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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. So I'll just do some quick hitters here. 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 so the DSR has jumped to

3.49%.

And that basically means that you can earn more DAI on your DAI, right? This is basically an interest rate. 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. So super exciting there. And lastly we have osmosis. 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?

I see 4 osmosis high priority flags. What is this? 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. Supercharged liquidity pools are coming.

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, and SDAI currently has 3.49%. 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?

You can mint CRV USD against SDAI. 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.

Yeah, I've got a good 1, actually. 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. And AP underscore abacus on Twitter. 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.

So that's launching later today. It's actually pretty interesting. It's not a custodial exchange. 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. We should go against the nation state. 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?

Yeah, I love that 1, Sam. 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. So love to see 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. So really making a point there. 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. So I think it's ultimately bullish OP.

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.

Okay, that I did not realize. That's, yeah, okay. I don't really know about that then. Take back my take on that.

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.

Likewise. 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.

Pure speculation here. 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? There we go. There's your conspiracy of the day.

That's an interesting 1. 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

2020, 2021.

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

Yeah, that's super interesting. 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 he's trying. 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

94.5%

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. I don't know. 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?

Yeah, absolutely. 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.

All right. This week, I got Bidao in the hot seat. 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. But here's where it gets interesting. 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.

So that's a lot of uncirculating supply. 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.

Yeah. 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. So go for it. 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? You're just kind of confused. 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. So I don't know.

I like the conversion. I'm just not sure on the accelerated vesting schedule. That's a bit fishy to me. All right. 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. And we really have the idea of Atom becoming money, becoming the forefront of discussion and the power of IBC giving you the flexibility of interoperability. There's an increasing probability, I feel like that with each passing day IBC will likely become this, the interop standard for all of crypto. I think EFRI Capital, we kind of shoot on them earlier, but I think he's pretty on par with that 1.

Neutron now has over $14 million of TVL, which is largely driven by Astroport. And interestingly enough, Astroport, over half of their TVL has kind of migrated to Neutron. So we're already seeing some early signs of popularity kind of kicking off over there. And the liquid staking narrative is only getting stronger, especially with Stride really pioneering what that means for liquids, what liquid staking means for all of the Cosmos ecosystem. Native USDC is surely coming soon via Noble, which would be a huge unlock to have that 1 trusted source of value when it comes to stable coins.

And, you know, well, there's always a debate between centralized and decentralized stables, of course, but native USDC is, you know, often heralded for its ability to remain pegged to $1. And it's kind of a necessity in some regard to have that native form of stability within a DeFi ecosystem. And so if you think that you have some value to add to the Cosmos ecosystem, specifically related to the Atom economic zone, the Atom Accelerator is looking to fund you with a grant ranging from $10, 000 to $1 million on a rolling monthly basis. So we'll put their link in the show notes and please do be sure to check out that website. Now onto the interview with Muneeb Ali, the co-creator of Stacks.

All right, everyone. We are joined today by Muneeb Ali, the co-creator of Stacks, which is a Bitcoin-focused scaling solution looking to make Bitcoin a more productive asset. Thanks a lot for joining us today, Muneeb. We're super excited for this conversation. And I think it's a great starting point to just kind of break down, you know, what Stacks is and what's like the primary problem that it's working to solve.

So the platform has been live for 2 years now. I'd love to get your take to exactly that question. Like What exactly are you building stacks to solve?

I think the most simple way to think about this is it's a Bitcoin L2, both for scalability, but more importantly for new functionality, because we don't have fully expressive smart contracts at Bitcoin L1, like Ethereum does or Solana or other chains do. And I think Bitcoin to me is a settlement player. And most of the actual use of Bitcoin would actually happen in L2s, like Lightning for payments or Stacks for more advanced smart contracts. So basically imagine the kind of things that people are doing on Ethereum today, like using stable coins or decentralized exchanges or liquidity pools, all of that can happen with BTC in Bitcoin L2s. And that's really what Stacks is trying to enable.

Awesome. And when I think about Bitcoin as like the L1 that feeds L2s, the first thing that comes to my mind are the 10 minute block times. How does that factor into kind of the design decisions you're forced to make? And what are really the implications of that versus, you know, using Ethereum as the example where you have a 12 second block time?

Yeah, so that was 1 of the first, the biggest kind of like feedback from developers that we've been getting. And first of all, I think Stacks is a very sort of like decentralized ecosystem, which is, it's kind of like interesting that, you know, a lot of projects sort of like say that it's a decentralized ecosystem. But behind the scenes, they're typically like 1 big company that is doing a development. And Stacks is so decentralized that it actually confuses a lot of people in the industry. When folks from different companies are trying to work on it, they're like, who are you?

Why are you working on Stacks? So just a little bit of a background there that the mainnet launched in early 2021. And 1 of the biggest feedback items very, very quickly after the mainnet launch was the Bitcoin 10 minute block times, because I don't think it's just a 10 minute block time, it could sometimes be 30 minutes or 60 minutes, right? So it's also unreliable. So you don't know how long you're waiting.

And I think that that is problematic. And so what the SAC ecosystem is now doing, there have been a bunch of different proposals, But I think the proposal that's to me at least seems like has the most amount of support and would actually go through in terms of implementation is this concept of like fast blocks. And the idea of fast blocks is that if you can prove that time was passing in between 2 Bitcoin blocks, so there's a cryptographic proof that in between 2 Bitcoin blocks, time passed. Then you can start to differentiate between a Bitcoin block that happened within a second or after 10 minutes or after 30 minutes and so on. So you can actually, the L2 can keep processing more transactions.

Let's say in this proposal, they're targeting like a 5 second block time. So every 5 seconds, there's a new L2 block for Stacks L2. And depending on whenever the Bitcoin block comes, all of those transactions blocks, they get settled on Bitcoin. So from a UX perspective, I think it would be a huge win for the users, for everyday users who are used to Ethereum or other places without impacting Bitcoin decentralization. So you don't need to change Bitcoin at all.

