What Is Stacks (STX)? A Beginner's Guide
October 9, 2023
Stacks has made a name for itself as one of the leading Bitcoin layers, providing advanced smart contract capabilities for the Bitcoin ecosystem. This guide will break down the Stacks protocol, explain how it works, and highlight what is being built on it.
What is Stacks?
Stacks, formerly Blockstack PBC, is a smart contract layer built on top of the Bitcoin blockchain. It expands the functionality of Bitcoin by enabling developers to create fully expressive smart contracts and build decentralized applications (dApps). It also brings more scalability to Bitcoin.
Stacks co-founders Muneeb Ali and Ryan Shea raised $47.5 million for the project in 2017 through a token offering. They then launched the Bitcoin scaling layer on testnet the subsequent year in Q2, followed by mainnet launch a few months later in Q4.
In 2019, the project held an SEC-regulated public sale, becoming the first token sale in US history to be qualified by the regulator. The sale raised more than $23 million. Stacks also raised money from equity investments, bringing its total funding to more than $75 million.
The current iteration in use today is Stacks 2.0. This version introduced the smart contract programming language Clarity and the Proof-of-Transfer (PoX) consensus mechanism.
What is STX?
STX is the native token of the Stacks network. It is used to pay for transactions on the protocol, and users can lock STX tokens to earn BTC through the PoX consensus mechanism. Moreover, incentives to Stacks miners are paid in STX.
Stacks (STX) has a total supply of 1.8 billion tokens and a circulating supply of 1.4 billion at the time of writing. According to the project, early investors and entities hold less than 5% of the circulating token supply.
How Does Stacks Work?
Now, let’s take a closer look at how Stacks works, starting with its innovative consensus protocol.
What is Proof-of-Transfer?
Proof-of-Transfer (PoX) is a mining mechanism that uses BTC to secure the Stacks layer. It connects the two networks by requiring Stacks miners to spend BTC to mint STX tokens, unlike Proof-of-Work (PoW), which requires miners to commit computational power to mint new coins and secure the network. In other words, Stacks utilizes Bitcoin as an anchor chain.
Stacks miners are incentivized in newly minted STX tokens and transaction fees.
Like PoW, PoX uses bid-weighted random probability to select the miner to stream microblocks and commit a new block on the Stacks network. This random selection occurs on the Bitcoin blockchain while new blocks are written onto the Stacks layer.
In Stacks, microblocks are a protocol-level feature of the Stacks layer that reduces transaction latency.
Besides the group of miners, the PoX consensus mechanism also includes participants called stackers. They lock their STX tokens for a given period of time in return for Bitcoin rewards.
Below is an illustration of how PoX works:
What Are Clarity Smart Contracts?
Clarity smart contracts are created using Stacks’ native programming language, Clarity. They are used in order to build decentralized applications and are secured by the Bitcoin blockchain. Clarity smart contract transactions settle on the Bitcoin base layer.
The Clarity programming language is predictable since it allows developers to foresee precisely how their smart contracts will be executed. It also enables developers to add post-conditions, a feature that protects users from smart contract bugs.
What is sBTC?
sBTC is a two-way peg token under technical development. It is backed by Bitcoin on a ratio of 1:1 and issued during a peg-in transaction by locking BTC on the main chain. The issued sBTC is equivalent to the amount of locked BTC, thanks to the 1:1 peg. It is used to interact with smart contracts on the Stacks layer.
A peg-out transaction is initiated to unlock BTC, destroying sBTC and releasing bitcoin to the specified peg-out address. The sBTC peg is maintained in a decentralized manner by stackers who are responsible for signing peg-out transactions.
sBTC is one of the proposed updates in the Nakamoto release whitepaper that aim to enhance Stacks functionality.
What is Stacking STX?
Stacking STX means temporarily locking STX tokens to participate in consensus and help secure the Stacks layer.
STX holders that stack their tokens are known as stackers. They sign valid peg-out transactions and, in exchange, earn rewards in BTC, which Stacks miners supply. The locked STX tokens act as collateral, guaranteeing that stackers will act honestly and only sign valid peg-out transactions.
Stacking is open to anyone ready to lock their STX tokens for a given time period. Investors can stack on their own, on an exchange, or join a pool. Solo stacking requires a minimum of 10,000 STX. However, you can stack way less on an exchange or pool.
Pool stacking platforms include Xverse, Feldger’s Pool, Planbetter, and Stacked, while Binance, OKX, Coinlist, and Okcoin are examples of centralized exchanges (CEXs) that offer stacking services.
While both stacking and staking involve the temporary locking of tokens, the former issues rewards in a different asset, while the latter generates rewards in the same token. For instance, Ethereum stakers receive rewards in ETH, but Stacks compensates stackers in BTC.
The Stacks Ecosystem: What Has Been Built On Stacks?
Now, let’s take a look at the type of applications you can find in the Stacks ecosystem.
Developers have built numerous DeFi apps on Stacks, from decentralized exchanges and atomic swaps to lending protocols and investment platforms. Some of those dApps include Arkadiko, Alex, LNSwap, Stackswap, and Liquidium.
Stacks’ fully expressive smart contracts allow protocols to create decentralized autonomous organizations (DAOs) and governance tokens that allow communities to engage in decision-making processes.
For example, the Arkadiko protocol is governed by a DAO, and its governance token is DIKO. Moreover, LydianDAO manages the Lydian yield farming protocol on Stacks. Stackers and Quorum DAO are examples of other decentralized autonomous organizations on Stacks.
Stacks boasts a massive collection of non-fungible tokens (NFTs) such as Bitcoin Monkeys, Megapont Ape Club, Satoshibles, Mutant Monkeys, Crash Punks, and Project Indio: Act 1.
Users can collect, store, manage, transfer, and trade their Stacks NFTs on the various NFT dApps built on the protocol. For instance, Xverse and Hiro are wallets that support Stacks NFTs, allowing users to collect, store, and manage their collections. Moreover, users can buy and sell Stacks NFTs on Gamma, borrow against their NFT collections on Liquidium, or move their non-fungible tokens across chains using StacksBridge.
Other NFT dApps worth noting are Tradeport, a multichain NFT aggregator; Stacksboard, an NFT-powered billboard; Indexer, a multichain indexing platform; and NFT minting platform Boom.
Users can find a variety of social dApps built on Stacks such as Ballot, a polling app for DAOs, and chatting platforms like Console, Momento, and Frens. The protocol also offers a Bitcoin Name System (BNS) for creating Web3 digital identities.
How Do Bitcoin Layers Like Stacks Benefit Bitcoin?
Stacks brings highly programmable smart contracts to the Bitcoin blockchain, extending its functionality and utility. As a result, the Bitcoin community can interact with a wide range of applications without the need to move to other smart contract blockchains like Ethereum and Solana.
As Stacks continues to grow and expand the Bitcoin ecosystem, it will be intriguing to see how it innovates and competes with other smart contract-focused layer-2 Bitcoin protocols.
What is the Stacks token used for?
The Stacks token, STX, is the native token of the Stacks protocol. It is used to pay for transaction fees on the network, which make up part of the incentives paid to Stacks miners. The token has a total supply of 1.8 billion.
How much can I earn from stacking STX?
Earnings from stacking depend on the amount of STX tokens you lock up, the duration, and the method of stacking you use. You could earn more BTC if you lock your STX tokens for an extended period of time and earn less if you use a stacking pool that charges a fee.
Stacks recommends using a stacking pool or exchange instead of stacking solo when you stack at or near the minimum threshold. This protects individual stackers from missing a reward when their slot is skipped. At the time of writing, stacking yields an estimated 9% APY.