Muneeb Ali joins us to discuss how Stacks is bringing DeFi to Bitcoin. We cover Stacks design, the Bitcoin DeFi thesis, L2 security guarantees, Stacks' recent implementation bug and more!

And as usual, we start the episode with our analyst bullpen to discuss Aave's GHO, TradFi announcements, Optimism's Bedrock, Frax governance shenanigans and BitDAO.
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Timestamps:
(00:00) Introduction
(00:55) Hot Seat/Cool Throne
(27:19) Interview Start: Stacks
(42:22) The Proof-of-Transfer Mechanism
(46:55) The Nakamoto Release: A Security Budget Upgrade
(53:21) The Bitcoin DeFi Thesis
(57:49) Bitcoin Subnets
(1:01:10) The “Stack Increase” Bug
(1:17:15) Bitcoin MEV and Censorship
(1:25:03) Increasing Miner Competition
(1:28:37) Reorg Concerns and Orphan Blocks
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Resources:
Stacks
https://www.stacks.co/

Stacks Roadblocks (Blockworks Research Twitter thread)
https://twitter.com/blockworksres/status/1659228801384194049
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Disclaimer: Nothing said on 0xResearch is a recommendation to buy or sell securities or tokens. This podcast is for informational purposes only, and any views expressed by anyone on the show are solely our opinions, not financial advice. Dan, Sam, and our guests may hold positions in the companies, funds, or projects discussed.

Bitcoin changes very slowly and it might be 4 or 5 years until any opcodes or rollups are introduced.

I think Stacks could actually evolve over time where in the time between now and when the new opcodes come, it starts looking like what's called a sovereign rollup.

And 1 of the big properties of a sovereign rollup is that it has a hundred percent of a VRT resistance.

All right, everyone, welcome back to another episode of 0 X research brought to you by the Atom Accelerator.

If you're a developer looking for a home in this industry, the Atom Economic Zone welcomes you.

You will hear more about the Atom Accelerator later on in the show.

We are recording this episode on June 20th and we have a great interview coming to you with Muneeb Ali, the co-creator of Stacks, which is a Bitcoin-focused scaling solution aiming to onboard hundreds of billions of dollars of idle Bitcoin into DeFi.

Before the interview, we are joined today by Ren and ZeroX Pibbles to discuss what's going on in this industry.

But before we even jump into that, I want to do a little new segment alert, kind of hitting some DeFi governance updates, which again, our tool GovHub makes this super, super easy.

And then maybe if we have some thoughts on any of these 3 different protocols and what they're doing, we can kind of jive on some of their updates.

But real quickly, we got MakerDAO, which officially pushed their DSR update that went live yesterday on Monday, the 19th.

And that basically means that you can earn more DAI on your DAI, right?

So you've seen 3 and a half million deposited into the new SDAI contract.

And Spark Protocol's debt ceiling also jumped from 5 to $20 million.

We did an episode, I believe that was last week, with Sam McPherson, the founder of Spark Protocol, really diving into kind of what the implications of this are.

But really, it's just kind of awesome to see that kind of being pushed live in real time.

Similarly with another protocol, Aave, we have Go mainnet approaching launch.

So the last piece of the puzzle that we were waiting for before Go could really kind of hit the on-chain governance vote was Aave companies kind of coming in and posting like, hey, we think this is ready for production, ready to go live.

We got that post from Aave companies 14 days ago in the governance forums.

So it feels like sufficient time has passed for them to kind of push that to an on-chain vote.

So it feels like any day now we're expecting to see that kind of push on-chain and Go will be activated.

There's a ton of things going down with osmosis.

I think it was Westy the other day, pinged our analyst chat and was like, all right, what's going on on GovHub?

We're ready to give David shit for just bragging about being a Cosmos maxi, but sure enough, there's a ton going down over there.

So we have an updated inflation schedule, changed the community pool allocation in terms of inflation, which is basically reducing the amount of inflation going to the community pool with more flowing to LPs and stakers.

There's a big discussion around that as well as a protocol taker fee on swaps.

So really trying to start cranking the protocol revenue aspect, which makes sense for an app chain.

So yeah, That's kind of 3 protocols, 3 major announcements, kind of all related to DeFi governance.