And this work, I think there has been a bunch of progress on implementing this VDF. So VDF is a verifiable delay function, which enables these cryptographic proofs of passive time. But the upgrade is scheduled to go live with what people are calling this Nakamoto release, which is a big upgrade to the Stacks on 2.

Right on. Okay. And so again, comparing it to the Ethereum landscape or honestly, the L1 landscape as a whole, 1 of the biggest challenges is really bootstrapping an ecosystem around a programming language. So of course, Solidity has the first mover advantage there, and that's what powers the Ethereum ecosystem. But then you see chains like Apto's pioneering their own, or Fuel, and the Fuel VM.

They've been talked about the challenges of bootstrapping that ecosystem around a certain programming language. So Stacks is using Clarity. How has that challenge been presented to you? And how do you feel that the resources around Clarity have been built out?

Yeah. So I definitely acknowledge that it is hard to bootstrap in the ecosystem around any language that is not kind of like fluidity and EVM. So if you're EVM compatible, you're sort of like in 1 part of the world and the landscape. And if you're not EVM compatible, it doesn't matter which language it is. I think the particularity doesn't matter is basically if you're non-EVM, then you're in a different league.

So I would say the examples of successful ecosystems that are non-EVM, the number 1 would be Solana. It's non-EVM, still it was able to bootstrap like the critical mass of developers, liquidity, partners and so on. So I think that's kind of like the success case example. But I do think there are other places that are not EVM compatible and it's more challenging. So then I would divide the challenges into 2 parts.

1 is like just developer traction. That are developers coming, are they building? And then the second is sort of like these integrations with different third parties, different liquidity providers and so on. And where I see the ecosystem right now is that I think the developers are able to overcome that hurdle with some effort. Some developers love the language.

There's a reason why the designer picked it. It's safer. It's decidable. You can easily reason about what the program is doing. But even I would argue it has better UX.

Like if you try using for the end user, if you try using MetaMask, it is effectively there is a compiled piece of code that is sometimes shown to the user and then it's like you have to click accept or not. Whatever this code is doing, it's scary as hell. I would consider myself a pretty advanced computer user and then it's scary as hell. I have no idea what this code is. And even if you show me the same piece of compiled code on my ledger or treasure, I still have no idea what it is and what it is doing.

But I'm just going to have to click yes because I'm trying to make a password or trying to make a trade or whatever. Whereas because Clarity is not compiled and it has these post conditions, you can actually surface very useful information to the user that do you want to move these tokens and yes or no. So I think there are some benefits that are actually really good for UX as well. And you really don't care what language people use to do all these things. So I think if you just look at raw data, there's something like 60, 000 smart contracts published on on the stack L2 right now.

Obviously, it's not as much as a Ethereum, which the number is in millions, but it's still 60, 000. So I think some of the developers have been able to code, build these things and they drive it. It might be a smaller community, but they really, really like it. I do think it's a bigger challenge when it comes to third party integrations. Because over there, let's say it requires them a couple of weeks to integrate an EVM chain, but it requires them like 6 months to integrate something that is quote unquote custom or different from ABM.

And over there, my thinking is mostly that if the carrot is big enough, they'll do it. So if you truly unlock Bitcoin capital, which is kind of like the biggest thing, If there's a lot of BTC capital that is flowing in, there's tons of market opportunities, then they'll go to the effort and put in the work to actually do it. But yes, it's a challenge.

I love getting your perspective on all that. That's super interesting insight. I think it'd be pretty helpful if we broke down 2 core components of Stacks, and that's Bitcoin settled transactions and atomic swaps. Can you walk us through really what exactly both of those are and how they work? And maybe we can start with Bitcoin settled transactions?

Yeah. So I think our world view of people actions? Yes. So I think our sort of like the world view of people in this on the Stacks LQ ecosystem is Bitcoin is the source of truth. Right.

So I sort of like view Bitcoin as like if Bitcoin dies, the rest of the industry would be questionable that the rest of the industry can survive. If the price of Bitcoin goes down, everything else goes down even faster. So I think If you look at Bitcoin as the source of truth, the ultimate thing, the bedrock on which you're sort of standing on, then by settling transactions to Bitcoin, you're almost like saying that if later on there's some sort of a conflict and people don't agree what happened on a chain or L2, whatever you want to call it, then you can always go back to Bitcoin. So what happens with transaction on Stacks right now is that let's say you do a thousand transactions on Stacks in a block. When a Bitcoin block comes, those are kind of like settled on Bitcoin.

And the interesting property for an end user is that if you're booting up a new node or stacks, you can look at the Bitcoin history and independently verify that you're on the correct version of the chain. This is the property that proof of stake does not have. This is 1 of the big differences between proof of stake and proof of work. A node can independently boot up without trusting any other part. And Stacks actually maintains that property because of this settlement on Bitcoin.

Because a fresh node can boot up, you don't trust anyone on the planet. You first build the whole Bitcoin chain, then you build the full chain history of the stacks out too. And independently as an independent user, you're going to verify that this information is correct. So I think that those are the type of benefits that come with settlement on Bitcoin. And then 1 benefit that I'll mention, which is not there today, but it is very closely related, is the concept of re-org resistance.

So for security of a chain, a chain is roughly as secure as hard it is to come and re-org the data, meaning change the transaction ordering or blocks and so on. So for Bitcoin, it's the proof of work security, we know it to be the most secure chain. And right now, Stacks has a separate security budget, meaning that if someone wants to reorder the Stacks blocks, even if they are committed on Bitcoin, you can come and sort of like with enough money and resources, there is a security budget that if you have more budget than that, you can re-org the Stacks chain without re-org-ing Bitcoin. And in the next version, that is changing to 100% of Bitcoin security, which is sort of like a benefit of this settlement. That okay, you're already settled transaction on Bitcoin.

