⚡️How Stacks Incentives are a Breakout Moment for BTCFi
Decentralized Finance Meets a Store of Value
This post is a sponsored by the Stacks Foundation.
Like most crypto users, I first came into this industry because of the promise of a new financial system to replace the current fiat system.
Bitcoin taps into two of the strongest trends of the past decade:
Fiat currency being debased
The world becoming more digital
In a world with extreme money printing, people will increasingly flee to stores of value. And as GDP, working hours, and recreation increasingly move online, people are likely to seek a digital store of value.
This has leed to bitcoin becoming one of the largest assets in the world.
But there’s a problem for the fiat-skeptical, DeFi enthusiasts like me.
For the past 5 years, the DeFi side of this industry has mostly been separate from the Bitcoin side of things.
You’d be forgiven for thinking that Bitcoin is an entirely different industry from DeFi. Most DeFi, at least until recently, had very little to do with replacing fiat, and everything to do with building a decentralized casino.
That’s all changing.
Even though DeFi might have seemed like a casino to the casual observer, behind the scenes all this activity has battle tested a new financial system. It’s led to the creation of primitives like Decentralized Exchanges and CDPs that can survive massive stress events. Now, the biggest hurdle to DeFi going mainstream is that most deposits are digital assets like Ethereum, Solana, or even memecoins much further down the risk curve.
What DeFi needs is a highly liquid digital asset, with growing institutional acceptance and large exogenous demand. What it needs is Bitcoin.
Combining the liquidity of Bitcoin with the utility unlocked by DeFi is one of the biggest opportunities not just in crypto, but in the world of finance today.
Enter Stacks.
Stacks is promising to make Bitcoin DeFi (BTCFi) possible in a way that will be appealing to a wide array of Bitcoin holders. And there are new incentives coming soon that will make it even more lucrative.
We’ve covered Stacks several times previously in this newsletter, most recently in February:
Last year we also covered what Stacks is and the best opportunities on Stacks DeFi:
Over the past year Stacks hit several milestones:
sBTC launched and hit 5K in supply
The Nakamoto Upgrade made Stacks fast and more secure
SIP Incentives
Now, a new Stacks Improvement Proposal (SIP) is introducing a funded ecosystem incentives program. This program will infuse millions of dollars into the Stacks DeFi ecosystem.
Where the incentives go:
DeFi liquidity provisioning: That means deeper liquidity pools, which will lead to better swap rates.
Direct user incentives: Yield for lending, DEX liquidity, etc will draw in more users and attract more capital.
Strategic business development to drive DeFi user adoption.
Funding for Stacks DeFi and grants for builders running user acquisition and growth efforts
In short, these incentives are designed to attract the various different players that a successful DeFi ecosystem needs: users, capital, and builders.
What’s even better? Even with these incentives, inflation on STX (the Stacks native token) will still remain below 7%, below the median inflation for the top 50 tokens of 10.18%.
Voting is live now to determine whether this program will go live:
And crucially this comes at the same time as Stacks introduces performance upgrades, which will allow this incentives program to have an outsized impact. Stacks just announced an integration with Wormhole, which will make it easier for tier-1 assets from other chains to bridge to Stacks.
A few highlights of the new Stacks roadmap:
Wasm-based smart contracts
<10s transaction speed targets
Fee abstraction to let users pay fees in sBTC while maintaining STX fee capture under the hood
Stablecoin, wallet, and bridge integrations
That means as liquidity starts to grow, you’ll also have an improved developer experience and improved user experience. Liquidity sits idle without users and users can’t do much without liquidity. Stacks’ roadmap is designed to attract both.
Why this Matters?
Bitcoin reaching escape velocity is THE finance story of the decade.
Stacks is well-positioned to capitalize on that growth. Here’s why:
The stars are aligning for the Stacks ecosystem:
DeFi primitives have been built
The network has been upgraded to be faster and more secure
BTC has growing institutional acceptance
Now, the funds will be in place to drive more of that BTC to the waiting Stacks ecosystem (the current target is 21,000 sBTC).
Bitcoin finally has a true L2 ecosystem with all of the pieces in place to compete with other smart contract chains.
Going back to what I mentioned at the start of this article, I’m excited to finally have a BTCFi ecosystem that combines the essential primitives we’ve come to expect in DeFi with a lucrative incentives program.
How You Can Capitalize
Stacks already affords ways to earn airdrops with your BTC and in the BTCFi ecosystem.
I talked about some of these specific strategies in a video last year:
This new program will inject rocket fuel into those DeFi opportunities by offering additional incentives.
In many ways, DeFi is a game of finding the best risk-adjusted incentives. And one benefit of this extra yield is that it will be one of the few proper incentives programs in the Bitcoin ecosystem.
So, what can you do?
The number one thing to do is to start exploring the Stacks DeFi ecosystem. As of the time we’re writing this, there are 4 protocols on Stacks with over $10m in TVL and 9 with over $1m.
If I wanted to become up to speed on the Stacks ecosystem and prepare for these incentives, I would make a point of trying all of the major apps and most of the smaller ones, cataloging which ones had the best user experience, and then invest based on this new information.
When the day comes and these incentives start flowing, you’ll be perfectly positioned to make the most of them.
Until next time,
Dynamo DeFi