Technical Analysis Stacks: How to catch the express train of BTC growth through "economic binding"?

Taking advantage of the eye-catching performance of the old coin sector, let me talk about @Stacks, an absolutely old coin in the Bitcoin ecosystem.

1) It has no intention to compete for the FOMO trend of BTC layer2, but it has already been a "pioneer";

2) The POX consensus mechanism relies on economic binding to catch the "express train" of BTC growth;

3) sBTC’s native BTC cross-chain design does not have Babylon’s encryption technology, but it is still “native” enough.

Now, focusing on the above three points, I will analyze them point by point from a technical perspective:

1) As early as 2017, when Bitcoin was still in the midst of a dispute between conservatives and innovators, the conservatives firmly believed that the functions should be simplified and focused only on being a reserve asset, while the innovators believed that BTC needed to expand more application scenarios to support smart contract functions to cope with the competition from new chains such as Ethereum.

Obviously, Stacks chose the latter, which was somewhat "alternative" in the environment at that time. But many years later, the Ordinals protocol triggered a wave of BTC on-chain asset issuance, BTC layer2 network expansion, and other extensions around the BTC ecosystem, which all proved that Stacks' choice was very strategic.

Therefore, to some extent, Stacks should be regarded as the originator of this BTC ecosystem expansion craze, but in this BTC FOMO trend mainly driven by the "Chinese", Stacks seems to be "absent" and has not participated too much in the hype and discussion. However, its pure technology orientation and steady development have also allowed it to reap the market's expected dividends for BTC layer2, and its overall market performance is remarkable.

After all, as a "pioneer" and after 7 years of accumulation and market verification, Stacks has explored a complete set of technology stacks, providing a feasible solution example for BTC to explore smart contract practices;

2) When it comes to the operation mechanism of Stacks' technical architecture, the overall feeling I get is a little "different". Why? This has to do with its special consensus mechanism:

Stacks did not adopt the POW or POS consensus mechanism that was more common at the time, but instead adopted a special POX consensus mechanism. Simply put: POX stands for Proof of Transfer.

Miners on the Stacks network must prove to the Bitcoin mainnet that they have initiated a transfer of BTC to a specific address, and only then can they win the "block production rights" of the Stacks network and win $STX rewards. Users of the Stacks network (Holders) who hold and stake STX for a certain period of time can obtain a proportional share of the BTC dividends invested by these miners.

It is not difficult to see that the POX consensus mechanism as a whole tends to be a "two-layer design". The Bitcoin network serves as the base layer to precipitate and lock BTC assets to provide network "consensus layer" security, while the Stacks network is the "execution layer" for the implementation of complex smart contract-related applications and network communication collaboration.

This design fully maintains the authority of the BTC mainnet and achieves a "strong correlation" with the Bitcoin mainnet through "economic binding". How should we understand this?

In order for miners to participate in block production, in addition to the basic network operation and maintenance fees and "electricity fees" for running nodes, the main cost is to invest a certain amount of "BTC". The higher the BTC price, the higher the cost of mining for miners, which also determines that the STX reward is more valuable;

Users can stake STX to maintain the security of the network, which is no different from the way most POS networks maintain security. The difference is that the economic profit and loss ratio of most POS network stakes cannot withstand the fluctuations of the secondary market itself. Users of the Stacks network can get BTC rewards by staking $STX.

This brings about a "virtuous" internal economic cycle, where miners consume $BTC to fight for the right to produce blocks, and this part of BTC will be distributed to Stakers, making more users willing to actively pledge to obtain BTC rewards, which in turn causes a reduction in the circulation of STX, thereby driving the performance of BTC secondary market prices and further mobilizing the enthusiasm of miners to consume BTC for mining.

For miners, if STX mining is not profitable, the mining ecosystem will not be able to take off. For users, the risk of staking STX assets can be hedged by obtaining real BTC rewards.

This special economic incentive mechanism gives it advantages in terms of resistance to market fluctuations and market ecological stability. Especially when the BTC price continues to be in an upward cycle, the consumption cost and dividend rewards of the entire network will increase simultaneously, which means that the value of the network itself will also increase. Moreover, it can adjust the mining difficulty according to the secondary market price of BTC, and the cost of miners investing in BTC will be proportional to the proportion of STX rewards.

In my opinion, the alternative or advanced feature of Stacks' POX consensus mechanism is that it is tied to BTC, the most stable asset in the market, relies on BTC to provide network security, and obtains enhanced network expectations through BTC. The helpless dilemma of "losses" in the long run of pledged assets, which was originally a common problem of POS networks, has been resolved under the super growth Buff of BTC assets.

3) Recently, Stacks’ product manager @andrerserrano shared an overview of sBTC’s upcoming mainnet launch, from which we can see the uniqueness of sBTC, a cross-chain asset that claims to be a native BTC.

Compared with the traditional Wrapped asset packaging method of chain A locking assets and chain B minting assets, sBTC realizes the technical native features of BTC, such as native security, cross-chain-free, atomic transactions, and no centralized risk points. How is it achieved specifically?

Stacks uses a multi-signature threshold mechanism to ensure the security of the Stacks network. Therefore, there are a large number of "signers" on the Bitcoin mainnet to verify transactions and implement multi-signature operations. Users send BTC assets to the designated BTC multi-signature address. After the transaction is confirmed, the signer deployer of the Stacks protocol monitors and verifies the transaction, and then automatically mints the corresponding sBTC to the user on the Stacks network.

The key point is that Stacks deploys a large number of independent signing nodes, such as 100. When a threshold number of nodes have signed and confirmed, the transaction will be truly verified and confirmed, such as (68/100).

In order to understand the pros and cons of this multi-signature mechanism more quickly, I tried to make a comparison with @babylonlabs_io: Babylon is special in that it uses mathematical encryption algorithm techniques to ensure that nodes do not do evil, because if the node does evil, its private key will be "exposed", which greatly limits its possibility of doing evil;

In comparison, Stacks' mechanism is relatively simple, relying on the trust of a large number of light nodes and a higher threshold design to reduce the probability of malicious behavior. Once malicious behavior occurs, the Stacks network itself relies on the economic bundling mechanism to complement each other well, and the more severe Slash penalty feature will greatly reduce the risk of node malicious behavior.

Of course, this multi-signature security mechanism built up by scale and quantity will also have a feature of being inflexible. For example, if the addresses of most of the 100 nodes are changed, the original multi-signature address assets will be forced to migrate. Therefore, Stacks is exploring advanced "dynamic member" management mechanisms such as Multisig2 to expand flexible features such as multi-layer verification mechanisms and hierarchical authority control. In short, we will explore more precise and secure methods to continuously optimize technology.

above.

Finally, in addition to technical elements, one thing that must be said is that Stacks has the dual buffs of being a US-based enterprise and the first compliant token to obtain SEC Reg+ registration certification. This adds a lot of room for imagination in the current macro context of Trump’s "crypto government."