Now, instead of having these protocol rules that are looking at the stack security budget, which is a separate thing, why don't we just look at the Bitcoin hash power and the Bitcoin finality and use that for reorg resistance. That for someone to do reorg of the L2, they would have to attack the L1 and they'll have to basically reorder Bitcoin, which I think is a much stronger benefit. Because now if something, if your transactions got confirmed on L1 and they got settled on Bitcoin, now you can say with a straight face that, hey, if an attacker wants to come in and actually undo this transaction or reorder it, they would have to go and attack Bitcoin, which I think is a much, much stronger security guarantee, which is going live with the Nakamura release. There was a part 2 of your question as well, in terms of 1 was the settlement and I think there was a part of it as well.

The atomic swaps. Yep.

Yeah, so I think for atomic swaps, it's effectively the way the Stacks is built is It has full visibility into Bitcoin transactions. So if you run a Stacks node, you're sort of like also running a Bitcoin. And Stacks has full visibility into what's happening on Bitcoin. If a transaction happens on Bitcoin, it can actually trigger a contract to do something on the stack side. And by using this property, people have built these atomic swaps.

1 example for that would be the magic break. Some people have used it and the idea is pretty interesting that you have BTC and you want to swap your BTC with an asset that's on the stacks. Let's say there's a stable coin, right? There's a stable coin that lives on the stacks L2 and you have your BTC and you want to go from BTC to a stable coin in a fully decentralized way. That's actually possible today because Stacks can read what's happening on Bitcoin.

So the way that magic swap or atomic swap works is that you would effectively send your BTC And you know that my Bitcoin will be only taken away from my ownership in the same sort of like transaction in which I'm getting the other asset. Otherwise, the entire thing will fail. That's why it's atomic swap. And I think that's super interesting because that can enable all sorts of use cases around BTC. This is Bitcoin that's on L1.

So Bitcoin sort of like stays on L1 for you. And related work is just trying to move BTC from L1 to L2, which is a ton of focus in the ecosystem right now. My company, Fuzz Machine, is actually pushing that forward because we have a business in place, and then applications that we are building need SPDC. SPDC is different from Atomic Swap. Atomic Swap is sort of like your BTC L1 is being swapped into an asset on L2.

Whereas the SPDC peg is different where you're trying to move BTC from L1 to L2 and then back in a decent lifecycle. The benefit of that is once you're able to move Bitcoin liquidity into a more programmable layer, like Stacks, then you can do all sorts of new things with it. You can use a DEX, like a fully functional DEX, similar to Ethereum, you have Uniswap.

Right, okay. I think that makes a ton of sense. And I feel like the last core piece of prerequisite knowledge we should hit is really the novel consensus mechanism that you all use in the proof of transfer mechanism. Can you kind of walk us through how exactly that works?

If you would categorize like if there are classes of consensus mechanism, Proof-of-Transfer is very similar to Proof-of-Work. It's actually very different from Proof-of-Stake or some other types of algorithms like BFT consensus or so on. So if there's a family tree of these algorithms, I would say Proof-of-Task is very, it's like a cluster of Proof-of-Work. And even the motivation and the history of it comes from proof of work, where there was this idea on Bitcoin L1 back in the day and the concept of proof of burn. So you would basically destroy Bitcoin on the Bitcoin chain as a mechanism to bootstrap a protocol or something.

So the idea is that Bitcoin is produced through proof of work. So Bitcoin is digital energy. And now you can use that digital energy as input into another consensus protocol. So you don't have to do the Pooja work again. It's like some people call it recycled Pooja work because you've already done the work to mint Bitcoin in the first place.

So with that in mind, when I say that it's very similar to proof of work, it's sort of like, it's not the case that existing STX holders have any say in consensus. Whereas in proof of stake, it's the existing holders of the token that have control of the power for any consensus. That's not the case here. You have basically expenditure or some sort of energy coming outside of the consensus mechanism. In Bitcoin, it's electricity that is the input.

Electricity is the external thing that is coming into the system. Whereas in proof of transfer, Bitcoin is the external thing that's coming in. So people are actually bidding in BTC and they place their bids. They have a random probability that increases if you're bidding more in BTC, similar to if you have more hash power in Proof-of-Work. Over here, hash power is replaced with Bitcoin that you're willing to spend.

So in proof of work, let's say you want to be a big miner, you would need to have a lot of hash power and you have to burn a lot of electricity. In proof of grass where if you want to be a big miner, you have to be willing to spend a lot of Bitcoin. And the final piece, and this is the part that sometimes people have a hard time wrapping their head around it, is that we are not actually destroying the Bitcoin. In proof of work, energy is sort of destroyed. You're not doing anything useful.

These hash calculations are basically throw away. Those calculations themselves are not meaningful. So in a way, electricity is being destroyed and Bitcoin is being minted. Whereas we could destroy the Bitcoin that's coming in for Google transfer, but that would be a huge waste. So the way that the system works is that we can redirect that Bitcoin to other parties who are doing some useful work or for the consensus protocol.

And right now the useful work is somewhat very simple. People lock up STX Capital and they're sort of indicating what is the right chain tip to be on. But in the future, the Nakamoto release and the coin rewards will be directed to folks who are helping maintain the PEG, which is the transfer of BTC between the L1 and L2. It's like trying to think of the peg signers as a third party and they're doing useful work for the decentralized protocol. And they can be paid because we have this luxury that there is a bunch of Bitcoin coming in to get photocopied and be redirected to other parties to incentivize them to do useful work.

Is that the first time you've given that overview before? I feel like that was literally perfect. I'm sure you've done it once or twice already.

No, I have, but I'm pretty sure every time I do it, it's a little bit different description.

Yeah, that was absolutely perfect. I really appreciate that. I guess I just want to hound in on 1 more point that we already discussed a little bit, but just to make sure the listeners are aware. So how exactly is the security budget of Stacks being removed after the Nakamoto upgrade? I think it's 150 blocks, you can kind of assume that the transactions are completely finalized and settled on Bitcoin, but what exactly is the difference in architecture today versus what it will be post-Nakamoto?

