To unleash Bitcoin’s trillions in dormant liquidity, the past two years have seen a surge in Bitcoin Layer 2 solutions. After a market shakeout, speculators have faded from view, but the long-established Bitcoin Layer2 project Stacks has stood the test of time and continues to grow steadily into 2025.
Recently, with the completion of the third phase of sBTC deposits, the amount of BTC deposited to mint sBTC on the Stacks network surged from just over 1,000 BTC to more than 5,000 BTC.The total value locked (TVL) in sBTC has exceeded $580million. Meanwhile, the stablecoin market cap on Stacks has grown nearly 7x, and the total amount of STX tokens staked reached an all-time high of 608 million.
Stacks’ BTCFi ecosystem is also expanding steadily, attracting applications across lending, DEXs, NFTs, social networks, and more. What started as a scalability solution is now evolving into a full-stack ecosystem to extend Bitcoin’s utility.
BTCFi May Be Approaching Its Inflection Point
As the hype around Bitcoin Layer 2s subsides, the market's demand for BTCFi (Bitcoin Finance) has been called into question. However, 2025 trends and increasing institutional interest show that this demand is only growing.
Following the approval of Bitcoin spot ETFs in 2024, institutional holdings surged. According to Coinbase, as of June 2025, 228 publicly listed companies globally hold over 820,000 BTC. Strategy’s “Bitcoin treasury” model has set a trend, with more companies viewing BTC as a strategic asset.
On the government front, Texas has initiated a state-level Bitcoin reserve. Hong Kong, Japan, South Korea,Vietnam, and Thailand are also exploring legal frameworks to ease institutional entry.
However, once institutions hold large amounts of BTC, traditional financial tools often fall short in managing liquidity, hedging risks, enhancing capital efficiency, and meeting compliance requirements. BTCFi applications—such as derivatives, staking, and yield-generating protocols—become essential.
Even retail investors, as Bitcoin gains mainstream recognition, begin to treat it not just as a speculative asset, but as a long-term reserve—and they too seek ways to generate yield from their BTC.
However, past Bitcoin Layer 2s faced several bottlenecks:
Stacks, launched in 2018, has also faced these challenges. However, with multiple upgrades—especially the Nakamoto Upgrade in 2024 and the launch of trust-minimized sBTC—Stacks has effectively addressed these pain points, positioning itself at a potential breakout moment for BTCFi.
With key breakthroughs from players like Stacks, institutions are bullish on BTCFi’s prospects in 2025. VanEck predicts that Bitcoin Layer 2s will triple in size compared to 2024. Aspen Digital’s 2025 Annual Report projects that BTCFi’s total value locked could surpass $20 billion, largely driven by the growth of Stacks and similar ecosystems.
The Nakamoto Upgrade Made Stacks a True Bitcoin Layer 2
The Nakamoto Upgrade transformed Stacks into a genuine Layer 2 for Bitcoin. Through a series of technical innovations, it addressed Stacks' past limitations around scalability, security, and integration with the Bitcoin mainnet—paving the way for sBTC and trustless Bitcoin bridging.
Stacks has aimed to bring smart contracts to Bitcoin without modifying the Bitcoin mainnet since its inception in 2017. In 2021, Stacks 2.0 launched with the Proof of Transfer (PoX) mechanism to inherit Bitcoin’s decentralization. But due to 1:1 block matching with Bitcoin, the system suffered from slow block times, delayed confirmations, and a separate security budget. Co-founder Muneeb Ali even described this stage as “Layer 1.5” rather than a true Layer 2.
The Nakamoto Upgrade, activated in 2024, changed everything:
These improvements laid the foundation for sBTC, a 1:1 BTC-pegged asset that enables users to access DeFi, dApps, and more without compromising decentralization or security.
To ensure safety, Stacks has partnered with Copper, Asymmetric Research, ImmuneFi, and independent auditors to implement robust multi-party computation, offer bug bounties, and conduct third-party reviews.