Again, really highlighting the importance of DeFi governance because my goodness, there's a lot going on.

So curious if you guys have any takes on any of those developments.

I'll start off with, I think obviously having stable coins generating interest is good, but it'll be some time before it gets adopted throughout the wider ecosystem.

I think similar to for example liquid staking tokens for ETH, both of those will slowly increase in the percentage of interest bearing versus non-interest bearing tokens and it just makes sense from like a capital efficiency perspective and there's like a lot of protocols that are offering treasury yields but not exactly in a permissionless manner and MakerDAO is kind of a method to get access to those quote-unquote treasury yields in a permissionless manner So definitely like a good move from them.

And then on Aave, I think it's quite interesting seeing the different levels of hype between CurveUSD and AaveGo, right?

Like CurveUSD is getting a lot of mindshare on Twitter.

They have that new fancy llama and soft liquidation mechanism, whereas AaveGo has been like relatively quiet.

I haven't heard anything about Aave Go to be honest.

And it's quite surprising coming that at 1 time it was like a very core part of the strategy to increase their front of revenue.

Yeah, it'll be interesting to see the implications of Go's launch to with the DSR, like you'd think a move might be to mint Go and then, you know, swap it to SDI to just collect that 3 and a half percent at the detriment of the maker DAO.

So curious to see how that plays out going forward.

And then on the Osmosis front, a lot of big upgrades doesn't really surprise me given all the heated competition over in the Cosmos landscape.

You have Astro Port, DYDX is moving over there soon.

Obviously Astro Port's on Neutron, so definitely not surprised to see Sonny and the Osmosis team kind of ramp things up over there.

Yeah, you actually mentioned a great point on like the looping trade, if you will, of using SDAI as collateral on an ulterior platform and minting a stablecoin against it, right?

So Go is launching with a 1.5% yield and borrow rate, excuse me.

So, you can kind of loop that trade and try to capture the spread there, which is pretty interesting to think about.

But yeah, I don't know, maybe we can, it'd be fun to watch that 1 as well, especially considering Curve is considering the same thing, right?

So definitely an interesting collateral choice.

And I think that'll lead, well, that's kind of just like leeching onto the yield of RWAs through MakerDAO.

It'll likely, through the PSM, like arbitrage through the PSM will increase the amount of USDC that MakerDAO has to go kind of continue the deployment of capital into these RWAs.

So it'll be really interesting to watch this 1 play out.

Maybe we can kick it over to a little hot seat, cool throne.

Sam, maybe I'll start it off with you, my man.

Finally, some good news on the block for the hot seat and cool thrown segment.

So obviously we saw a pretty big pullback with the SEC suing Coinbase and Binance, but we've pretty much completely retraced that move.

And in my opinion, it can likely be attributed to the moves coming out of trad buys.

So we saw BlackRock file for a Bitcoin spot ETF after shortly seeing rumors that happened like 12 hours later last week on Thursday or Friday, I believe it was.

And then we also see rumors floating around that Fidelity is looking to file a spot ETF as well.

So take this with a grain of salt because he's tweeted some false rumors before, but he did say that Fidelity was potentially looking to convert the Grayscale Bitcoin trust into an ETF and that maybe they'd put a bid in there.

So that's definitely something to watch going forward.

And then we also saw Citadel, Fidelity and Charles Schwab finally launched the EDX exchange that was talked about about 9 months ago.

It's literally just designed to facilitate trades between fiat and 4 digital assets.

So ETH, Litecoin, Bitcoin, and Bitcoin Cash.

So it's likely that a lot of retail brokerages will route trades through EDX in order to provide exposure in a brokerage account to digital assets.

So I think that's honestly 2 really bullish news points and I don't think they should be overlooked.

I know we get all kinds of hype news that ends up being a nothing burger, but these 2 actually feel like they have some legs.

So I'll be watching them closely going forward into the rest of this year.

Yeah, it's super interesting seeing all this positive news for Bitcoin.

If you look in the market right now, you can actually see Bitcoin dominance is edging over 50% for the first time in quite a while.

So it's kind of like a return to fundamentals.

I think overall it's looking like a good direction for Chatify.

A few nice things to note for the BlackRock spot ETF, they'll be partnering with Coinbase custody.