Yeah, I think it's a great question. Right now, as of today, and it's the same system that went live in early 2021, Stack has a separate security. And I think there are some benefits to that as well. Like for example, someone can argue that you're not opening up an attack vector on Bitcoin L1, where if let's say there was a high value transaction on Stacks and the only way for someone to reverse it would be to go and attack Bitcoin. Someone can argue that you're opening up an attack vector here, but now I feel like the world has changed in the last 2 years where there's a ton of progress on rollups on Bitcoin and almost all of those rollup solutions are going to just follow Bitcoin for now.

So I think Stacks is going to be part of the class of solutions which are generally... So I think the future version of Stacks, just a side point, I think it's going to start looking closer and closer to how rollups are. Again, I'm 1 individual contributing to the ecosystem, but In my mind at least, I think 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 100% of a re-auth resistance of Bitcoin.

And I think the, so then currently you can fork the Stacks ledger based on how much mining power you have in Stacks, which is the BTC point, or the burn per transfer. So let's walk through an example. Let's say that 6 blocks have passed in stacks and I want to create a fork. Regardless of what Bitcoin is doing, I can basically just come in and say the parent of my block is the seventh block, and I'm now building a competing fork. Some miners on Stacks might continue to build on the existing fork, but you are building a competing fork.

And at some point, you might become larger, mean lower. If you become longer now, the chain has a new default long fork and you've successfully done a reorg that is 6 blocks deep. And so that's possible today. After Nakamoto release, someone wants to do that, they will literally have to go and fork BTC L1 to be able to do that. So you'll have to create a 6 block deep.

And then again, if you want to do 12 blocks deep or 20 blocks deep, 100 blocks deep in Bitcoin, it becomes exponentially harder to do it. That's why 6 blocks are unique. The probability of a re-op deeper than 6 on Bitcoin is very, very, very small. So that's, I think, a big, big benefit of the upcoming groupings. And in the paper that's out there, and again, this paper is a working product of a working group.

It's a bunch of people contributed to it. And you would notice that there are no authors listed because it was almost like We should be listed and we shouldn't be listed. So maybe just don't list anybody. It's a product of our working group. The paper does talk about these 150 blocks, but there is a competing proposal in the community right now.

And I think I've discussed with some of you the challenge of actually getting even the latest information in the ecosystem because of these satellites. But I'm sensing a bunch of support that, hey, why even wait 150 blocks, just follow Bitcoin finality? And because all of these roll-up solutions, sovereign roll-ups, or relatively roll-ups in the future, they're just going to follow the current finality. So why can't we, in the new version, just follow that? So I would say, if you had asked me personally, I think I'm more inclined to do just the six-block finality than 150-block.

But I don't think there's community consensus there.

Interesting. Yeah. I mean, the first thing I noticed when I started researching Stacks was just the forum. Like, there's so much going on on there. There's a lot of contributors, a lot of people commenting all around, making different posts.

Like, it's actually super cool. It's a lot better than a lot of the top projects you see in Ethereum. So congrats on that. Yeah, it's very interesting.

I mean, it's a very healthy sign, but I'll give you an example. Let's say there is some ongoing team that can be improved. You would actually see if 1 proposal comes up and someone says like, hey, I have an RFC, here's an idea for how to improve it. Very quickly, you would see like 6 other proposals. I think it's a very healthy thing that people are independent and they're proposing their own social like solutions.

But on the flip side of it, the challenge then becomes that as a decentralized community, how do you pick 1 of them and move forward and, and, and, and roll it? Right. So I think, I think I shouldn't complain about that challenge. I think it's a very healthy thing to have. I would much rather have this than nobody cares.

You'll run into people are just proposing ideas. But I do think it I want to acknowledge that it is a challenge. That how do you now converge different people different proposals into something that everyone agrees on and build, go through the SIP process and so on. So it's not the case where, you know, I don't want to point fingers, but let's say we are a sauna lab and you say, we think X should have them and they do it overnight. So things tend to happen much more slowly as a log stock because it's decentralized and no 1 is really in control.

Yeah, no, that makes a lot of sense. I think governance is 1 of the sectors in crypto that I don't think anyone has a silver bullet for yet. So by all means, try whatever you can. But I did want to stay the conversation a little bit towards S-Bitcoin, just because a lot of projects have attempted to make trustless Bitcoin bridges. It hasn't really been done super well to date, I would argue.

And then I also wonder, I guess, is there actually demand to use Bitcoin and DeFi? And I feel like that's a fundamental thesis that you hold, but then you look at the RAT Bitcoin supply or some other Bitcoin L2s that have attempted this in the past and none of them have really taken off. So I guess, how does sBitcoin work and how confident do you still feel in people's desire to use Bitcoin and DeFi applications?

Yeah, I think that's a great question. And I would say that I've held this thesis for a while that people call it the Bitcoin thesis, where the idea is, and again, it's not coming from me, it's back in 2012, 2013. A lot of people believe that if there is an app or a use case that's successful on these smaller chains, Now those smaller chains are actually pretty big. Ethereum is actually a pretty big ecosystem. Those things will eventually come to Bitcoin and they will be more valuable on Bitcoin because they will benefit from the security of Bitcoin, durability of Bitcoin, but above all the liquidity of Bitcoin.

And I think I would say part of that piece is very recent. So I held on to it longer than people would think I would. At 1 point, there was all sorts of market data pointing against it. Like if you look at the period between 2018 to even this year, a lot of market data would say that no, we need to get it out on other chains and nobody's building them on Bitcoin. And I think this year with Ardinal's and more recently with BRT20, part of the thesis is actually to make trade.

Like where it is literally the case that the NFT is the same NFT when you bring it to Bitcoin and you store it on the Bitcoin chain, the market is valuing it as something more stable at a higher price. And people are trading it. And I think there's a community of builders coming around and they're doing it. So I think if you look at some of the data for NFT trading volumes, and I know it depends on how you measure it. You shouldn't be excluding BRT20s from it, but on some of these sites, Bitcoin is now the number 2 in terms of trading volumes of NFTs.

And Solana is number 3. I think 6 months ago, this would be unimaginable. Bitcoin was not even on the map. So I would say part of that thesis is playing out. It is not playing out.

