Dialogue Stacks and ALEX: How to Build a Native BTC Ecosystem

Currently, the "smart contract friendly" attribute of the Ethereum ecosystem determines that most DeFi applications are built on the Ethereum network. Coupled with the promotion of Ethereum lending platforms like Aave and Compound, the liquidity of mainstream crypto assets such as ETH is fully utilized and developed.

In contrast, Bitcoin's smart contracts have always been the "holy grail" in the crypto space. Due to the complex bridging process of BTC assets, the liquidity of BTC assets has not been fully developed, and the BTC ecosystem still harbors enormous potential in the crypto lending market. Stacks aims to address this issue. The open-source DeFi protocol ALEX, based on the Stacks public chain, seeks to help users conveniently obtain fixed-rate returns for a predetermined period through BTC, thereby accelerating the release of the enormous value contained in the BTC market liquidity.

Recently, the sixth issue of Catcher Insight, hosted by Chain Catcher, invited Louise Ivan, the Growth Lead of the Stacks Foundation, and Chiente Hsu, the CEO and co-founder of ALEX, to engage in a roundtable discussion on "How Far Are We from the Explosion of the Native BTC Ecosystem?" During the session, the two guests shared valuable insights with community users regarding the advantages and value propositions of Stacks, the current development status of ALEX, and the value of the native BTC ecosystem. The full text is organized below, hoping to help you gain a deeper understanding of Stacks and ALEX.

Chain Catcher: Please introduce yourselves, Louise and Chiente.

Louise: Hello everyone, I am the Growth Lead at the Stacks Foundation, a position that plays a key role in community and token growth. I hold dual degrees in green IT and have a strong personal interest in technology and its integration with society, art, and economics. Before becoming an advisor to Hiro PBC and Freehold, I started as an enthusiastic member of the Stacks community, where I helped expand the community to over 100,000 dedicated members across more than 30 countries.

Chiente: Hello everyone, I am Chiente, the CEO and co-founder of ALEX. Previously, I was a Managing Director at Morgan Stanley and Credit Suisse. I am the author of the book "Rule-Based Investing" and was a professor before. Rachel Yu is also an outstanding co-founder, and I am excited to introduce ALEX to everyone today.

Chain Catcher: Chiente, why did you join Stacks after working on Wall Street for so many years?

Chiente: For 20 years, as a quantitative analyst on Wall Street, I have been developing quantitative strategies for all types of investors, pension funds, asset management companies, etc. However, one crisis after another, along with increasingly stringent regulations, has made Wall Street very inefficient.

Bitcoin is the first truly decentralized technology in history. Stacks' smart contracts make Bitcoin programmable. My co-founder Rachel and I realized that this is a once-in-a-lifetime opportunity to achieve our vision of building truly permissionless financial services for everyone.

Chain Catcher: Please introduce what Stacks is doing and its vision, and how is the current progress?

Louise: Bitcoin's smart contracts have always been the holy grail in the crypto space.** Stacks has found a way to execute this directly on Bitcoin, which is a significant breakthrough. Stacks brings scalable transactions and general smart contracts to Bitcoin without modifying it.

Our argument is that successful experiments from various blockchains will ultimately be created on Bitcoin. The network effect of Bitcoin means that smart contracts around Bitcoin can attract more crypto capital and benefit from higher security. We believe Bitcoin can become a better foundation for user-owned internet, just like TCP/IP for the traditional internet.

In terms of progress, there are currently over 400 direct contributors and more than 45 projects in the Stacks ecosystem, with ALEX being one of them.

According to Xangle, a significant crypto asset disclosure platform in Korea, Stacks leads its competitors RSK, Lightning Network, and Liquid Network in terms of TVL in Bitcoin projects. The report indicates that Stacks is poised to become an industry leader in the cryptocurrency market, with key milestones including the launch of the Stacks 2.0 mainnet earlier this year, the growth of smart contracts, and the emergence of numerous projects in the Stacks ecosystem. (View Report)

Chain Catcher: I understand that Stacks uses the Proof of Transfer (PoX) consensus mechanism. Please explain how this mechanism works and its characteristics. How should we correctly understand the relationship between Stacks and Bitcoin?

Louise: Stacks has chosen a more energy-efficient mechanism that uses Bitcoin as "digital energy" for Stacks miners instead of electricity. This mechanism is called Proof of Transfer (PoX), which allows leveraging and extending any proof-of-work chain, such as Bitcoin. Stacks is secure and settled. If you need security, Stacks has a relationship with Bitcoin that includes two parts: STX Mining and Stacking.