They'll also be partnering with NASDAQ as a specific segment in the filing that says specifically how they're going to alleviate sort of the market manipulation concerns that have traditionally been SEC's argument against the spot Bitcoin ETF and also just a fun tidbit of information I saw on Twitter that BlackRock has a successful like ETF outing history of 575 to 1.

So the statistics and probability are looking pretty good.

And another thing for the Fidelity and Charles Schwab, I don't know how much access their users get to like crypto today.

But in between both of them, they have around $11 trillion worth of assets on their platform, which is a lot.

You know, that's like 5x the crypto market cap today.

And so there's potential for infos there, especially if retail wants to trade.

As a caveat to on that point, Ren, I think the 1 ETF that BlackRock didn't get approved was an ETF that basically they wouldn't have to report on what was being held in the ETF for a long period of time.

So that makes sense that that wouldn't actually get approved.

Obviously investors deserve to know what they're buying.

So that's just another interesting caveat.

And then I also find it kind of funny that the US is just continually siding with Bitcoiners when in all reality, Bitcoiners are like the most anti-establishment segment within crypto.

They're like, yeah, yeah, you guys are fine.

Let's push through a Bitcoin spot ETF potentially and do all these things and allow Bitcoin trading and all these different venues and all these other things are bad.

But really it's Bitcoiners who are like, no, government controlled money is bad.

So it's just kind of ironic that the US is ultimately siding with the Bitcoiners.

But Dan, what do you got on the hot seat or cool throne this week?

But I got the OP SEC on the cool throne this week.

Been a lot of development going on over there without a doubt.

And they recently pushed the Bedrock upgrade, which had about 50 to 60% savings in terms of gas costs for users when compared to the legacy system.

And it also pushed a discrete two-second block time.

So it's seen a lot of interesting traction going on over there.

And, you know, as a user of Optimism, I personally have noticed a much better experience.

I used to complain about the quality of the execution over there.

And I've honestly been super happy with kind of how Bedrock has changed that.

And then more interestingly, we just saw Binance announced OPBMB, which is their scaling solution based on a fork of the OP stack.

I put them in the cool throne just because this is definitely a nod towards the quality of the OP stack is when people come in and say, you have open source code, I love what you're doing, I'm gonna fork it and use it.

And it's really interesting to see Binance kind of choose that architecture of the other existing architectures.

And they're taking a very interesting stance as well by leaning very heavily into the gaming industry.

It seems like that's kind of the wave that they're trying to attract, which is interesting because personally, I want crypto gaming to work so badly just as a gamer at heart and obviously passionate about crypto.

I'd love for the 2 to be fused together and I just like yearn for the idea of an on-chain RuneScape, but we'll get back to that another day.

And they even included things in there on their posts, like, you know, mentioning how OPBNB will be tailored to the specific needs of gaming workloads, optimized for fast transaction finality and support gaming focused features or customization.

And also another interesting thing they did was really crank up the gas limit from 30 million, which is what the OP stack on Ethereum currently uses to about a hundred million.

So really cranking that thing to the max, which is similar to what they did with BNB consensus itself.

My interesting thought is like, okay, will this be compatible with the super chain on Ethereum?

I actually don't know the answer to this.

I don't know if anyone, like any of you guys do it.

I'd love to hear it, but it is like based on the same tech, But I don't know if that means it can natively be compatible.

So the question I guess here is like, you know, Optimism pushed out this great open source tech and somebody came along and forked it that being Binance and now they're using it at their own benefit with really no reward going back to optimism for producing that great tech.

And like, sure, it's a nod at the credence and it will help bolster the strength of the technology with somebody else using it and pushing it to its limits.

But there's no direct compensation for optimism.

So it's kind of curious and interesting to kind of see those dynamics play out in real time.

Yeah, I'd probably say the more chains that end up using the OP stack and building over there, the better, even before interoperability standards actually established.

The more activity that's over there, the better.

And I think eventually they'll figure out the interoperability problem.

I know a lot of other teams are working on solving that for that ecosystem as well.

Who knows if it actually results in anything directly for the DAO.

But I think just the more users, more activity, et cetera, using rollups on Ethereum, the better.

This still settles down to Binance chain.

So it's not using Ethereum as a settlement.