It hasn't played out in DeFi yet. And I'm very confident in the yet because I think that it's to me just so obvious that Bitcoin is 250 billion of capital. And I think around 33% of that is actively deployed in contracts and so on. And Bitcoin is the more pristine example, right? A lot more people are sort of like bought into the idea of Bitcoin as money or Bitcoin as a potential reserve currency and so on, but it is not being utilized.

I think A lot of it has to do with just the infrastructure and the tooling and the wallets and the developer community around Bitcoin versus any fundamental thing that people just don't want to use their Bitcoin in things because there's so many counter examples, right? RST, for example, they did their fundraising in Bitcoin and I think 25, 000 BTC came in and attended that raise. Even if there are some play calls on Bitcoin right now, like there are these privacy tumblers that are seeing something like 7000 PTC being used. And these are clunky things, really clunky, bad UX type things with not even that good privacy. It's the best you can do on L1, but it's nothing close to like a ZK based solution that has great UX and people can very easily kind of like get well, can mix their coins and get like fresh ones.

And I think if you start bringing those use cases, to me, it's as obvious as putting 2 and 2 together, that people will use Bitcoin. But the challenge really is in the infrastructure, tooling, devs, UX, wallets. I think that needs to be much more mature than the state that we are in today.

1 of the other interesting things kind of going on is the idea of subnets. And I think some of our listeners might be super familiar with how Avalanche uses these, but I believe they're kind of relatively similar in the intent and purpose of the subnet in the Stacks ecosystem. So what kind of security guarantees will a Stacks subnet have?

Yeah, I think subnets are 1 scalability solution that 1 company in the ecosystem, Hero Systems, has been working on. And the idea of subnets is very similar to Anvil. Subnets can be more personalized, they could be more private if you want them to be. So if you are a large enterprise or you are a group of enterprises who want to have a blockchain-like system, but you want more control as well, I think subnets sort of make sense. And the interesting thing here with the way subnets are evolving in this ecosystem is, I think that, again, because it's connected to Bitcoin, the unique advantages are going to be 1, easy flow BTC liquidity.

So once SBTC goes live, I think you can then take SBTC from L2, you can think of subnets as almost like L3, into the subnet and use Bitcoin in there, which I think a lot more people would be interested in. This is part of the thesis that Bitcoin has the best brand, Bitcoin has the largest capital base. So a lot more people would be interested in using BTC in a subnet than some other asset in itself. The other thing is that I think the subnets similar to the stacks can benefit from Bitcoin settlement. So if you have a use case of like, let's say it's a bunch of banks or whatever, and they don't feel comfortable using Bitcoin, the public network, or, and they're looking at some private departments, some of this would be sort of like the best of both worlds.

They can control the funds, how they want, but they can still do settlements on Bitcoin main chain. So they can later point out that, look, these transactions that we're talking about, there's a proof on the public Bitcoin network that we did them. And they can reveal them later on if they sort of want to. So I think the idea of these Bitcoin subnets is pretty interesting to me. I like it, it's sort of like, there's an analogy with the public internet actually.

Like if you look at the history of the internet, initially they were competing standards to the public internet, like people trying to build like semi-private networks or other complicated networks. But the TCP IP based public and garages took off and then everybody started using it. That to me is Bitcoin, right? Like that is the simple thing that is public, everybody uses it. But then people, instead of having their own private networks that were completely disconnected from the internet, they started having these private lands that are actually connected to the internet.

So they do some things internally, but they have access to the public network. And I think these Bitcoin subnets are sort of like that, right? Like they're not totally private. They're connected to Bitcoin L1, but they don't share everything with the L1. They benefit from it, but there are some private things that happen on this planet as well.

Yeah, strongly agree. I think a world of subnets on Bitcoin is a very exciting future to look forward to. So definitely rooting for you as you guys develop that strategy out. But I did want to switch tune a little bit and just cover some of the stuff that I wrote in the research report that we published on blockworksresearch.com, there was 3 things that I identified. So there is Bitcoin MEV, reorgs and orphan blocks on Stacks, the chain, and then also the Stacks increase bug.

So we'll start with that 1. Do you mind giving us just a little synopsis of what exactly happened?

Yeah. So I think the way to think of this is proof of transfer is implemented as a clarity contract, which has sort of like a special, it's different from a normal contract published. Think of that as like, you know, you think in terms of operating system, this code that is at the kernel level is not an application, not an application that anyone can develop, but it's really part of consensus. So it's the PUEX contract is written in Clarity, and the initial version went live in early 2021 with the mainnet launch. And basically what that code does, you can actually view it because Clarity is not compiled.

So you can actually go to the Explorer, view what the POS contract is, how it's interacting with the transactions and so on. And that's the place where people lock their STX. And there is basically 4000 reward slots and people get an allocation in those reward slots. And then those reward slots are used in the consensus mechanism where instead of just burning the BDC, Bitcoin is actually sent to these 4, 000 addresses. And someone can actually, the number of addresses could be smaller because some people might own multiple slots.

It might be blocked and more capital. But it's basically the mechanism through which the protocol decides in a decentralized way where the Bitcoin is going. So it's pretty, pretty important. When it launched I think early 2021 very quickly I think hundreds of millions of hours of lock. I think on average I would say in terms of STX I would say maybe 400 million STX is the average.

Then we've seen sort of like locked in the contract and then the price of all staying goes up or down. Right. So it was $2 that meant like close to a billion dollars, but it's $1, 400 million. But we're roughly speaking 400 million is locked there. And there have been many proposals for improving that.

Over the year, people wanted to do certain things where, let's say if I am withdrawing my capital out and I want to re-lock it, you have to go through a cycle. And a cycle is 2 weeks. So you're sort of like losing out on the reward that you received if there was functionality that said, hey, I actually want to extend my lock and not actually unlock first, lose a cycle, then re-lock. That's 1 functionality. Another is I want to leave my capital locked, but actually lock some more capital on top.

You can't do it in the original contract. You have to move capital to a new address, then log as a separate address and maybe you don't have enough capital to get a slot. Versus if you could have combined with the previous 1, it might have been easier. So think of that as various improvements that the community have that should be there. So over time, a new version will develop UX too.

