Bitcoin, as the highest market capitalization and most liquid cryptocurrency asset globally, has long had its DeFi potential underutilized. Stacks (STX) is rewriting this landscape with its revolutionary sBTC solution. By adopting a 100% Bitcoin-backed reserve solution, it not only releases liquidity on the Bitcoin chain but also pioneers a Bitcoin-based yield system and a new paradigm for smart contracts. This report deeply analyzes how Stacks is leading the Bitcoin financial (BTCFi) revolution, facilitating Bitcoin's leap from a value storage tool to a financial infrastructure. These applications include, but are not limited to, trading, lending, staking, and any other yield-generating activities.

Stacks - The underlying engine of Bitcoin finance: Since its establishment in 2017, Stacks has been a pioneer in Bitcoin financial innovation, being the first to realize smart contracts, lending protocols, and asset tokenization on the Bitcoin chain. Through the groundbreaking "Nakamoto Upgrade," Stacks launched sBTC, which is 1:1 backed by Bitcoin reserves. Its first three deposit caps (1,000 BTC, 2,000 BTC, and 2,000 BTC) were reached in 72 hours, 24 hours, and 3 hours respectively, setting records for institutional capital inflow speed. The market capitalization of Stacks' stablecoin grew sevenfold by 2025, with the amount of Bitcoin crossing into its ecosystem increasing from 1,240 to 5,015, expected to reach 21,000 by the end of 2025.

BTCFi - Trillion-dollar market opportunity: The wave of Bitcoin tokenization will unleash trillions of dollars in liquidity, adding financial functionalities such as staking, lending, and smart contracts while maintaining the underlying security of Bitcoin. The total value locked (TVL) in sBTC has surpassed $549 million. Core protocols like Zest, Velar, and Bitflow have built a complete DeFi matrix, with related trading pairs offering annual yields of up to 40%, continuously attracting institutional capital.

Institutional layout and globalization strategy: Top institutions like Jump and SNZ Capital are heavily investing, while professional custodians like Bitgo provide compliance support. Product-wise, this includes the Grayscale Stacks Trust and 21Shares staking ETP, bridging traditional finance. In terms of regional expansion, the Stacks Asia Foundation has officially launched, focusing on strategic markets such as South Korea, Hong Kong, Singapore, and the UAE to build a global ecological landscape.

Future growth engine: sBTC is initiating a multi-chain deployment plan, achieving interoperability with public chains like Solana, Aptos, and Sui, injecting Bitcoin liquidity into the entire Web3 ecosystem. Additionally, Stacks is investing in the development of BitVM, which is expected to achieve breakthroughs in off-chain computation and trusted verification mechanisms.

Development path: More than 75 Bitcoin Layer 2 projects emerging in 2024 have mostly faltered, yet Stacks continues to maintain its leading position in the race. Stacks' roadmap is ambitious, accelerating the development of its ecosystem, including core protocol technology upgrades, sBTC, and Stacks DeFi growth plans. With the increasing adoption of sBTC and enhanced institutional recognition, we predict the price of the STX token could reach $3.81 in the third quarter of 2025.

BTCFi - Trillion-dollar market opportunity

As the strongest liquidity and largest market capitalization cryptocurrency economy globally, Bitcoin's price trend has fully entered a demand-driven phase after 94% of its circulating supply has been released. With the maturity of assets, Bitcoin's volatility continues to narrow, leading many investors to include it in their long-term asset allocation. As more holders incorporate Bitcoin into their asset allocation, the demand for Bitcoin asset yield generation has become a core market driver.

Despite uncertainties in the macroeconomic environment in 2025, Bitcoin's attributes as a national strategic reserve and an asset for institutional and pension fund allocation continue to strengthen. BitcoinTreasuries data shows that 143 publicly listed companies globally hold a total of 1.09 million Bitcoins, accounting for 3.2% of the circulating supply. MicroStrategy predicts that as institutional adoption increases, Bitcoin's market capitalization will expand from $2 trillion to $28 trillion over the next 21 years. Under the Bitcoin block reward halving mechanism, the supply of new coins is structurally shrinking. Against this backdrop, the demand for maximizing returns on existing assets has surged, directly giving rise to the paradigm revolution of Bitcoin DeFi (BTCFi).

This has led to the emergence of several Layer 2 solutions with Bitcoin smart contract functionalities, allowing users to earn Bitcoin by participating in L2. Stacks, which started in 2017 as the first Bitcoin Layer 2 project to introduce programmability, launched its mainnet in 2021 and has navigated market cycles through continuous innovation. In 2024, it launched the Nakamoto upgrade, achieving faster transaction speeds and a smoother user experience. Subsequently, sBTC was launched, aiming to unlock over $1 trillion in potential Bitcoin assets.

According to DeFillama, the total value locked in the Bitcoin financial ecosystem has surpassed $6.6 billion, with decentralized exchanges, staking protocols, and lending protocols forming the three pillars. Although the market is still in its early stages, Stacks remains at the top of Layer 2, with over 608 million STX locked in staking, and DeFi TVL reaching $121 million, while sBTC TVL has reached $549 million. Electric Capital data shows that Stacks ranks 7th in overall developer growth. Institutions remain optimistic about the BTCFi market, with VanEck predicting that the total value locked in Bitcoin Layer 2 will exceed 100,000 BTC by 2025, a threefold increase from 2024. Aspen Digital's 2025 annual report predicts that the overall TVL of Bitcoin finance will cross the $20 billion threshold, with growth mainly coming from significant increases in the DeFi space of key participants like Stacks.

Security: The cornerstone of tokenization solutions

Centralized tokenization BTC solutions have previously raised security concerns:

The Ren protocol's renBTC was shut down due to the FTX collapse: The Ren Network, which issued $1.17 billion worth of renBTC, ceased operations due to the bankruptcy of its parent company, Alameda Research. Although renBTC claimed to use a multi-signature wallet maintained by a decentralized network of nodes, it was later revealed that the Ren team actually controlled the majority of the nodes, raising market concerns about a single point of failure.

wBTC and the controversy with Tron: In August 2024, Bitgo transitioned the custody of wBTC to a multi-jurisdictional model through a joint venture with Tron founder Justin Sun's BiT Global. Although wBTC plays a significant role in DAI stablecoin collateral and yield streams, the major lending protocol MakerDAO has paused accepting wBTC as new loan collateral due to centralization concerns.

sBTC Leads the New Wave of Bitcoin Asset Tokenization

sBTC, as an ideal solution, features Bitcoin-denominated yields, a truly decentralized architecture, and a native-level user experience. sBTC is a token pegged 1:1 to Bitcoin, allowing users to connect Bitcoin across chains to DeFi applications, participate in yield farming, on-chain lending, and trading on decentralized exchanges.

Through the Nakamoto upgrade, sBTC inherits Bitcoin's security. It employs an improved Proof of Transfer (PoX) consensus mechanism, deeply binding the history of the Stacks blockchain to the Bitcoin chain. Each time a new Bitcoin block is generated, the state of the Stacks network is synchronously recorded, ensuring that its block history has the same immutability as the Bitcoin chain.

Each sBTC token is linked to an equivalent amount of Bitcoin in a wallet managed by a decentralized network of signers, responsible for handling user deposits and withdrawals. Signers earn Bitcoin rewards by processing sBTC transactions.

sBTC stands out among various Bitcoin tokenized assets
Why choose sBTC?
Compared to mainstream tokenized Bitcoin assets (such as wBTC and Coinbase BTC), sBTC has the following significant advantages:

1 Top-notch security protection: sBTC is the only tokenized solution that inherits Bitcoin's native security, requiring approval from 70% of the decentralized signer network for transactions. Additionally, Stacks employs a multi-layer security protection system: it has collaborated with top security experts like Asymmetric Research and ImmuneFi for vulnerability assessments and bounty programs, and has engaged independent auditing firms to evaluate the security of sBTC.