Compared to alternatives like WBTC, sBTC has lower costs (no wrap/unwrap fees), requires no KYC, and offers strong censorship resistance.
Institutions such as UTXO, Jump Crypto, CMS Holdings, SNZ, Sypher Capital, and Asymmetric Research have adopted sBTC. Node operators include BitGo, Kiln, and Figment. and more with the recent Stacks-Wormhole integration, now enabling sBTC connectivity with leading public chains including Solana, Aptos, and Sui.
Expanding the Stacks Ecosystem: From DeFi to Diverse Use Cases
With the Nakamoto Upgrade in place, Stacks has shifted its focus in 2025 to user and market expansion. Stacks is actively growing its ecosystem, now involving over 100 partners across DeFi, gaming, NFTs, social platforms, AI, and decentralized identity.
Key BTCFi Segments in the Stacks Ecosystem:
1. Bitcoin DEXs
ALEX: A decentralized exchange built for Bitcoin, offering swaps, liquidity pools and staking.
BitFlow：A Bitcoin ecosystem DEX aggregator that delivers optimal exchange rates for Stacks users by pooling liquidity from protocols including Alex, Arkadiko, and Velar. The project has secured $1.3 million in seed funding led by Portal Ventures.
In addition to ALEX and BitFlow, other notable Bitcoin DEXs in the Stacks ecosystem include SatoshiDEX, Stackswap, STXDX, and Velar.
2. Stablecoin Protocols
Arkadiko: Lets users mint USDA, a dollar-pegged stablecoin using STX as collateral. Supported by Zest Protocol, Bitflow, and ALEX. Circulating USDA exceeds $2.29M.
Hermetica: Mints USDh using STX or sBTC collateral. Offers up to 25% APY and enables yield-generating DeFi use. Backed by UTXO Management and CMS Holdings.
3. Bitcoin Lending Protocols
Zest Protocol: Users can deposit assets like STX, sBTC, stSTX, USDh, USDA, and USDC to earn yield or get overcollateralized loans.
Granite: Early-stage BTC lending protocol where users borrow stablecoins against sBTC. Still in development.
Other Ecosystem Highlights:
StackingDAO is a liquid staking protocol on Stacks, enabling users to freely utilize stSTX within the Stacks ecosystem while earning staking rewards for their staked STX.
Xverse and Leather are Bitcoin wallets in the Stacks ecosystem, allowing users to securely manage Bitcoin on both the Bitcoin network and Bitcoin L2s (such as Stacks).
Conclusion: Can Stacks Be the Catalyst for a Bitcoin Application Boom?
Bitcoin is a premier global store of value, but its multi-trillion-dollar potential remains largely untapped. Both institutions and individuals increasingly seek to put Bitcoin to work—whether for yield, efficiency, or application utility.
As a key Bitcoin Layer 2, Stacks stands out in an increasingly differentiated field. While many projects born of hype have faded, Stacks has endured, solving BTCFi’s core issues of low returns, centralization risk, and poor UX.
Armed with the Nakamoto Upgrade and sBTC, and expanding across DeFi, NFTs, social apps, and beyond, Stacks is now positioned to lead Bitcoin’s shift from digital gold to an application-driven future.
Recently, with the completion of the third phase of sBTC deposits, the amount of BTC deposited to mint sBTC on the Stacks network surged from just over 1,000 BTC to more than 5,000 BTC.The total value locked (TVL) in sBTC has exceeded $580million. Meanwhile, the stablecoin market cap on Stacks has grown nearly 7x, and the total amount of STX tokens staked reached an all-time high of 608 million.
Stacks’ BTCFi ecosystem is also expanding steadily, attracting applications across lending, DEXs, NFTs, social networks, and more. What started as a scalability solution is now evolving into a full-stack ecosystem to extend Bitcoin’s utility.