And again, I mentioned like the long process that happened with the decentralized community, like how is this, this thing going to go live, it actually took a while to go live, like almost, I would say, ideas that were there, you want to try it in 2021, it went live, like 6 months ago, or maybe maybe less. So that was the first measure I created the PX control. And it worked fine for a while until someone triggered a bug. And the bug was that someone for the first time called this function called stack increase. What the function does is that I have some capital locked and I want to put more capital on top.

And the way the bug worked was that it would give you more reward slots than you have or than what you shrink it. So there's a bug in the code. And what it's doing is for anyone who called stacks increase, you get disproportionately large number of reward slots. So people can either repeatedly call it to the extent that you enter weird scenarios where the total supply lock is actually higher than the total circulation of STX. It's a bug.

It's a pretty bad bug in a way because it's impacting the rewards that other people are getting. Because now someone has this phantom capital lock. You don't actually have the capital, the protocol thinks that you have a lot of capital lock and the reward lock should be going to other people. They're now affiliated to you. So I think The net impact of that to users is their rewards for that cycle go down.

But realistically, practically, people have experienced that several times for various reasons. Sometimes the stock price goes down, So their rewards go down. Sometimes a lot more capital gets locked for a particular cycle, like 500 million, 600 million, whatever the number is, and they get less reward. So I think for the average user, my take was, on the forums and Twitter, that people weren't that concerned. They were like, okay, fine, I'll get lots of rewards this cycle.

But they view rewards as basically like rewarding a bonus that they're getting on top. And it's not like, hey, my capital is at risk. And I want to differentiate between the 2 things. The bug wasn't that your capital can be stolen. Like it's like, you'll receive less reward.

This cycle. And then in the protocol code, there's a general design philosophy that if anything goes wrong with POS, whatever it might be, the protocol starts to reverse back to burn. Burning is the safe place you go back to if something goes wrong. So this is how the community sort of reacted. They're like, okay, something went wrong.

There's a bug. So we're going to revert back to burning because you don't require any community consensus or SIP upgrades for that. That's sort of like already baked in. That's the default behavior. So the protocol reverted back to burning for 1 or 2 cycles, 2 cycles I believe.

And then a new upgrade was shipped that fixed them. And that went live. And I think very quickly, that 300, 400 million SDX capital, I think it all came back. I think right now we're back to 400 million SDX locked.

Great. Thanks for that in-depth explanation. So I guess something I gathered from this was had SBitcoin been live, since stacks, SDX stackers are charged with maintaining the peg, signing peg ins, peg outs, honestly, if the STX stacking contract thought that 1 entity had way more STX than they actually did, couldn't they have signed a dishonest peg out? And then as a follow-up question, why couldn't someone stack a bunch of STX, short the STX, and then sign a dishonest peg out?

Yeah. So I think the request, and let me second them out. So for the first part, there are effectively different maps that are maintained for what the state of the STX log is. And there were a bunch of those maps that were accurate and only 1 particular 1 that wasn't. So, the SPDC impact wouldn't be there unless it was a different type of a bug where the SPDC specific information is corrupted.

So just like very specific on this bug, it would not trigger it because it did not trigger some of the other functionality that was using the Sth supply or is it locked or is it is it not locked? Right? That's, that's 1 thing. But I do think that the theoretical attack vector that What if the knowledge of the protocol for what the supply lock is gets corrupted. I think this bug wouldn't have done it, but it is theoretically possible that it can be done.

So I would say that the response to that is, I think this is 1 of the areas where actually having clarity helps because the code is not compiled. The language is actually focused on safety. The language has a lot of tools that can help you uncover these sort of bugs even before you deploy this. Over here, I think the direct role that the core devs did was more around just better testing was needed. Like The language has the capabilities to try and find these bugs even before you deploy the code, but not enough testing was done even before deploying this.

So that was 1 of the learnings in the ecosystem. So what I would say is that fundamentally, any piece of software can have bugs, right? So SPTC for this type of a bug that has the supplies actually different from what the reality is, I think it can occur anywhere. But I would argue that 2 things help. 1 is clarity.

The language itself actually helps a lot. This is where you take the hit on the challenges of developers needing a new language and third party integrators taking longer to integrate. But this is actually 1 of the benefits, right? Like where you can get better safety. And the second thing is that I do think that real world, like testing and use of the protocol helps, right?

So this contract, the previous version was live for like 2 years and nobody discovered a bug. And then it was actually an upgrade that caused the bug. So it's a little bit like my, Again, this community might, if I don't control them, might end up doing something different. But my view is that as SBTC goes live, this particular contract actually gets hardened over time and doesn't change. This is not 1 of those places where you introduce new features every 2 months or every year.

So if anything, this bug, I'm in a way glad that it happened now because it taught a very expensive lesson that this is that part of code where you don't want to change it that much. You want to test it a lot and then you want to leave it alone, let it harden and not make any changes. So I think that can be helpful. And while the other part of the question about generally can you impact by market dynamics or not? So I think there are 2 parts to it.

1 part is that SPTC current design is sort of evolving towards a place where a lot of the parties that are involved or custodians who want to be signers and so on, they all are feeling much more comfortable in a position where at least 30% of the lock supply is sitting with, let's call them institutional custodians. You know, they might be the Coinbases or Bitco's or these are large exchanges and whatnot. So if that is the case, if 30% of the supply is sort of like sitting with people, which we're going to assume that they're not going to get hacked, right? Because if they get hacked, our industry has like a much bigger problem than just the SBC. Then I think it's an interesting dynamic because it is still an open system.

Anyone can become a signer. So it's very decentralized. Anyone can come in and go, but you have a backstop. You know that at least 30% of the supply is sitting with people who are institutional, they are professionals and if they get hacked, you'll have bigger problems. So I think I sort of like that design.

