sBTC User Guide | Analyzing sBTC Ecosystem from Mechanism, Yield, Use Cases, etc.

By providing channels to introduce 2 trillion BTC liquidity into the on-chain ecosystem, sBTC is expected to completely revitalize BTCFi.

Author: Maggie

In a sense, the $2.1 trillion market cap of Bitcoin (latest CoinGecko data as of December 18, 2024) is indeed the largest ‘dormant fund pool’ in the crypto world.

Unfortunately, most of the time it neither brought profits to the holders nor injected vitality into the on-chain financial ecosystem. Although there were many attempts to release Liquidity of Bitcoin assets during the 2020 DeFi Summer, most of them were just duplicating efforts, with very limited overall attraction of BTC funds inflow, and have never truly leveraged the BTCFi market.

In this context, sBTC, which has just launched on the Stacks mainnet, is an asset supported 1:1 by Bitcoin on Stacks L2. It is dedicated to leveraging the security (100% Bitcoin finality) and fast transactions of Bitcoin to unleash BTC capital and explore new use cases, thereby fully revitalizing the Bitcoin economy.

Currently, SBTC is operated by a large-scale signer network composed of institutions such as BitGo, Asymmetric, and Ankr, and is expected to become one of the most decentralized L2 Bitcoin assets, bringing unprecedented opportunities to DeFi, dApps, and other fields. This article will further explore the specific operational mechanisms and relative advantages of SBTC.

How does sBTC work?

Users first deposit BTC into a multi-signature protocol monitored by Stacks decentralized signers through Bitcoin mainnet transactions.

After the BTC is deposited, sBTC is minted on Stacks, and users can interact with DeFi dApps.

Users can seamlessly use Bitcoin DeFi, for example, Zest Protocol will support on-chain BTC deposits and automatically convert them to sBTC. In the future, sBTC is expected to become the fee token on Stacks, further enhancing the user experience.

Will there be a deposit limit for sBTC?

At the current stage, the deposit limit is 1,000 BTC in order to conduct controlled testing and gradually strengthen security.

Withdrawals are temporarily unavailable in the early stages, only deposits are supported.

Will sBTC generate income?

Imagine earning Bitcoin income simply by holding BTC.

No need for collateral, points or complicated processes, just holding BTC is enough to earn rewards. Early users of SBTC who connect their wallets before 22:00 on December 17th (when it goes online) will receive a 5% annualized Bitcoin reward.

Now, with the sBTC reward program, all of this becomes possible. Early users can earn BTC rewards simply by holding sBTC, which will be distributed in the form of sBTC.

SBTC reward program is supported by the stackers of ‘Stacking’ STX.

When staking STX, stakers earn BTC through Stacks’ consensus mechanism. To enable the sBTC rewards program, these stakers will transfer the corresponding proof BTC rewards contribution to the sBTC rewards pool.

BTC from the reward pool will be directly deposited into a smart contract, which will convert BTC into sBTC and distribute rewards to sBTC holders proportionally. The protocol takes a snapshot of users’ sBTC holdings every day and distributes rewards every two weeks, which is the length of a PoX cycle.

The current estimated annualized BTC reward is 5%, and the reward will be distributed every two weeks.

sBTC Key Features:

Where can sBTC be used?

Multiple DeFi protocols will support sBTC, enabling users to earn additional income on top of the 5% APY.

Bitflow DEX

• Liquidity Pool: Users can deposit sBTC into Bitflow’s Liquidity Pool to facilitate trading and receive a share of the transaction fees.
• Yield Farming: Liquidity providers can stake their LP (Liquidity Provider) tokens in the yield farming project to earn additional rewards, which typically come from trading activities or platform incentives.
• Early prediction: Deploying sBTC may bring an additional annualized return of 10% - 30%.
• Bitflow Runes AMM
• Bitflow has launched the Runes AMM (automated market maker) on Stacks L2, allowing users to bring Runes to L2 and enjoy a better user experience.

Zest - Loan Market

• sBTC will be available on the first day of launch on Zest Protocol’s lending market.
• Zest Protocol will launch an enhanced yield campaign starting from the first day of listing, offering up to 10% BTC yield for providing sBTC.

Zest will also unlock more DeFi strategies related to sBTC, such as:

• Deposit sBTC and earn up to 10% annualized BTC yield;
• Use BTC (or other stablecoins) as collateral to borrow USDh stablecoin and exchange it for USDh;
• Pledge USDh in Hermetica to earn up to 25% annualized return.

Reminder: Hermetica’s DeFi protocol offers USDh, which is the first yield-backed stablecoin supported by Bitcoin. The yield is sustainably generated through perpetual contract funding fees on centralized exchanges and paid out daily.

stSTXbtc is a new liquid staking token that can be used in Stacks’ DeFi ecosystem. Users holding the token will earn up to 10% annualized yield through staking rewards, which will be paid directly to their wallets in the form of sBTC.

