To release trillions of dollars of dormant liquidity in Bitcoin, Bitcoin Layer 2 solutions have experienced explosive growth over the past two years. After a market reshuffle, speculators have gradually exited, but the established Bitcoin Layer 2 project Stacks has withstood the test of time, steadily growing until 2025.
Recently, with the completion of the third phase of the sBTC deposit program, the amount of BTC deposited for minting sBTC on the Stacks network surged from over 1,000 to over 5,000, and the total locked value (TVL) of sBTC surpassed $580 million. At the same time, the market capitalization of stablecoins on Stacks has increased nearly sevenfold, and the total amount of STX staked has reached a historic high of 608 million.
The BTCFi (Bitcoin Finance) ecosystem of Stacks is also continuously expanding, attracting a variety of applications covering lending, decentralized exchanges (DEX), NFTs, social networks, and more. From an initial scaling solution, Stacks is evolving into a full-stack ecosystem, comprehensively expanding the utility of Bitcoin.
BTCFi May Be Approaching a Turning Point
As the hype around Bitcoin Layer 2 subsides, the market's demand for BTCFi (Bitcoin Finance) was once questioned. However, the trends for 2025 and the increasing institutional interest indicate that this demand is continuing to grow.
Since the approval of Bitcoin spot ETFs in 2024, institutional holdings have rapidly increased. According to Coinbase data, as of June 2025, there are 228 publicly listed companies globally holding over 820,000 BTC. MicroStrategy's "Bitcoin treasury" model has set a trend, with more companies viewing Bitcoin as a strategic asset.
At the government level, Texas has initiated state-level Bitcoin reserves; Hong Kong, Japan, South Korea, Vietnam, and Thailand are also exploring legal frameworks to facilitate institutional entry.
However, when institutions hold large amounts of BTC, traditional financial tools struggle with liquidity management, risk hedging, capital efficiency, and compliance. At this point, BTCFi applications—such as derivatives, staking, and yield protocols—become essential.
For retail investors, as Bitcoin becomes mainstream, they no longer view it merely as a speculative asset but as a long-term reserve asset, and they also hope to generate returns from BTC.
However, past Bitcoin Layer 2 solutions faced several core bottlenecks:
Low yields: Significantly lower than the DeFi ecosystems of Ethereum and Solana, lacking attractiveness.
Centralization risks: Some rely on custodial bridges or centralized validators, contradicting the decentralized spirit of Bitcoin.
Security concerns: Cross-chain bridges have been hacked multiple times (e.g., the WBTC incident), undermining user trust.
Poor user experience: Complex processes and high costs hinder retail adoption.
Since its launch in 2018, Stacks has also faced these challenges, but through multiple upgrades—especially the Nakamoto upgrade in 2024 and the introduction of the trustless sBTC—it has effectively addressed the above pain points and stands at a critical juncture for the potential explosion of BTCFi.
With technological breakthroughs from projects like Stacks, institutions remain optimistic about the prospects of BTCFi in 2025. VanEck predicts that the market size of Bitcoin Layer 2 will triple compared to 2024. Aspen Digital's annual report for 2025 forecasts that the total locked value of BTCFi could exceed $20 billion, with significant contributions from ecosystems like Stacks.
Nakamoto Upgrade: Making Stacks a True Bitcoin Layer 2
The Nakamoto upgrade has truly made Stacks a Layer 2 network for Bitcoin. It addresses past limitations in scalability, security, and integration with the Bitcoin mainnet through a series of technological innovations, laying the foundation for sBTC and trustless Bitcoin cross-chain solutions.
Since its founding in 2017, Stacks' goal has been to introduce smart contracts to Bitcoin without modifying the Bitcoin mainnet. In 2021, Stacks 2.0 launched the PoX (Proof of Transfer) mechanism to inherit Bitcoin's decentralization, but the 1:1 matching with Bitcoin blocks led to slow block times, confirmation delays, and independent security budgets. Co-founder Muneeb Ali referred to this phase as "Layer 1.5," rather than a true Layer 2.
