Stacks Completes Nakamoto Upgrade to Strengthen Bitcoin Integration
This is a segment from the 0xResearch newsletter.
Stacks Hard Fork and Nakamoto Upgrade
Stacks, a Bitcoin-adjacent network, executed a scheduled hard fork following the September Nakamoto upgrade. This upgrade was activated by network miners.
Muneeb Ali, Stacks co-founder, stated that the process went smoothly, with developers monitoring the fork continuously.
The Nakamoto upgrade enhances Stacks' alignment with Bitcoin’s finality by further binding Stacks blocks to Bitcoin blocks. Stacks employs a consensus mechanism called Proof of Transfer (PoX), anchoring transactions and blocks to Bitcoin.
With this upgrade, a reorganization (reorg) in the Stacks blockchain now necessitates corresponding changes in the Bitcoin blockchain, according to Rena Shah, VP of product and operations at Trust Machines. This creates a dependency on Bitcoin, enhancing security as Bitcoin's resistance to reorgs provides added resilience for Stacks.
Attempting a reorg of the Bitcoin blockchain poses significant financial and computational challenges, indirectly safeguarding Stacks through Bitcoin’s immutability, effectively making Stacks reorg-proof.
This upgrade also introduces faster transaction processing, with Stacks producing blocks approximately every six seconds, enhancing usability and improving user experience. It reduces opportunities for miners to profit from rearranging or prioritizing transactions (MEV), promoting a fairer network.
The Future of sBTC
Granite, a new Bitcoin-focused DeFi protocol incubated by Trust Machines, aims to address limitations of custodial BTC offerings for DeFi. The platform will utilize the sBTC Bitcoin bridge enabled by the Nakamoto upgrade.
This application will allow BTC to interact directly with decentralized finance (DeFi) dapps without requiring custodial solutions or wrapped BTC assets, which expose users to counterparty risks. Babylon has recently attracted attention for directing staking yields to BTC holders, but with slashing risks involved.
Granite adopts a no-rehypothecation model, ensuring user collateral remains fully controlled and untapped. It implements “soft liquidations,” allowing only necessary liquidation to maintain solvency and prevent catastrophic losses. Position tracking and push notifications enhance user experience by enabling position management without constant oversight, a feature uncommon in DeFi.
Granite's risk-tranched liquidity provisioning allows liquidity providers (LPs) to tailor their risk exposure by choosing between junior or senior tranches, with reserves protecting all LPs against market downturns.
Historically, only about 1% of BTC has been utilized in DeFi due to security concerns. Ali noted that Granite's focus on security could unlock the remaining 99% of BTC capital, transitioning bitcoin from being perceived merely as "digital gold" to a productive asset within DeFi.
Stacks is also working to bring sBTC to Solana as BTC retests its June highs above $71,100. Stacks’ native token, STX, rose over 5% on the day but remains down about 50% from its all-time high of $3.84 reached on April 1 this year.