Stacks Thesis

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• Subnets will also be able to further decrease block times by exploring the tradeoff between decentralization and speed without compromising the Stacks base layer

• The base L1 Bitcoin layer was not designed to optimize for composability and therefore it is bulky and inefficient to use for more complex applications.

• from a more technical perspective, the halving is going to be a massive narrative within the crypto community and many large investors will soon be searching for ways to position their investments to benefit from this event. BTC is the obvious candidate.

• Stacks, in its current form, is not a traditional L2 in the sense of an Ethereum L2.

• Having its own set of validators is necessary to add flexibility on top of the current state of Bitcoin L1 but does forfeit certain trust assumptions of L

• Namely, censorship resistance is inherited from the Stacks signers while reorg resistance is inherited from Bitcoin L1.

• From a technical standpoint Stacks is set to undergo a transformational upgrade, titled Nakamoto, later this year that will facilitate the development of more traditional crypto application types like Opensea and Uniswap to exist on the Bitcoin network through Stacks

• Nakamoto will give rise to subnets, which will support other codebases such as EVM and Solidity, solving another major sticking point for ecosystem development.

• Unlike many tokens, the STX token has real value accrual.

• Stacks runs on a Proof-of-Transfer system that works somewhat similarly to Proof-of-Work.

• The currency they use to bid is BTC and this BTC goes to STX stakers who commit their STX to the network

• . This creates a system where miners do the work of validating transactions, but do not keep all the rewards, some instead get distributed to STX holders through the BTC bids from the miners.

• This creates a real BTC yield for STX stakers (currently 7% yield link) that importantly is correlated with activity on the network.

• As activity grows and the blocks are worth more, the BTC bids from the miners will also increase and with it the real yield that accrues to STX stakers.

• ETH is worth ~$200B and the combined FDV of all L2’s in the Ethereum ecosystem (both private and public) we estimate is approximately $60B.

• Bitcoin is worth ~$480B and the combined value of the L2 ecosystem is solely STX, which is currently trading at a ~$1B FDV. The ETH to ETH L2 ratio is ~3.33 while the BTC to BTC L2 ratio is ~480

• . It makes sense that the Ethereum ratio would be lower. Ethereum is better suited to being a composable base layer and therefore the aggregate value that sits on top of that would rationally be worth more as a proportion than something like Bitcoin, which is not purpose-built to be a composability, layer and has much less built on it currentl

• However, the fact that the BTC ratio is ~144x higher shows the scale of the opportunity if the Bitcoin community emphasizes this effort and technical improvements make it more feasible

• . It does not seem unreasonable for this ratio to move from 144x to 14.4x as the Bitcoin effort progresses and is better understoo

• This alone would represent a 10x for STX