hands-on. If the miners decide not to send BTC to Stacks (and stackers), then the whole system falls apart. What incentive do the miners have – what value does STX provide them?

Notes:

  • The PoX consensus mechanism seems to create STX out of thin air. It’s not clear how it holds its value – BTC isn’t being burned to get on the Stacks chain, and it seems that these assets are being passed around but otherwise don’t have a lot of purpose on Stacks itself. Of course, BTC has its own value but the only reason people would want to put it on Stacks is to use the dApps, but the dApps aren’t very popular and there aren’t many of them, and basically all the talk from users on their Discord and Twitter is about mining, not using dApps. With the introduction of sBTC as a secondary asset, it’s not clear what the point of STX will be. 
  • There are not a lot of people excited about Stacks. The people who are talking about it on Youtube seem to be very smart devs and mathematicians who are interested in the possibilities, but they have neglected to address the problems of “why now?” and “why instead of other smart contract platforms?”
  • It’s been in development for a long time, so the tech is probably secure. The largest concern lies in the lack of user adoption considering how long it’s been around, and the lack of perceived need for it. It’s also concerning that finding info on tokenomics and funding rounds was remarkably difficult, and only found off Stacks’ own site/documents.