2 Higher economic efficiency: Compared to wBTC, sBTC provides a fast programmable channel for Bitcoin and supports multi-chain expansion. With no packaging/unpacking fees, sBTC offers better economic value.

3 Decentralized characteristics: Unlike wBTC and cbBTC, sBTC users do not need to complete KYC verification and do not rely on centralized institutions when transferring Bitcoin assets across chains.

Initial Achievements and Development Roadmap for sBTC

• Phase One - Bitcoin Deposit: sBTC officially launched in December 2024, with the team setting an initial cap (1,000 Bitcoins) and a second cap (2,000 Bitcoins), allowing Bitcoin to flow into the Stacks ecosystem. The second cap was filled within 24 hours, leading to explosive growth in Stacks DEX trading volume. On May 22, the third cap (2,000 Bitcoins) was filled in just 3 hours.

• Phase Two - Bitcoin Redemption: This will support users in seamlessly exchanging sBTC for BTC, with this feature planned to be officially enabled by the end of April.

• Phase Three - Opening Signer Nodes: sBTC signer nodes will gradually expand from the initial 15 community-elected nodes, marking a key step towards full decentralization of the protocol.

sBTC Reward Program for BTC Earnings

The sBTC reward program provides Bitcoin holders with the simplest and safest way to earn yields. This program allows sBTC holders to earn an annual yield of 3-5% while maintaining full liquidity of their assets, supporting flexible asset allocation within the Stacks DeFi ecosystem. Its yield comes from Bitcoin earnings generated by the underlying consensus mechanism of the Stacks Proof of Transfer protocol, with initial incentive funds provided by early supporters. Users can enjoy basic yields without needing to stake or lock sBTC, and rewards are automatically distributed to their non-custodial wallets every two weeks.

Since all sBTC transactions are settled 100% directly to the Bitcoin network, this yield program has become the only native Bitcoin yield mechanism that achieves a "Bitcoin in, Bitcoin out" closed loop.

Before the launch of sBTC, the STX token primarily served two core functions:

• Medium for transaction and gas fee payments: As ecosystem activity increases, the demand for gas fees from the STX token continues to grow (currently, 100% of fuel fee revenue is allocated to miners).

• Staking: A unique mechanism on Stacks. Stakers lock their STX to earn Bitcoin. Miners must bid to obtain the right to package Stacks blocks to earn STX token rewards; the higher the ecosystem activity, the more valuable the blocks become, thus raising miners' Bitcoin bidding prices and ultimately increasing the actual earnings of STX stakers (currently, the total annual yield rate for each staking period exceeds 7%).

• Staking slot scarcity mechanism: Miners gather all Bitcoins promised for Proof of Transfer (PoX) in each cycle and distribute them evenly among 4,000 reward slots. To obtain a slot, approximately 149,600 STX is currently needed. As Stacks activity increases, blocks become more valuable, driving up BTC bids and increasing the actual earnings of STX stakers. Due to limited slots, higher rewards make each slot more valuable, thus increasing the minimum STX required for each slot. This means that more activity on Stacks not only brings greater returns to stakers but also reduces the circulating supply of STX, as more STX needs to be staked to earn yields.

The introduction of sBTC further strengthens this economic model: as the scale of sBTC expands, the gas demand on the Stacks network will significantly increase, leading to higher Bitcoin earnings for stakers, thereby making STX more valuable.

As indicated in the latest roadmap, the Stacks team is exploring more ways to enhance the value of STX, including coordinating a dual staking mechanism for BTC and STX incentives, sBTC yield mechanisms, and simplifying the user experience for capturing STX value.

Comprehensive Development of Stacks BTCFi

In 2025, the Stacks Bitcoin financial ecosystem will experience explosive growth: the total locked value of sBTC will reach $549 million, the market capitalization of stablecoins on Stacks will grow sevenfold, and the number of native Bitcoins crossing chains will surge from 1,240 to 5,015 (expected to reach 21,000 by the end of 2025). Meanwhile, the total amount of STX staked will hit a historical high of 608 million.