BTCFi May Be Approaching Its Inflection Point
As the hype around Bitcoin Layer 2s subsides, the market's demand for BTCFi (Bitcoin Finance) has been called into question. However, 2025 trends and increasing institutional interest show that this demand is only growing.
Following the approval of Bitcoin spot ETFs in 2024, institutional holdings surged. According to Coinbase, as of June 2025, 228 publicly listed companies globally hold over 820,000 BTC. Strategy’s “Bitcoin treasury” model has set a trend, with more companies viewing BTC as a strategic asset.
On the government front, Texas has initiated a state-level Bitcoin reserve. Hong Kong, Japan, South Korea,Vietnam, and Thailand are also exploring legal frameworks to ease institutional entry.
However, once institutions hold large amounts of BTC, traditional financial tools often fall short in managing liquidity, hedging risks, enhancing capital efficiency, and meeting compliance requirements. BTCFi applications—such as derivatives, staking, and yield-generating protocols—become essential.
Even retail investors, as Bitcoin gains mainstream recognition, begin to treat it not just as a speculative asset, but as a long-term reserve—and they too seek ways to generate yield from their BTC.
However, past Bitcoin Layer 2s faced several bottlenecks:
- Low yields, which are far behind those of Ethereum and Solana’s DeFi ecosystems, make user participation unattractive.
- Centralization risks, with some relying on custodial bridges or centralized validators, undermine Bitcoin’s core decentralization.
- Security concerns, stemming from multiple incidents of bridge hacks (e.g., WBTC), have eroded user trust in BTCFi.
- Poor user experience, due to complex processes and high costs, is limiting retail adoption.
Stacks, launched in 2018, has also faced these challenges. However, with multiple upgrades—especially the Nakamoto Upgrade in 2024 and the launch of trust-minimized sBTC—Stacks has effectively addressed these pain points, positioning itself at a potential breakout moment for BTCFi.
With key breakthroughs from players like Stacks, institutions are bullish on BTCFi’s prospects in 2025. VanEck predicts that Bitcoin Layer 2s will triple in size compared to 2024. Aspen Digital’s 2025 Annual Report projects that BTCFi’s total value locked could surpass $20 billion, largely driven by the growth of Stacks and similar ecosystems.
The Nakamoto Upgrade Made Stacks a True Bitcoin Layer 2
The Nakamoto Upgrade transformed Stacks into a genuine Layer 2 for Bitcoin. Through a series of technical innovations, it addressed Stacks' past limitations around scalability, security, and integration with the Bitcoin mainnet—paving the way for sBTC and trustless Bitcoin bridging.
Stacks has aimed to bring smart contracts to Bitcoin without modifying the Bitcoin mainnet since its inception in 2017. In 2021, Stacks 2.0 launched with the Proof of Transfer (PoX) mechanism to inherit Bitcoin’s decentralization. But due to 1:1 block matching with Bitcoin, the system suffered from slow block times, delayed confirmations, and a separate security budget. Co-founder Muneeb Ali even described this stage as “Layer 1.5” rather than a true Layer 2.
The Nakamoto Upgrade, activated in 2024, changed everything:
- Introduced Tenure-based block production, breaking the 1:1 limit. Elected miners can now produce multiple blocks per tenure, reducing confirmation time from 10 minutes to ~5 seconds. This enables thousands of TPS at a cost of just a few cents—comparable to Solana.
- Strengthened security integration with Bitcoin: PoX was optimized so that Stacks block hashes are committed to Bitcoin blocks. Finality occurs within ~30 minutes, matching Bitcoin’s immutability.
- Enhanced validator model: 70%+ signature consensus is now required to validate a block, with STX staking securing up to 100% of the protocol. This provides near Bitcoin-level security with faster confirmation.
- Resolved MEV (Miner Extractable Value) issues: New miner selection criteria improve fairness and transparency, reducing manipulation risks.
