Stacks had a Rough Month After Starting 2023 Strong – Is its Recent Surge a Sign of Reversal?
Published4 weeks ago
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In the past 24 hours, the STX token has recorded a 16% increase in its price, now trading at $0.800, according to CoinGecko. During this time, the 46th largest cryptocurrency, with a market cap of over $1 billion, saw $74.86 million in trading volume.
However, STX is down more than 76.8% from its all-time high (ATH) of $3.40, which it reached in December 2021. Despite this, the coin is still up 273% in 2023, driven by the Bitcoin-based NFT frenzy, but the past month has not been kind to STX prices, which fell 11.5% during this period. Let's explore why this is the case.
Before examining the weak price performance of STX, let's take a closer look at the crypto asset itself.
STX is the native token of the Stacks network, used to pay transaction fees on the network and locked to earn BTC rewards. As Stacks holders can lock their STX to earn Bitcoin, the tokens are natively priced in BTC.
The cryptocurrency was publicly distributed through a Securities and Exchange Commission (SEC)-qualified token offering in 2019.
There are a total of 1.818 billion STX tokens, with just over 1.375 billion STX tokens currently circulating in the market. These tokens are minted by miners using Bitcoin. STX miners receive newly minted STX in the form of the network's unique Clarity contract execution fees.
Miners can also participate in leader elections by sending transactions on the Bitcoin blockchain. A verifiable random function (VRF) randomly selects the leader for each round. The higher the BTC bids, the more weightage is given to the miner. The new leader then writes the new block on the Stacks chain.
Additionally, the BTC that miners bid for election is sent to a specific address, which is used as a reward based on the Stacks holder's STX holdings.
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A Look at the Stacks Network (STX)
The project was initially started in 2013 by Muneeb Ali and Ryan Shea to build a better internet. The technical foundation was laid down in 2017, but the whitepaper of Stacks wasn't drafted until December 2020.
In 2017, Stacks raised $47 million in a token offering, followed by another $23 million through the SEC token offering in 2019.
Stacks is a blockchain that enables smart contracts and decentralized applications (dApps) for Bitcoin. The largest cryptocurrency has limited transaction capacity and inherently lacks advanced features like smart contract execution and self-executing contracts.
The Bitcoin community also largely frowns upon implementing changes to the Bitcoin network, as these changes often result in a trade-off between the network's scalability and security.
The Stacks team chose Bitcoin as its anchor blockchain because the Bitcoin network is the oldest and most recognized blockchain network. Moreover, it is also one of the most decentralized blockchain networks that has stood the test of time.
As a layer 1 blockchain, Stacks enhances the base protocol, i.e., Bitcoin, while addressing its limitations by introducing a consensus algorithm between two blockchains called proof of transfer (PoX). PoX, referred to as “an extension of the proof-of-burn mechanism,” connects Bitcoin — which is used as the base chain, and the Stacks blockchain — which is used as a connected chain, thus extending the functionality of Bitcoin.
For high throughput, Stacks use a mechanism called microblocks. While Stacks' block creation time is the same as that of the Bitcoin network, microblocks allow the Stacks blockchain to perform state transition between blocks of the anchor chain.
For programmability, Stacks introduced a new smart contract language for Bitcoin called Clarity, which allows developers to write logic directly around the Bitcoin state. STX acts as fuel to execute Clarity smart contracts. Users pay gas fees in STX to have their transactions included in a block.
Meanwhile, STX holders can lock their tokens to participate in consensus and earn Bitcoin rewards. This process is known as Stacking, under which STX holders run a full node and lock their STX.
Thus, Stacks allows the building smart contracts and decentralized apps (dApps) natively integrated with Bitcoin's stability, capital, and security without modifying Bitcoin.
Click here for the list of top five exchanges where you can buy STX.
Growing Activity on Stacks
Today, several applications have been built on the Stacks blockchain, including DeFi. At the time of writing, the total value locked (TVL) on Stacks stood just above $21 million, down from $31.4 million last month but up from less than $7 million earlier this year. The TVL on Stacks hit a high of $44.5 million in April 2022, according to DeFi Llama.
ALEX, a launchpad for projects on Stacks to access community funding, accounts for 90.88% of this TVL. Other projects on Stacks include DEX Stackswap, yield protocol CityCoins, and CDP projects Arkadiki and UWU Protocol.
Stacks also introduced domain names to Bitcoin called Bitcoin name services (BNS), which enables users to cover their entire Web3 identity into an easily-readable address format.
NFTs are also tradable on Stacks' NFT marketplaces, with some popular NFT marketplaces being Gamma, Byzantion, Stacks Art, and Superfandom. NFTs on the Stacks blockchain are called Bitcoin NFTs. For those that have no information about this, Ordinals are the most popular Bitcoin NFT project that created a market frenzy earlier this year.
The number of NFTs on the Bitcoin blockchain has surged past 3.3 million, according to data from Dune Analytics. The tokens are called inscriptions, allowing users to embed data into the Bitcoin blockchain by inscribing data into satoshis. Most of these inscriptions are text-based.
“While legitimate concerns exist, we believe that ordinals have the potential to positively impact the Bitcoin network in the longer term, attracting a new wave of enthusiastic users and developers to embrace the Bitcoin community,” said Grayscale in a report. Back in February, a Matixport research also said the NFTs could help push STX into a billion-dollar token.
The Bitcoin NFT creator has so far paid a total of 28 BTC in fees for making the inscriptions, adding to 284 BTC in overall fees generated from Ordinals activity. This contributed to Bitcoin hitting a daily record of 682,281 transactions this week.
These latest ordinal numbers are why STX value surged this week after a red month, but another reason is the cryptocurrency's correlation with Bitcoin.
Impact on STX Price
This past month, the Bitcoin price went from about $27.5k to nearly $32k, only to fall back to about $27k. Heading into May, BTC price again jumped to $30k before falling under $28k and, as of writing, is exchanging hands at $28,586.
STX price also followed Bitcoin volatility as it went from $0.78 to almost $1 before taking a dive to $0.67 and then seeing some relief to $0.786. The crypto asset started May on a down note, falling to $0.677 but has since recorded some gains.
This makes sense, given that the use case of Stacks (STX) depends heavily on the integrity of the underlying Bitcoin blockchain. So, STX's price is a function of the price of Bitcoin, and it tends to rise and fall with BTC.
Besides moving in tandem with Bitcoin, the Ordinals' frenzy simmering down also affected STX prices negatively this past month. But this is just the beginning for Stacks, as just last week, its CEO, Muneeb Ali, spoke at Consensus 2023 about Bitcoin's potential as a settlement layer and the revival of developer culture within the community. He talked about how a minor but significant change to Bitcoin's base layer could unleash a broad range of applications to be built via layer 2 technology like Stacks.
He further stated that Bitcoin needs “very little modification” to enable even true “ZK rollups.” ZK rollups are a layer-2 scaling solution used by Ethereum to increase its throughput by processing transactions outside of the mainnet. “They're just two OP codes,” said Ali, “like either OP STARK verify or OP SNARK verify – and that can be done.”
The developer, however, doesn't expect the change to happen for four to five years yet. But if those changes don't happen, he is still confident that Bitcoin will continue to go under further development and will eventually catch up to other chains that are far more developer-friendly.
Stacks has actually developed a protocol called sBTC that bridges BTC from layer 1 to layer 2 chains in a relatively decentralized manner. “That sort of technology is what's needed to really kickstart Bitcoin DeFi,” said Ali, adding, “We need to make Bitcoin programmable in L2s, and then put that BTC in smart contracts, put them in the hands of developers, and then let them go wild.”
In short, while STX has experienced a rough month after starting the year off strong, its recent price increase may be a sign of reversal. The STX token's correlation with Bitcoin and its unique value proposition as a layer-2 solution for the Bitcoin network make it an interesting project to watch.
As the ecosystem around Stacks continues to grow and the developer culture within the Bitcoin community is revitalized, we might see STX gain further traction in the coming years.
And as more applications are built on the Stacks blockchain and Bitcoin DeFi gains momentum, STX could potentially benefit from the increased activity and demand for its native token. However, it is essential for investors to keep an eye on Bitcoin's price movements and the overall market trends, as these factors will undoubtedly influence STX's performance.
As with any investment, it is crucial to conduct thorough research and consider the potential risks and rewards before making a decision. With Stacks (STX) playing a vital role in the evolution of the Bitcoin ecosystem, it will be interesting to see how the project develops and how its native token's price responds to these changes in the future.
Gaurav started trading cryptocurrencies in 2017 and has fallen in love with the crypto space ever since. His interest in everything crypto turned him into a writer specializing in cryptocurrencies and blockchain. Soon he found himself working with crypto companies and media outlets. He is also a big-time Batman fan.