I think if that is true by the time SPDVC goes live, other than the economic incentives part of it, I think just having that 30% supply in the hands of a really busy company would be very helpful. And then if you forget about this argument, generally speaking, yes, you can sort of like short STX, try to buy a lot. But if you just run through some of the numbers, there was some market reality today. I think Binance is the largest exchange and I believe that I went to check like recently, but maybe a couple of weeks ago, that's like 120, 130 million STX. So the total liquid supplier in exchanges, and you can add up all the other exchanges, the total liquid supplier on all exchanges is maybe 40% of the lost capital and consensus right now.

So even if you buy everything that's kind of like floating around, you wouldn't have majority pile around on the tech. So that's not a strong argument in the sense that maybe Stacks becomes more liquid. It's a ratio between what's locked already and what's available. And historically, I think the liquid supply has been a pretty small fraction of the distribution. And the question would be, if an app would grow, is like, how does it change?

And I think as long as the lock supply is very healthy, like a very large percentage is locked, is it'd be hard to do business.

Yeah, it's interesting that you mentioned that as well, because Thorchain kind of has this similar problem, not necessarily a problem, but like a circumstance it has to think about where you could kind of run that same shorting attack on Thorchain and it would be profitable in some ways. So they made some interesting design decisions that kind of helped incentivize the RUIN, which is the Thorchain token, to stay within that ecosystem. And so they aren't IBC compatible as a Cosmos based chain, which kind of was like, all right, well, that'll help prevent going to like Mars, for example, or some other lending protocol in that ecosystem. But like they do, the community is very aware that like the amount on Binance and other exchanges is this important metric. Do you have any mechanisms to maybe help incentivize or give reason to keep the STX token within the on-chain instead of going to these centralized exchanges?

Yeah, so I think the biggest 1 is the Bitcoin yield. If you look at the stack ecosystem, I would say by far the largest number of users using anything in the protocol or yield going up, the Bitcoin yield is by far the number 1. So if it's the case that I think maybe 30-40% of the supply is locked right now, but I generally categorize stacks as a small ecosystem right now. I think as the ecosystem grows, maybe not the 50% of the supply will be locked in. So I think that would be a pretty elite place to be in.

And I think right now, people are sort of like locking capital. Yes, it has these side effects of like, you're signaling to the protocol and so on. But with SBDC, you're actually doing active work. You're running nodes, you're signing actively. So from the health of the ecosystem perspective, if more capital is locked and more full nodes are there and more people are actively signing stuff, It's actually very healthy for them.

And then as a byproduct, it also reduces the chance of these attacks where you can go and buy up a very large portion of the supply as well.

Yeah, that makes a lot of sense. I do want to pivot real fast because I know we're running up on an hour and I don't want to take too much of your time, but I think the Bitcoin MEV situation is absolutely fascinating. So for the listeners, a little bit of background, F2Pool, large Bitcoin mining pool operator, they have like 15% of the supply And they have been censoring out other proof of transfer miners by only including their own transactions. So then they can essentially bid a lesser amount and still win the stacks rewards and they'll win because there's no competition. So there is a proposal live to implement a minimum amount of Bitcoin that needs to be sent to STX stackers in order to ensure that they're earning their rightful yield.

So it sounds like a pretty good idea, but at the same time, the way I see it is because F2Pool has the ability to exclusively mine blocks at certain periods of time, they could theoretically censor L2 users, which they're not doing today, but they could. And then on the same token, it doesn't change the fact that if it's still profitable for F2Pool to be doing this, why wouldn't they continue to do it? So I'm just curious to get your response on those, Munib.

This thing is basically a thing when the system was going live, the core dollars and a bunch of people including myself, that there is a potential here where if a Bitcoin miner becomes a Stacks miner, they can actually mine at both discounted rate. They're basically foregoing this transaction fee that they could have collected and they're getting SDX cheaper than other folks. And at that time, interestingly, the idea was, this is pre-Nakamoto design, right? So the idea was that if you convince all of the Bitcoin miners to do it, in a way it's actually a good thing, because now 100% of the Bitcoin hash power is actually securing the L2. And that's actually not a bad outcome.

And then later on, people figured out to get the 100% of the Bitcoin hash power anyway, and to the Bitcoin finality path instead of trying to convince the Bitcoin to do it. And I think that's a cleaner, better way of getting that. And obviously, you want to use these rewards. So in the old system, I would say some of the estate holders not getting these rewards, to me, frankly, not that big of a deal. But like we are prepared to build applications and use them and those applications used to be useful.

But I do agree that for SPTC and SPTC weren't there, ideas weren't there at the main spot. I do think this yield is actually more important now, at least to me, because it is now an incentive for SPTC. And I think that's a very big potential problem. If you solve it well, meaning that there's really smooth transfer of Bitcoin between L1 and L2 and as decentralized as possible today. People have incentives to do it because they're earning Bitcoin.

So it's a long way of saying that I wouldn't have been concerned about this before 2021. It may be fine that all miners start being a bit only bringing more security to a chain in a way. So now with SBDC designs, I do count the extension. But at the same time, my view on this is that the miners are able to do it because of the protocol rules that are allowed. And they specifically allow them to do this.

And with minor tweaks in those rules, you basically take away their rules. And there again, I mentioned earlier that when there's a problem, 6 different proposals come out, that is literally what happened with this thing as well. Everyone had their own proposal of what can be done, but all of them are, think of that, this as they're trying to pick a point on a curve for how to pick the minimum bid that the miners should make. So they're interesting proposals, there should be 90th percentile of the average of the last X blocks and so on. And people are actually now running models and doing interesting analysis and calculations.

But if you zoom out a level, what they're basically, basically the protocol rule tweaks is, is the miners can't mine for C anymore. Right. So they will have to be actually transferring BTC and BMI. So right now, let's say they're only foregoing the Bitcoin fees that they could have collected and they're mining for a 90% discount. I think in some of the proposals, their discount goes down to even below 1%.

So their economic cost is very similar to a normal. So for any rational actor, they will only do it if it makes economic sense for them to do it. And then I'll post like 2 other things in terms of potential impact on other users. So I would say that Bitcoin miners as a category always have the ability to climb last round with altcoins. It's free for Lightning, it's free for SAC, it's free for any other future altcoins that might come.