Velar DEX

• Liquidity Offerings: Users can provide sBTC to Velar’s Liquidity pool to facilitate trading and earn a share of the transaction fees generated by the platform.
• Yield Farming: By participating in the Yield Farming project, users can stake the Liquidity Provider (LP) tokens obtained by providing sBTC Liquidity to earn Velar’s native tokens or other incentive rewards.
• Pledge: If Velar offers the pledge option for sBTC, users can lock their sBTC in the pledge contract to earn rewards, such as additional tokens or a percentage of the revenue supporting network operations.
• Velar will launch its own incentive program, allowing users to earn Velar’s native token VELAR by deploying sBTC to its DEX pool.

Arkadiko - USDA Stablecoin

• Arkadiko will allow sBTC as collateral in its protocol through governance voting, enabling users to borrow USDA or other assets against their Bitcoin holdings.

ALEX DEX

• Users can deposit sBTC into ALEX’s Liquidity pool and pair it with other assets such as STX or stablecoins. In this way, they provide liquidity for the platform’s trading and earn a portion of the transaction fees from the pool.
• ALEX will provide additional rewards through its native token ALEX as part of the Surge event. This means that in addition to the 5% annualized return of the sBTC reward program, users can also earn additional ALEX token rewards by providing sBTC Liquidity.

Granite - Loan Agreement (not yet online)

• Borrowers can obtain stablecoin loans by using Bitcoin as collateral, while Liquidity providers earn income by supplying stablecoins to the protocol.
• Borrowing: Users can borrow stablecoins by using sBTC as collateral and then use them for various DeFi strategies to earn profits.
• Liquidation participants: Users can act as liquidators, repay part of the under-collateralized loan, and receive collateral and rewards, thereby earning profits through the liquidation process.

Granite currently has a waiting list that allows early registered users to access it in advance. Eventually, the system will introduce a points system that brings additional benefits, giving early registered users a significant advantage.

Granite waiting list

What are the differences between sBTC and other BTC assets?

These BTC assets usually require sending BTC to intermediaries or relying on a trusted signer consortium / small multi-signature institution.

sBTC will initially rely on 15 signers, including enterprise-level institutions such as BlockDaemon, Figment, Luganodes, and Kiln, to handle the anchoring and unlocking of assets. Over time, this responsibility will gradually shift to all Stacks signers, allowing anyone to participate in the security and decentralization of the network. Institutions such as BitGo and Aptos Foundation are also expected to join this process.

In addition, thanks to the design of Stacks, sBTC will achieve 100% Bitcoin finality, which means that transactions on the Stacks layer will be as irreversible as Bitcoin.

Reminder: The signer is responsible for verifying and approving each produced block; anyone can become an independent signer by staking enough STX, similar to the concept of validators.

Other Information：

1）sBTC related information:

sBTC website:

sBTC Documentation:

sBTC Presentation: -deck

2）Nakamoto upgrade information:

Nakamoto Website:

Document:

Nakamoto’s upgrade is crucial because it brings:

• Quick blocks (reduced from the current 10 minutes to less than 1 minute, optimizations are still in progress)
• 100% Bitcoin Final Determinism

Fast Blocks: Fast Blocks bring a transaction experience similar to Solana and Bitcoin DeFi interaction, greatly improving the overall user experience with Stacks L2.

The DeFi ecosystem of Stacks has grown rapidly this year, and now applying DeFi strategies only takes a few seconds, making it easy for users to join and retain.

Before the Nakamoto hard fork, Stacks blocks settled in sync with Bitcoin blocks (average 10 minutes), which made the chain slow and unable to meet the needs of DeFi activities. This limitation no longer exists. Instead, Stacks blocks can now be completed in seconds, with performance improvements made regularly. Meanwhile, Stacks still relies on the security of Bitcoin once its blocks settle.

100% Bitcoin Finality: With the Nakamoto upgrade, transactions on Stacks L2 will leverage 100% of Bitcoin’s security budget, which means that once Bitcoin’s subsequent block settlement occurs, Stacks transactions will also become irreversible, just like Bitcoin.

Unlike binding a single Stacks block to a single Bitcoin block, Bitcoin blocks are now tied to the miner’s tenure, during which they mine multiple Stacks blocks that settle within seconds.

There are currently 50 signatories, including BitGo, Aptos, Luganodes, Kiln, and other enterprise-level institutions, responsible for verifying and approving the blocks generated by each miner during their tenure.

The fast block time and ultimate determinacy of Bitcoin make Stacks the most secure and scalable Bitcoin L2, supported by a decentralized network of signers. In the future, it will achieve decentralized liquidity of Bitcoin through the upcoming sBTC upgrade.

3) Stacks data analysis platform:

Signal 21：

DefiLlama：

Stacks Block Explorer: