Stacks, a Bitcoin DeFi layer that brings smart contracts and apps to the Bitcoin blockchain, introduced the first draft of its PoX-5 proposal to add Bitcoin staking to the network.
The June 3 draft, published on the Stacks forum, is the formal proposal behind a staking design Stacks first outlined in a whitepaper last month.
As Alex Miller, CEO at Stacks Labs, a development company behind Stacks, explained, the idea is to let BTC holders lock Bitcoin on the Bitcoin base layer under their own keys, pair that commitment with STX, the native token of Stacks, and earn yield paid in BTC.
Alex Miller
- The proposal isn't the first Bitcoin DeFi staking design, though.
- Babylon, a Bitcoin staking protocol, lets BTC help secure proof-of-stake systems.
- Lombard, a liquid Bitcoin staking protocol, issues LBTC for use across DeFi.
But Stacks is pitching a different structure as it says BTC would stay on Bitcoin L1, yield would be paid in BTC, and users wouldn't need a wrapped token or bridge.
The STX catch
The catch is that BTC holders would also need to hold STX through what Stacks calls "protocol bonds." PoX-5 also asks STX holders to accept more token issuance, at least during the launch period.
The draft would restore the STX block reward to 1,000 STX per block, reversing the recent step-down to 500 STX, and add a temporary 500 STX boost for about six months.
- STX has no fixed maximum supply, with market data showing about 1.85 billion tokens in circulation.
Stacks said the higher reward pool is needed to support a launch yield that can compete with existing alternatives, with the proposal arguing that a 3% Bitcoin-denominated, self-custodial yield would clear that bar.
The authors also project first-year supply growth would jump from about 7.8% to about 8.5% with the temporary boost, then decline after the launch period.
Because PoX-5 is a consensus-layer proposal, Bitcoin staking would also require a Stacks hard fork before it could go live, the proposal reads.
Bitcoin staking won't be open to everyone at first
The first version also wouldn't be fully open from day one. The draft says PoX-5 would run for about one year under Stacks Endowment oversight, with capacity allocated to approved partners only.
Bitcoin staking would also require a six-month bonding period. Early exit would let users unlock BTC before expiry, but only if they give up the remaining undistributed yield.
If STX falls, miner bids can fall too, shrinking the BTC reward pool and making the target BTC yield harder to sustain.
The draft calls that "reflexivity risk," with STX-only stakers taking the first hit before paired BTC participants are affected if the reserve is depleted.
- Founded in 2013 by Muneeb Ali and Ryan Shea as Blockstack, Stacks is a Bitcoin layer for smart contracts that later rebranded and launched Stacks 2.0 in 2021.
- The project raised more than $50 million in a 2017 token sale and another $23 million in SEC-regulated token offerings in 2019, with backers including Union Square Ventures, Winklevoss Capital, Digital Currency Group and Blockchain Capital.