With PoX, miners do not convert electricity and computing power to earn block rewards and transaction fees. Instead, they transfer Bitcoin (a proof-of-work currency) to holders of Stacks tokens. This allows holders of Stacks tokens to earn Bitcoin from the consensus. This process is called stacking. Leader elections are conducted on Bitcoin, and new blocks are written to the Stacks blockchain.

Stacking temporarily locks users' STX to support the network's security and consensus. As a reward, users will receive Bitcoin transferred by miners as part of the Proof of Transfer. When you stake, you can earn Bitcoin in each Bitcoin block cycle. How much you can earn varies by cycle. You can see the earnings of stackers on stacking.club.

Chiente: I'll pause Louise's remarks here. Let's not delve into the details and focus on the unique aspects that make Stacks stand out. Currently, Stacks does not modify Bitcoin's design. However, all Stacks transactions are settled in Bitcoin, allowing Stacks-based applications and smart contracts to inherit all the powers of Bitcoin.

Taking DeFi as an example, Bitcoin's DeFi has historically been challenging due to the limited scripting language of Bitcoin, which is also its strength. Bitcoin is not easily programmable.

Bitcoin intentionally does not provide the smart contract capabilities we see in other ecosystems. This is a deliberate trade-off to provide security and reliability for Bitcoin as a decentralized store of value. Builders in the Stacks ecosystem have recently proven that Bitcoin DeFi is possible now.

ALEX, as the first one-stop complete DeFi service platform on Bitcoin, makes this possible today.

Louise: I particularly like this video introduction about ALEX: https://youtu.be/tSZx_0P0PHQ

Chain Catcher: The launch of MiamiCoin, the first city token in collaboration with Stacks, once attracted widespread attention in the industry. Can you talk about what CityCoin and MiamiCoin are? And their deeper connection with Stacks?

Chiente: CityCoin empowers communities to improve their cities while providing crypto rewards for individual contributors and city governments.** Since the launch of MiamiCoin (MIA) in August 2021 and NYCCoin last month, each city has its own token. CityCoin provides cities with a continuous stream of cryptocurrency income and can be mined or purchased by individuals who wish to support the city and benefit from the protocol. There is no pre-mining, pre-sale, or ICO; only new CityCoins are mined.

What’s special here is that CityCoins actually utilize Stacks' Proof of Transfer to provide rewards to their holders. As mentioned earlier, Proof of Transfer is a mining mechanism that offers a new consensus mechanism, allowing for significant new ways to leverage and extend proof-of-work chains like Bitcoin. Anyone can stack CityCoins by locking them in the CityCoins smart contract for a determined reward cycle and receive a portion of the remaining 70% STX sent by miners.

Chain Catcher: How does ALEX facilitate the launch of CityCoin, and what potential collaborations exist between ALEX and CityCoin?

Chiente: By providing a full-service DeFi platform, ALEX will be key to enhancing the capital efficiency of CityCoin holders. At ALEX, CityCoin holders will be able to enjoy the following benefits:

• Use advanced DEX to swap their tokens and CityCoin;
• ALEX CityCoins can be used as collateral for competitive LTV (Loan-To-Value) lending;
• Lend their stablecoins, as well as any Stacks or ALEX native tokens;
• Earn fixed-rate and term deposit interest;
• Obtain high profits through liquidity mining.

Chain Catcher: A good ecosystem is key to the success of a public chain. What is Stacks' approach to building its ecosystem? Can you introduce the main ecological projects and their development status? ALEX is a project that has recently attracted attention in the Stacks ecosystem. Can you provide specific details about the ALEX project? What products and services can it offer?

Chiente: The ecosystem is crucial, and the community is essential for the success of cryptocurrencies because it provides network effects. Stacks' vision is to build a user-owned decentralized internet on Bitcoin, which can only be achieved through community participation. ALEX is part of the first Stacks accelerator program, positioning itself as the financial hub of the community, with a launchpad where new projects can guide their token liquidity and a DEX where project tokens can be exchanged.

Ecological projects and development status:

• CityCoins is a community-led project that provides a new way for cities to raise funds through crypto participation. MiamiCoin was the first to launch on June 8, and so far, the wallet for the city of Miami is worth over $25 million for Miami residents to use. NYC Coin started in early November and has already exceeded $34 million. CityCoins and ALEX will be fully integrated.
• Stacks NFT projects, such as Crash Punks and Megapont Apes, have become very popular.

3) Arkadiko has launched and provides stablecoin USDA for the Stacks ecosystem.

Among them, ALEX is the first DeFi to provide full-service for Bitcoin through Stacks smart contracts.

ALEX will offer a launchpad for new projects to launch their tokens; fixed-rate and term lending without liquidation risk; an advanced DEX with AMM and order book features; liquidity mining, staking, margin, and yield farming.

ALEX's vision is to provide financial services for everyone. We are creating the financial primitives and infrastructure needed for value transfer, which will characterize Web3.