Like it's truly a fork and then an L2 sitting on top of BNB.

It's interesting because, you know, like they've kind of like long, not copied, but been inspired by, some would probably argue copied, the ideals going on over the in the Ethereum community.

So now it's no surprise that they have the need and desire for scaling solutions as well.

Which is yeah, why I like I'm just really interested that they chose the OP stack.

I would love to kind of peel back more layers with that team and see what led to those decisions.

I think, I mean, the NV chain is as centralized of a blockchain as it gets.

They run on a proof of authority, have a super small data set, which I would guess is mostly run by Binance themselves.

And so it's interesting that they're choosing the OP stack as a scaling solution when they probably could tune that blockchain like however they wanted to and just scale this since it's like a more so centralized database and decentralized blockchain.

I think 1 of the interesting things is that a lot of these protocols that you're seeing launching their own app chains like AVO is the first site, they're using the OP stack.

One's the outlier, two's the trend, a third 1 and maybe like you start getting a semblance of network effects, and even though none of that value accrual goes back to the OOP token itself, that network effect is still valuable, you know?

Network effect is, a lot of the time, how something gets like, value accrual in sort of like a token sense.

And so even if none of that value accrues directly to the token, I feel like that does definitely add to like the valuation of the token or how people evaluate that token.

But what if all of the activity from BNB chain, which is quite a bit admittedly, a couple of different categories from DEX activity to stable coin activity to just daily active addresses in general, which of course is a questionable metric.

But what if all of that activity shifted up to the OPBNB, the rollup, and then that rollup was able to successfully migrate to using Ethereum?

And it also kind of reminds me of Polygon, honestly, they kind of just copied the Cosmos SDK and wound up turning it into a really successful thing.

They got lucky with timing with ETH fees getting so expensive in

But nonetheless, it kind of there's some similar parallels to draw from it for sure.

And then like to point out for optimism, we also have A16Z who's going to launch a roll up with the OP stack.

You've got WorldCoin who's going to launch a roll up with the OP stack and you have base.

So bullish optimism, like not necessarily the asset, but I think optimism is poised a lot better for adoption than arbitrum is.

And optimism also is prettier as far as their branding goes.

Those are the metrics that move the needle.

Pimples, who you got in the hot seat or cool drone this week?

Yes, I have my favorite protocol, good old Frax.

Oroboros Capital popped up in the governance forums and he's trying to modify FIP77, which was a proposal that passed in Q3 of last year which authorized a $20 million buyback of Fractures tokens because they say it was undervalued and it was also for just like general like price protection.

I think they've used like maybe like 25, 30% of this so far since like November and Oroboros came in and this is, it's funny because he was bull posting FXS a ton and he started like buying it like above $6 you know a couple weeks ago and you you see that happen and then you see him come in the forum and he's like, hey, we need more aggressive buybacks because he's underwater.

So in the past, the buybacks have been they're all done through frack swap, which uses a T-WOM and They've usually been executed over like 3 to 6 months and our borrows came in and he's like we need to execute these over 30 days.

So like any time like he wants a couple million to be deployed if FXS hits $5 over 30 days and same if it hits like 4 dollars and then likewise those buybacks would get halted as the price recovers.

So everyone's just kind of like arguing in the forums as usual about like what the exact parameters should be and whether buybacks are the right thing to do right now when they should be focusing on getting their collateral ratio up to 100% because right now it's like

so yeah that's my hot seat it's been Super fun watching all the discourse go down.

You know what they say, fill then shill, baby.

It is kind of interesting that you can just label that active investing, right?

Go buy a bag and then hit the forums to request more aggressive buybacks.

Definitely seems a bit suspect, but I think the FRAX team is well aware of the short-sightedness of somebody who's actively trading.

I did see him like kind of crowdsourcing the ideas and a lot of them had to do with like, well, I'm looking for an asset that has been hammered on perps.

So like that leverage can return when markets heat back up.

So yeah, definitely just a short-sighted, short-term trade trying to be executed, which I don't know, to no one's fault of their own, I suppose.

You always see people, if you see people talking about FXS on Twitter, they're never talking about like how great it is.

It's always like this heated, you have to defend yourself if you like FXS and you have to defend yourself because of the price action of it never actually continuing to go up.

So these buybacks over time have kind of just been exit or they've been, yeah, I guess, exit liquidity for early investors or people who locked up for like 2 to 4 years and they're just on their way out.

Should we be putting effort capital on the hot seat for his take on FRAX being the next sushi?

They're making 10 to 20x the revenue that anything in the Cosmos ecosystem is.

So when Osmosis makes more than $300 an MEV in a month, then we can actually have a discussion.

I follow this Osmosis bot, like a mev bot on Twitter that automatically reports the And yeah, it's always like 250 bucks or something like that.

So I think that's a pretty fair take, Pivils.

Unfortunately, Efret's not here to defend himself, though.

So we'll kick it over to Ren for his hot seat or cool turn.

As part of a sort of rebranding initiative from BitDAO, they're going to be converting the BITT token to MANTL.

So for those that don't know, MANTL is going to be sort of this new QL2 solution that BitDAO is building out.

And so as part of that rebranding, they're going to be doing a token conversion process.

For every BITT token you have, you get 1 mantle.

As part of BIP21, the community voted to accelerate all of BIP20 contributions and bid down large vesting schedules.

So that basically means all of the supply becomes circulating in 1 day whenever that token conversion happens.

As a point of reference, the market cap of BIT is $753 million, the FDB is $4 billion.

But it's important to note that basically all of that 3.2 billion that's not circulating is held in the BitDAO treasury today.

BitDAO has 1 of the largest treasuries in all of crypto just looking at DeepDAO today they have 3.2 billion and a large majority of that is in the BITT token and it's only sort of beaten by Arbitrum which has a treasury of 3.6 billion.

But There's like a bunch of stuff in the government snapshots that isn't that confidence inspiring.

For example, the Manto core contributor team shall be authorized to determine the optimal timing and sequence for the delisting of FIT tokens, listing of MNT tokens, opening of conversion channels and the Mantel network mainnet.

Feels like there's probably some investors or perhaps Bybit in there that are sort of smuggled in to get their investing accelerated too.

And another thing is that previously the Bitdao approved sort of like a different contribution schedule from Bybit.

So they used to have a dynamic trading volume contribution schedule to Bitdao, but now it's modified to a fixed schedule.

So it feels like there's some shenanigans here, but I can also buy to take that like they want to rebrand away from being associated with Bybit, the BitToken.

They want to sort of align themselves and their growth with the L2 mantle and open up a lot more of the token for sort of like growth initiatives.

So I think you can see both sides of the argument.

And this is something like Bybit always like people whenever regulatory action comes down or like FUD comes in heavy people always like buy bits next like look at buy bit are your buy bit withdrawals working and it's like yeah even with that massive buyback they did in December January people are like this is just excellent query for all the people who have BIT tokens, but these dudes are like generally pretty positive sum players.

Like, I don't really worry about them at all, like doing anything crazy because they always just make sure that they have all their bases covered.

Have a crazy valuation with your brand new token ticker and sell some, but like they're not going to nuke it to 0.

Yeah, I tend to agree with that take Pibbles.

They do own, I think like 60% of the bit supply.

So now MNT, the mantle conversion, which is a bit concerning, but they also do have a treasury that's like, I mean, it's definitely the biggest in crypto, I'm pretty sure.

I mean, it's got like 300 million of stables and 500 million of ETH outside of the native token balance.

And I also like the move to actually provide a product for the token to stand for and for people to rally behind.

Because at this point, what are you even buying when you buy Bit?

It's like, okay, so I have ownership in this DAO that's kind of controlled by Bybit, but there's massive treasury inflows at fixed intervals.

So it's kind of bullish, but there's no product.

I'm just not sure on the accelerated vesting schedule.

Well, I feel like that's a pretty good time to kick it over to the interview.

But before we do that, as always, Dan, you want to tell people what's good with the Atom Accelerator?

The Atom economic zone is really becoming a place for developers to build.

It's an increasingly attractive environment for a number of different reasons, largely driven by the idea of replicated security, simplifying the effort it takes to really spin up an app chain and be a part of this ecosystem.

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Stacks: Is Bitcoin DeFi Overhyped, Underrated Or A Pipe Dream? | Muneeb Ai