As of May 2025, the following mainstream BTCFi protocols in the Stacks ecosystem can be highlighted:
• Zest Protocol: The leading lending protocol on Stacks, with a TVL exceeding $77 million.
• Velar: The premier perpetual contract trading platform in the Stacks ecosystem, currently supporting over 90 trading pairs, with a TVL surpassing $5 million in 2024 and over 100,000 community members.
• Bitflow: Focused on providing exchange services for Bitcoin, stablecoins, and Bitcoin-native assets, with a cumulative trading volume exceeding $197 million, already integrated with the Leather wallet.
• StackingDAO: A liquid staking solution, with its liquid staking token stSTX's TVL exceeding $55 million.
• Alex Labs: A DeFi ecosystem based on Stacks, with its latest incentive program "Surge 4" launched, distributing 1 million ALEX tokens to liquidity providers. In addition to earning up to 5% sBTC yield from Stacks, sBTC trading pairs can also earn additional rewards from the Surge 4 program.
• Hermetica: Provides USDh services backed by Bitcoin on Stacks. With the expansion of the second phase of sBTC, users can now borrow USDh by collateralizing sBTC for yield farming, achieving multiple asset appreciation. Currently, the TVL of USDh has surpassed $5.6 million.

Stacks Ecosystem: Future Growth Engine

In addition to the existing DeFi ecosystem, Stacks has announced a new roadmap to accelerate ecological growth:

#1 Deep integration of Stacks with Bitcoin Virtual Machine

BitVM (Bitcoin Virtual Machine) is an innovative architecture supporting off-chain computation, achieving verifiable off-chain operations through the deployment of fraud-proof mechanisms on the Bitcoin blockchain. BitVM reconstructs the trust system using a 1-of-n security model, requiring only one honest participant to ensure system security (previously required 30% honest signers), enhancing the security and trustlessness of the sBTC cross-chain bridge. Stacks has established a BitVM technical task force, planning to invest over $2 million in R&D budget over the next 12-18 months. Additionally, Stacks is adding WASM compatibility to the smart contract language Clarity to enhance the developer experience.

#2 Multi-chain expansion of sBTC

The Stacks ecosystem is promoting the expansion of sBTC to public chains like Solana, Aptos, and Sui. Stacks is building a decentralized and secure BTC cross-chain bridge based on a fully programmable Stacks L2 architecture (breaking through Bitcoin script limitations), allowing a broader Web3 user base to enjoy native Bitcoin yields, achieving real-time price data synchronization through Bitcoin oracles, and supporting cross-chain queries of the Bitcoin network's real-time status.

sBTC is expected to be included in the liquidity pools of leading DEXs on Solana, allowing users to exchange Solana assets for sBTC to earn native yields. For the Aptos ecosystem, sBTC has enabled the Aptos Foundation to join the signer pool, allowing Bitcoin holders to directly participate in applications such as games, social interactions, and NFT markets within the Aptos ecosystem.

#3 Innovative use cases

The Stacks ecosystem is expanding innovative use cases such as DEFAI (Decentralized Finance Artificial Intelligence) and re-staking. For example, Alex Labs is integrating AI agents to enhance users' liquidity, asset exchange, and cross-chain operation capabilities.

Institutions Fully Betting on the Stacks Ecosystem

STX as the first token compliant with SEC standards seizes the opportunity

Stacks' STX is the first token approved by SEC regulation (July 2019), recognized as a non-security asset due to its sufficient network decentralization. Although the U.S. SEC has not clearly defined the token attributes of most Bitcoin ecosystem projects, STX's non-security status significantly reduces legal/regulatory risks for Stacks.

As the U.S. government shifts to support the crypto industry, Stacks' advantage as a "domestic token" becomes prominent. Institutions are seeking Bitcoin-denominated yields through Bitcoin ETFs and decentralized solutions like Stacks' sBTC. Despite Bitcoin ETFs seeing inflows of 26,700 BTC in May, institutions increasingly favor sBTC, which can provide native BTC rewards and additional DeFi yields. Notable institutions such as Jump Crypto, SNZ, Rootstock Labs, UTXO Management, and Asymmetric Research have all supported sBTC.