Chain Catcher: ALEX aims to bring native BTC into DeFi. What advantages does it have compared to WBTC and HBTC solutions? How is the testnet performing currently?

Chiente: The advantage of native BTC DeFi lies in security and logical consistency. WBTC on Stacks is not like WBTC on ETH or similar. WBTC on other chains maintains the asset value of BTC but loses the network (you cannot verify the source/settlement of unauthorized Bitcoin on-chain), while WBTC on STX can directly reference the actual original BTC assets on the BTC chain.

In the past few months, our testnet has been progressing smoothly and is nearing completion. We have over 20,000 testnet users, each helping ALEX test our protocol's functionalities for bugs, enhance network security, and improve our UI/UX with suggestions.

Chain Catcher: How do you view the recent popularity of NFTs and the metaverse? What are Stacks' layouts and plans in this regard?

Louise: Yes, NFTs on Bitcoin are possible, and the good news is that, thanks to the creators of Stacks thriving, Stacks NFTs leverage Bitcoin's PoW without increasing its environmental impact.

Now, all Stacks transactions are settled in Bitcoin, allowing them to benefit from Bitcoin's decentralization and security. In other words, NFTs are minted on Stacks and protected by Bitcoin. I also want to emphasize the DID work happening in Stacks, a great example being Ryder.

Chiente: ALEX is the highway for Stacks' NFTs and Metaverse. For example, starting in Q1 2022, NFT projects will be able to use our advanced order book DEX to design auction events. P2E games will use the ALEX API for any DeFi-related services.

In the future, we plan to enable NFTs as collateral to borrow stablecoins and other assets. Borrowers can choose terms such as interest rates and desired amounts. Once a user's offer is accepted, the tokens will be locked in the platform's smart contract. When the loan is repaid, the assets will be transferred back to the owner; otherwise, the assets will be transferred to the lender, who will become the new owner.

Chain Catcher: For non-EVM public chains, the user entry barrier is relatively higher. What measures is Stacks currently taking to attract developers and lower user entry barriers? Will there be plans for EVM compatibility?

Louise: From DeFi to NFTs, Stacks is redefining many functionalities that were previously thought to be exclusive to Bitcoin. This evolution is thanks to the Stacks ecosystem, which continually seeks new ways for everyone to use and access the benefits of Bitcoin.

Various teams and cross-chain interoperability protocols (such as Orbit Chain) are bridging Stacks with other public blockchains like ETH, BSC, SOLY, POLY, etc. Developers from other ecosystems will be able to use Bitcoin's security features through Stacks.

Check the announcement released by Satoshibles; they are building an NFT bridge between the Ethereum and Stacks blockchains. This collaboration will allow Satoshible holders to be the first NFTs on Ethereum that can be ported to Bitcoin through Stacks.

Chiente: We will work closely with Stacks to leverage the work the entire community is doing to build bridges and focus on applying the resulting liquidity and connectivity to ALEX for our users. Ultimately, our goal is to ensure that all crypto users, whether on Stacks or not, can benefit from the security of using Bitcoin as a settlement layer.

Chain Catcher: The token economic model of a public chain is as important as the chain itself. A good token economic model supports the network's security and achieves sustainability. How is Stacks' token economic model designed? What is its core value?

Louise: For most Layer 1 blockchain native tokens, STX is designed to pay for transaction fees and smart contract execution. This means that the long-term value of Stacks depends on the growth of the Stacks ecosystem and the demand for Clarity smart contracts. Due to the higher portion of transaction fees, miners can see an increase in the value of mined blocks, which incentivizes them to purchase STX to participate in consensus.

Holders of STX will be able to benefit from the growth of the Stacks ecosystem, as their rewards in Bitcoin depend not only on coin-based rewards but also on network usage.

Chain Catcher: Last question, what new developments can we expect from Stacks and ALEX soon? What are the goals for the new year?

Louise: 2022 will be very interesting for Stacks, as we will see new STX-based projects, whether in Bitcoin DeFi, NFTs, DID, or DAOs, to support the growth of its ecosystem. STX also plans to enter the multi-chain space, as I mentioned earlier, and is currently building five cross-chain bridges for this purpose.

Chiente: Yes, 2022 will be a very busy and exciting year for ALEX.

ALEX will launch and ALEX IDO will be introduced in January 2022, followed by spot DEX, liquidity mining, staking, and ecological products.

After the first quarter, once there is sufficient spot liquidity, we will begin to roll out fixed-term fixed-rate lending and on-chain margin products.

In the second half of 2022, we expect to release ALEX 2.0 with an order book DEX, Appchain, and Subnet. Everything is moving towards the development of true BitFi.