A Simple Understanding of Stacks' Journey in Exploring Layer 2

By Lanhu Notes

During this bear market cycle, the crypto space has witnessed a rise in the BTC ecosystem. While staunch supporters of BTC as pure store of value may dislike the idea of BTC having an ecosystem, exploration into BTC's ecosystem has continued nonetheless. Beyond the significant driver of "speculation," there are two key motivations: first, unlocking yield opportunities from BTC assets; second, addressing the future mining subsidy issue for BTC—the most critical challenge for BTC’s long-term sustainability, which directly impacts how network security can be maintained. Without the emergence of a BTC ecosystem, solving this problem would pose a major challenge for BTC’s future.

In the exploration of BTC L2 solutions, Stacks stands out as one of the earliest projects to enter this field. It aims to enable ecosystems such as DeFi to operate within the BTC environment through its L2 architecture. How then should we understand the technical evolution of Stacks? Here, we divide Stacks' development into two eras: the Sidechain Era and the L2 Era. Although this classification is not entirely rigorous and involves different dimensions, it serves to help readers better focus on and understand the most important phases in Stacks’ development history.

The Sidechain Era

The concept of Bitcoin sidechains was introduced by Blockstream, which later developed the Liquid Network. Around the same time, the Rootstock network also launched. In 2018, Stacks launched its mainnet, introduced the Clarity smart contract language and oracle capabilities in 2019, and notably applied to the SEC for compliance in token issuance—a rare move at the time. This approach allowed Stacks to gain more room and time for experimentation under regulatory compliance frameworks. Throughout the long cycles of bull and bear markets, Stacks has persisted.

Stacks’ initial technical design resembled that of a BTC sidechain, but with distinct differences. It implemented a unique mechanism to ensure security, setting it apart from other sidechains. Essentially, Stacks integrates with Bitcoin through an anchoring transaction mechanism, where anchoring transactions include block header information from the Stacks chain and must be broadcasted to the BTC network. Thus, while classified as a sidechain, Stacks differs significantly from conventional sidechain models.

Stacks employs a PoX mechanism, somewhat analogous to a staking system in PoS. PoX stands for Proof of Transfer. It involves two types of participants: miners and signers (also known as Stackers). Miners must engage in Bitcoin blockchain transactions to qualify for participation—the right to write new blocks onto the Stacks chain (i.e., mining rights)—a distinctive feature of Stacks. To earn rewards, Stacks miners must secure the right to add new blocks to the Stacks chain. To obtain this right, miners participate in each round of leader elections by sending transactions on the BTC chain. From these participants, a leader is randomly selected per round via VRF (Verifiable Random Function), granting them the right to write a new block onto the Stacks chain.

For every Bitcoin block, a corresponding Stacks miner gains the right to produce all Stacks blocks during that Bitcoin block’s interval. When a Stacks miner adds transactions to a Stacks block, Stacks signers validate and sign it. If over 70% of the signers verify it as valid and reach consensus, the new block is added to the Stacks chain.

Stacks interacts with Bitcoin L1 through a “chain anchoring” mechanism, binding state data from the Stacks chain onto the BTC L1. Each Stacks block contains a hash pointing to the previous Stacks block and a hash pointing to the previous Bitcoin block. Through this mechanism, Stacks ensures that all state changes occurring on its network can be verified on the BTC L1.

In summary, during this process, Stacks miners spend BTC to compete for the chance to become block leaders (and thus earn rewards). To increase their odds, miners strategically spend more BTC based on expected return on investment. Once a miner wins the leader position, they gain the right to create new blocks on Stacks and add transaction data to the chain. After completing this work, miners receive STX token incentives. These STX rewards come from newly minted block rewards and transaction fees paid by users on the Stacks network.

Besides miners using PoX to win block-writing rights, there are also Stackers—signers who participate in validation, forming another crucial part of the PoX mechanism. STX (Stacks token) holders can join the PoX consensus by staking their STX tokens to validate the correctness of Stacks blocks and determine whether a block should be confirmed on-chain. By participating in this Stacking process, STX holders earn a portion of the BTC originally bid by miners, along with STX rewards. The amount of reward depends on the quantity of STX staked and the duration. A single Stacking cycle lasts approximately two weeks (around 1800 blocks).

The total supply of STX is 1.818 billion tokens, with nearly 1.5 billion currently in circulation (per CoinMarketCap data). Mining rewards remain the primary release mechanism: 1000 STX per block for the first four years, halving every four years until reaching 125 STX per block, after which no further halvings occur.

The L2 Era

Stacks 2.0 marks the transition into the Bitcoin L2 era, highlighted primarily by two developments: the Nakamoto Upgrade and the launch of sBTC. The Nakamoto Upgrade fundamentally shifts Stacks into the BTC L2 landscape, aiming to resolve issues around security and performance. Meanwhile, the introduction of sBTC prepares the ground for real-world applications within its L2 ecosystem.

*The Nakamoto Upgrade drives Stacks’ genuine evolution toward becoming a Bitcoin L2.

The Nakamoto Upgrade is a pivotal milestone for Stacks, pushing it toward becoming a true L2 on Bitcoin.

A core principle of L2 is inheriting security from the L1. The Nakamoto Upgrade aims to achieve exactly this. After the upgrade, Stacks seeks to position itself as a layer within the Bitcoin network, integrating more tightly with Bitcoin and becoming a deeper, more intrinsic component of the Bitcoin network and ecosystem.