Notes from trying to wrap my head around how the Blockstack STX token works.
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Stacks 2.0 and DeFi on BTC
At Blockstack, our mission is to bring forth a user owned internet. Bitcoin has been the rock on which the crypto industry has been standing. We believe that a user owned internet will be anchored in Bitcoin’s security and will emerge around the Bitcoin ecosystem. Proof of Transfer is the link that enables more innovation around Bitcoin. With PoX, Blockstack and Bitcoin can combine to power the future of Web 3.0
Bitcoin is making its way into DeFi, and Ethereum is the blockchain-of-choice. As of late September, over $1.1B of tokenized bitcoin was on Ethereum, with WBTC and tBTC leading the way and new projects like BoringDAO popping into existence.
via Dune Analytics
Blockstack too is working to leverage the security & value benefits of bitcoin on it's own layer-1, Stacks 2.0 via its Proof-of-Transfer mechanism. To secure the Stacks 2.0 chain, miners forward bitcoin to the network for a chance to write new blocks on the Stacks blockchain and earn Stacks tokens (STX) as a reward.
Proof of Transfer & Stacking
Proof of Transfer
- This is ""a consensus mechanism design that uses Bitcoin’s Proof of Work (PoW) to launch new blockchains that are anchored in Bitcoin’s security."
- It enables bitocin rewards for network participants
- STX Mining, TLDR;
- Contribute BTC to PoX transfer pool
- A function jumbles the contributions up
- A function selects winning BTC (more BTC submitted, higher likelihood of being selected)
- The winning miner's block is broadcast to the network
- Winner earns 500 STX tokens (at least during the first 4 years)
- If you lose, the Bitcoin spent to compete to mine STX is not returned to the miners who did not win.
- The Bitcoin is forwarded on to Stackers.
- This is where the BTC rewards from Stacking come from: BTC payments by those competing to mine.
- "Stacking is an innovative mechanism that rewards STX token holders for participating in the consensus process"
- Stacking is when STX Token holder locks up their tokens, and every cycle (every 7 days) broadcast a BTC address and support for a Stacks chain tip to the network.
- Every time a new block is mined on the Stacks chain, the protocol sends the BTC committed by miners to Stackers as a reward for adding value to the network.
- All eligible Stackers are rewarded with BTC approximately once every 7 days. This 7-day reward period is one “Stacking cycle”.