These improvements laid the foundation for sBTC, a 1:1 BTC-pegged asset that enables users to access DeFi, dApps, and more without compromising decentralization or security.
To ensure safety, Stacks has partnered with Copper, Asymmetric Research, ImmuneFi, and independent auditors to implement robust multi-party computation, offer bug bounties, and conduct third-party reviews.
Compared to alternatives like WBTC, sBTC has lower costs (no wrap/unwrap fees), requires no KYC, and offers strong censorship resistance.
Institutions such as UTXO, Jump Crypto, CMS Holdings, SNZ, Sypher Capital, and Asymmetric Research have adopted sBTC. Node operators include BitGo, Kiln, and Figment. and more with the recent Stacks-Wormhole integration, now enabling sBTC connectivity with leading public chains including Solana, Aptos, and Sui.
Expanding the Stacks Ecosystem: From DeFi to Diverse Use Cases
With the Nakamoto Upgrade in place, Stacks has shifted its focus in 2025 to user and market expansion. Stacks is actively growing its ecosystem, now involving over 100 partners across DeFi, gaming, NFTs, social platforms, AI, and decentralized identity.
Key BTCFi Segments in the Stacks Ecosystem:
1. Bitcoin DEXs
ALEX: A decentralized exchange built for Bitcoin, offering swaps, liquidity pools and staking.
- Backed by $20M in funding from Spartan Group, CMS, DWF Labs, OKX Ventures, and more.
- Other notable DEXs: Velar (PerpDEX)
BitFlow：A Bitcoin ecosystem DEX aggregator that delivers optimal exchange rates for Stacks users by pooling liquidity from protocols including Alex, Arkadiko, and Velar. The project has secured $1.3 million in seed funding led by Portal Ventures.
In addition to ALEX and BitFlow, other notable Bitcoin DEXs in the Stacks ecosystem include SatoshiDEX, Stackswap, STXDX, and Velar.
2. Stablecoin Protocols
Arkadiko: Lets users mint USDA, a dollar-pegged stablecoin using STX as collateral. Supported by Zest Protocol, Bitflow, and ALEX. Circulating USDA exceeds $2.29M.
Hermetica: Mints USDh using STX or sBTC collateral. Offers up to 25% APY and enables yield-generating DeFi use. Backed by UTXO Management and CMS Holdings.
3. Bitcoin Lending Protocols
Zest Protocol: Users can deposit assets like STX, sBTC, stSTX, USDh, USDA, and USDC to earn yield or get overcollateralized loans.
- Has a $77M market cap across Bitcoin and Stacks markets.
- $5M+ active borrowing positions on Zest Protocol.
- Raised $3.5M in seed funding led by Tim Draper.
Granite: Early-stage BTC lending protocol where users borrow stablecoins against sBTC. Still in development.
Other Ecosystem Highlights:
StackingDAO is a liquid staking protocol on Stacks, enabling users to freely utilize stSTX within the Stacks ecosystem while earning staking rewards for their staked STX.
Xverse and Leather are Bitcoin wallets in the Stacks ecosystem, allowing users to securely manage Bitcoin on both the Bitcoin network and Bitcoin L2s (such as Stacks).
Conclusion: Can Stacks Be the Catalyst for a Bitcoin Application Boom?
Bitcoin is a premier global store of value, but its multi-trillion-dollar potential remains largely untapped. Both institutions and individuals increasingly seek to put Bitcoin to work—whether for yield, efficiency, or application utility.
As a key Bitcoin Layer 2, Stacks stands out in an increasingly differentiated field. While many projects born of hype have faded, Stacks has endured, solving BTCFi’s core issues of low returns, centralization risk, and poor UX.
Armed with the Nakamoto Upgrade and sBTC, and expanding across DeFi, NFTs, social apps, and beyond, Stacks is now positioned to lead Bitcoin’s shift from digital gold to an application-driven future.
The above was translated from Chain Catcher’s Original Chinese Article.
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