The Nakamoto upgrade activated in 2024 brought significant changes:
Term-based block production: Breaking the 1:1 limitation, elected miners can produce multiple blocks in one term, reducing confirmation time from 10 minutes to about 5 seconds, with TPS reaching thousands and fees only a few cents, comparable to Solana.
Enhanced security integration: Optimizing PoX allows Stacks block hashes to be written into Bitcoin blocks, achieving Bitcoin-level finality within about 30 minutes.
Upgraded validator model: Block validation requires over 70% signature consensus, and STX staking can secure the protocol up to 100%, combining Bitcoin-level security with faster confirmation speeds.
Addressing MEV issues: Improving the miner selection mechanism enhances fairness and transparency, reducing manipulation risks.
These improvements pave the way for sBTC—an asset pegged 1:1 to BTC, allowing users to access DeFi, dApps, and more without sacrificing decentralization and security.
To ensure safety, Stacks collaborates with Copper, Asymmetric Research, ImmuneFi, and independent auditing firms, introducing multi-party computation (MPC), bug bounties, and third-party security reviews.
Compared to alternatives like WBTC, sBTC offers lower costs (no wrapping/unwrapping fees), no KYC requirements, and 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, Figment, and others. Recently, after integrating with Wormhole, sBTC can also interoperate with mainstream public chains like Solana, Aptos, and Sui.
Ecosystem Expansion: Extending from DeFi to Diverse Applications
After the completion of the Nakamoto upgrade, Stacks' focus for 2025 shifts towards user and market expansion.
The Stacks ecosystem is rapidly growing, now encompassing over 100 partners across DeFi, gaming, NFTs, social platforms, AI, decentralized identity, and more.
Core BTCFi segments in the Stacks ecosystem:
Bitcoin DEX
ALEX: A decentralized exchange built for Bitcoin, providing sBTC liquidity pools and BTC-based lending.
Users can directly earn BTC through sBTC without needing to convert assets.
Secured $20 million in funding from Spartan Group, CMS, DWF Labs, OKX Ventures, and others.
BitFlow: A DEX aggregator in the Bitcoin ecosystem, integrating liquidity from protocols like Alex, Arkadiko, and Velar, offering optimal exchange rates, and raised $1.3 million in seed funding led by Portal Ventures.
Other DEXs include SatoshiDEX, Stackswap, STXDX, and Velar (perpetual contract exchange).
Stablecoin Protocols
Arkadiko: Allows users to mint USD-pegged stablecoins USDA using STX as collateral, supported by Zest Protocol, BitFlow, and ALEX, with a circulation exceeding $2.29 million.
Hermetica: Mints USDh using STX or sBTC as collateral, offering up to 25% annualized yield, usable in yield-generating DeFi, backed by UTXO Management and CMS Holdings.
Bitcoin Lending Protocols
Zest Protocol: Supports deposits of STX, sBTC, stSTX, USDh, USDA, and USDC to earn yields or over-collateralized loans.
The total market capitalization of Bitcoin and Stacks reached $77 million, with active lending exceeding $5 million.
Secured $3.5 million in seed funding led by Tim Draper.
Granite: An early BTC lending protocol allowing users to borrow stablecoins using sBTC as collateral, still under development.
Other ecosystem highlights:
StackingDAO: A liquid staking protocol on Stacks, allowing users to participate in ecosystem applications while holding stSTX and earning staking rewards.
Xverse, Leather: Bitcoin wallets that securely manage Bitcoin and Stacks assets.
Conclusion: Can Stacks Ignite a Wave of Bitcoin Applications?
Bitcoin is the world's premier value storage tool, but its trillions of dollars in potential have yet to be fully unleashed. Both institutions and individuals are increasingly eager to make Bitcoin "work," whether for earning yields, enhancing efficiency, or realizing application value.
As a core Bitcoin Layer 2, Stacks stands out in an increasingly differentiated competitive landscape. Many hype-driven projects have disappeared, but Stacks has persevered and addressed the three major pain points of BTCFi: low yields, centralization risks, and poor user experience.
With the Nakamoto upgrade and sBTC, along with expansions in DeFi, NFTs, social applications, and more, Stacks is poised to lead Bitcoin from "digital gold" to an "application-driven" future.
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