Stacks, the OG Bitcoin L2, shows the power of being early

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It’s been an “extraordinarily eventful month” for Bitcoin (BTC). The market has “purged” short-term holders as BTC whale transactions hit a four-month high. Unrealized losses for speculators have affected crypto assets worth millions of US dollars. Such wipeouts reiterate the need to encourage long-term adoption.

Meanwhile, investors are ‘buying the dip’ and spot Bitcoin ETFs have recorded their highest single-day inflows.

Bitcoin ETF flow | Source: Farside Investors

So, the short-term hemorrhage and apparent turmoil coexists with the general uptick and demand. And as David Canellis of Blockworks recently wrote:

“…We may finally be ready to put the worst dramas in crypto history behind us once and for all.”

Rising from the typical view that numbers are rising (or falling), Bitcoin is experiencing a renaissance, particularly from an asset perspective: It is shedding its ‘digital gold’ image and expanding on the utility front.

BTC is finally a ‘productive asset’ thanks to the evolution of Bitcoin defi or BTCfi. Also, Layer-2s like Stacks are bringing programmability to the world’s most decentralized and secure blockchain. Bitcoin is becoming the home of the next generation of dApps—Stacks are dominating this $1 trillion opportunity. And there’s a lesson in being early and consistent.

First slowly, then suddenly

Bitcoin and the economy it supports are based on the principle of low time preference. This is a feature, not a bug. Rome wasn’t built in a day. But amidst all the noise in crypto, it’s easy to overlook this fact.

BTCfi started to get the attention and excitement it deserved after the launch of Ordinals and BRC20 in 2023. These were indeed the first practical proofs that Bitcoin could be much more than a store of value. Yet the primitives for a fully functional BTCfi have been in production for much longer. For example, Stacks launched in 2013 and created Clarity, a programming language for Bitcoin-compatible smart contracts, in 2021.

More importantly, they developed the proof-of-transfer (PoX) consensus mechanism that allows L2 chains to inherit Bitcoin’s security without consuming additional energy.

“People attribute the lack of innovation to a lack of knowledge. #BTC functionality… So is there another way? A way to bring smart contracts more directly to Bitcoin without requiring changes to the core?

This is the promise of Proof of Transfer (PoX).”https://t.co/VvSq34HRNW

— stacks.btc (@Stacks) December 16, 2020

These early innovations laid the foundation for the rapidly growing Bitcoin L2 ecosystem, which now has over $2 billion in TVL. However, the need to scale Bitcoin at layer two only really became apparent after Runes sent the network’s fees through the roof after the halving.

Remember when we said Bitcoin fees would increase 500x?

Yes, we are working on Bitcoin L2s for a reason. Happy halving everyone!

Next stop Nakamoto 🟧

— muneeb.btc (@muneeb) April 20, 2024

That’s the nature of permanent technological change. They come slowly at first, then all at once. And when that happens, the visionaries who build real solutions hit the home run long before anyone else even cares.

Does it work or not? – That is the question

Despite its advantages, being early is not the end game. The crypto community has seen enough talk over the years. Now they want real results. It all comes down to the question of impact, and that’s great.

Most current Bitcoin L2s fail to solve the Impossible Trinity. At best, they are loosely coupled to Bitcoin L1, or at worst, they are highly centralized. Only a few projects, like Stacks, have made the right compromises, even if it means pissing off a few maxis. Adherence to the core Bitcoin ethos separates L2s that host dApps from those that rely solely on marketing gimmicks or speculative price action.

Stacks made a big leap in this direction with the performance-enhancing Nakamoto Release, aka sBTC, a trustless two-way BTC pegging mechanism. The impact of this move was reflected in the increase in Stacks’ monthly active account count, reaching an all-time high of over 1.2 million in Q2 2024.

Total unique wallets | Source: Signal21 Analytics

Additionally, Stacks currently has a TVL of over $68 million, as many of the best Bitcoin dApps are built on this platform. They are slowly but steadily helping to improve Bitcoin’s TVL-to-market cap ratio, which is just 0.2% in May 2024, compared to Ethereum’s 17%.

Alongside the evolution of Bitcoin dApps, top VCs and investors are supporting the creation of AI-powered interoperability and bridging solutions. These tools will further improve Bitcoin’s liquidity. For example, AI Agents will allow users to seamlessly move funds into the Bitcoin ecosystem, even without complex technical understanding or know-how. This means they can better integrate Bitcoin dApps into their workflows while simultaneously leveraging other chains.

It will no longer be a zero-sum game, which is great for holistic growth. Given these types of developments, Bitcoin’s next ‘defi Summer’ is a tangible, almost imminent reality. It is no longer an optimist’s fantasy.

BTCfi has found its milestones and could soon be as big as the Ethereum defi, but ideally much bigger thanks to Bitcoin’s over 54% market dominance.

The biggest appeal of BTCfi innovations is that they primarily enhance and expand the underlying native asset. It is not a zero-sum game where projects extract maximum value at the expense of end users and developers.

Instead, it is a collective effort to achieve grassroots empowerment and financial freedom. Bitcoin-based dApps are a means to a greater end. They represent a philosophy where technology becomes an engine for individual sovereignty and freedom, not just a tool for selfish, short-term gain. It’s about bringing meaningful change to the lives of the next billion crypto users and beyond. It will lead to a better world, financially and otherwise.

Crystal Zhang

Krystal Zhang is the co-founder of Owlto Finance, one of the fastest growing bridges with over two million users in over 200 countries/regions, and is headquartered in Hong Kong. Krystal graduated from The Chinese University of Hong Kong with a Master of Science in Accounting. Krystal previously worked as a senior partner at PwC and a senior manager at Huobi for two years.