Institutions are racing to lay out STX exposure to seize the expansion dividends of the Bitcoin ecosystem
• Grayscale Stacks Trust: Allows investors to gain STX exposure in a securities format without directly purchasing or storing tokens.
• 21Shares Staking ETP (ASTX): 100% physically backed, this product not only tracks STX price performance but also automatically reinvests staking yields to enhance returns.
• Coinbase 50 Index: Tracks the top 50 cryptocurrency assets by market capitalization, with STX consistently among the constituents.
• Bitgo and Hex Trust support: Allow institutions to invest sBTC into the DeFi ecosystem while ensuring Bitcoin security.
• Fordefi supports sBTC: The first operational wallet to fully support Bitcoin DeFi, compatible with all SIP-10 assets (including sBTC).
• Bitfinex exchange lists STX: Opening participation channels for both institutions and retail investors.

Institutional nodes build a security moat for Stacks

Signers are responsible for managing Bitcoin custody and processing sBTC deposits and withdrawals. Initial nodes are composed of well-known institutions like Chorus One and Figment, with plans to gradually transition to a fully decentralized model in the future, further enhancing the network's risk resistance. Currently, the total asset scale managed by sBTC signer nodes has exceeded $10 billion, with more heavyweight institutions joining the Stacks network.

STX Price Prediction Model

We expect the target price range for Stacks over the next four months to be $0.85 to $3.81. This price prediction is based on the following indicators: i) expected market size of Bitcoin Layer 2, ii) Stacks FDV valuation, and iii) the ratio of Ethereum Layer 2 to Ethereum market capitalization. It is important to note that the current price prediction model does not fully account for the impact of the sBTC flywheel effect, making the price prediction conservative.

Hypothetical scenario: Assuming Stacks maintains the top market capitalization for Bitcoin L2 tokens and ranks among the top three in DeFi TVL, referencing the valuation logic of Ethereum's leading L2 project Mantle: if STX only accounts for 0.11% of BTC FDV (equivalent to MNT's ratio of 15% of ETH FDV), then STX's valuation could reach $1.73.

Bull Market Scenario

Hypothetical scenario:

Assuming Stacks maintains the top market capitalization for Bitcoin L2 tokens and ranks among the top three in DeFi TVL, referencing the valuation logic of Ethereum's leading L2 project Mantle: if STX only accounts for 0.11% of BTC FDV (equivalent to MNT's ratio of 15% of ETH FDV), then STX's valuation could reach $1.73.

Risk Warning

Hypothetical scenario: Given that Stacks occupies the largest market capitalization and TVL in the Bitcoin ecosystem, and sBTC has become the dominant tokenization solution for BTCFi, combined with expectations of institutional accumulation of STX and the rapid expansion of the decentralized signer network, we expect STX to reach $3.81 by the end of Q3. Core assumptions: 1) Bitcoin FDV will reach $2.6 trillion; 2) Stacks FDV will occupy 15% of the total market of Bitcoin L2. Market risk: The current valuation model does not account for the impact of macroeconomic uncertainties on the crypto market, especially the potential for significant volatility in Bitcoin prices in 2025.

DeFi market risk: The model does not assess the influence of sBTC in Bitcoin assetization solutions.

Conclusion

BTCFi, as an emerging market, holds immense potential for unlocking trillions of dollars in idle Bitcoin capital. Leveraging the advantages of a leading project in the Bitcoin L2 space, Stacks occupies a strategic high ground in the BTCFi market through sBTC - a 1:1 Bitcoin collateralized asset that enables users to cross-chain BTC to DeFi applications for yield generation, engage in on-chain lending, and trade on decentralized exchanges. sBTC, inheriting Bitcoin's security genes and decentralized characteristics, has become the preferred asset for institutions entering the BTCFi space.

As of May 28, STX is priced at $0.88. Driven by strong network fundamentals, the increasing institutional adoption in the BTCFi space, and the future expansion momentum of the Bitcoin L2 market, this asset shows significant upside potential.