So that's not a new thing. It's basically like saying there's a malicious Bitcoin. It's malicious or somehow they're motivated by some sort of a profit they can make. And over there, typically what happens is that your belief is that Bitcoin or an incentive compatible system has other rational after it gets it from the formula. So if 1 miner, let's say F2P doesn't want to confirm the transaction, the miner right after it would.

So if I'm a user, let's say I'm trying to move my funds and peg them into L2, and F2Pool for whatever reason doesn't want to do it, that just means that I'll have to create 1 more block. The next miner is going to do it and I'll go in and I will use my BTC. And similarly, I will peg out if F2Pool doesn't want to do it, that's fine, the next 1 will do it. But I think the question would be why weren't they allowed to do it on the dole because they're just leaving out of the Bitcoin fees. There's no advantage to them to not collect a fee because it's unclear to me what type...

Over here, there was a clear policy. The protocol basically said that if a miner, Bitcoin miner does this, they will earn more money. It was sort of like money was at the table, nobody was collecting. F2Pool started collecting it. On that issue, we've been at war for 2 years, now there's a little bit of sense of urgency.

Hard life.

Have any other miners indicated that like, I guess it only have to pull just out of curiosity or is anyone else kind of like notice this opportunity and kind of stuck their hat there as well.

So, so far it's only a people and a tank. There's, there was my do it as well. It's also like in the grand scheme of things, not a lot of money. If you're a miner, there is some overhead. And this was my argument for why this was an emerging issue.

There is overhead. You would need to buy stocks. In other words, you would actually the cost of people, humans as well. You need somebody who is spending time and effort running the miner, optimizing it, and upgrades coming, you have to upgrade. They do that as well.

If you look at it in terms of how much money they're making, the order of like, I don't know, hundreds or maybe thousands of dollars per day. If you're a large miner, that's not a lot of money. And it's not from birthday presents, but it's millions of dollars that they're making. You make it through this.

Fascinating. I did get a question inbound on DMs asking, have you seen an increase in Stacks mining competition over the last few years? He was wondering like what your steps are to increase that competition. And I know I'm throwing a lot at you right here, but I'll let you answer that 1 real quick and

then I'll get you my last ones. Yeah. I think that minor decentralization is a big thing, super important. 1 thing that happened with Stack 3.1 is there's an ability for having decentralized mining. So many different people can pool together and they're still sort of like doing 1 combined transaction.

The main limitation is really it's almost only a launch. For example, let's theoretically run the numbers. We actually don't want to consume like 10% of Bitcoin bandit on stacks mining. A lot of people would be yelling at us. So if Bitcoin does 1000, 2000 transactions per block, you don't want 200 miners getting stacked mining.

100, 200 miners getting stacked mining. So I think this protocol, the way the constraints work, and then there's always a question of Bitcoin fees. There's a ratio between how much money is going to fees and how much money is going to BTC rewards. If you do get 200 miners, that actually means that a lot of the money is going to fees, which me as a Bitcoiner is happy that Bitcoin miners are making money, but that also means SBTC and now it has less incentives and less rewards. So that's the flip side, actually.

So to me, also looking at how Bitcoin fees are heading, I actually think that Bitcoin fees are going to become a bigger problem sooner than minor tensile outages. Because if Bitcoin fees spike to 500 sats, but they spike to like a thousand sats, then very quickly that single thing will be impacting SPTC rewards more than anything else. That's why I'm more excited about some proposals, I've contributed to some of them, which are now trying to view the next upgrades or versions of SaaS as similar to like how the rollups chains have sequencers. And then there's a sequencer that just publishes data on that 1. And then you can almost imagine a world where there's a different type of mining that is actually more decentralized, but the L1 footprint of that mining will actually be very small.

So in a way, let's call them quote unquote, lift the mining process away from L1. You're still benefiting from Bitcoin finality and Bitcoin re-auth that you're sort of like less dependent on how much is Bitcoin fees and miners are always thinking about the maximum number of miners as a factor of how costly it is to send transactions on Bitcoin. Because if you just left all of this away from Alibaba and there's almost like a sequencer running, then there can be many more parties participating in mining without increasing the Bitcoin fees that they have to pay.

Awesome. Thank you for explaining that. I will hand it over to you again, Muneeb. Thank you so much for coming on. If you want to touch on really quickly the reorgs and orphan blocks, by all means, get your 2 cents in.

But other than that, if you just want to tell people a little bit more about where they can contribute, learn more about you, maybe your Twitter handle, that'd be great.

Yeah. So I think very quickly on the Reorg stuff, I would say that compared to minor efficiency and sample iteration, I would say the decentralized mining tool are short-term things that can be impactful right now. There's already, I think, grants and machinery working towards this. It will help long-term. I mentioned that looking closer to like a sovereign dole log with a sequencer exactly something that I'm personally very excited about.

In terms of the orphan block issue I view that as a very, very temporary thing. Orphan blocks by the way have always been around around the time they've been around in SACS. I was actually looking at a graph that the orphan block rate actually hasn't increased. What caused recent concerns were there were some orphans that were just deeper floats. And So blocks aren't getting orphaned at a higher rate than they have been historically.

The rate is somewhat constant. But what happened recently was that some of those individual flops were just deeper. So that raised more concern, and that's no longer happening. There are many small time upgrades happening that help that situation but when the people behind forcing less concern about it, all of that is going away with black comedy at least I mean, right because the Bitcoin finality is changing that explicitly means that orphans just go away. Bitcoin decides what is a valid block or not.

So you will only see APOLX for the small 6 block Bitcoin bin deck. And then those folks will disappear just like Bitcoin pools disappear. So I personally wouldn't want to spend too much time on a problem that is not that bad and it's going away with an upcoming upgrade anyway. So I wouldn't lose people. But in terms of like contributing, I would say I cannot emphasize this enough that this ecosystem is very, very different.

It is very decentralized. There are the healthy community and I think people want to get involved. I think we have been sort of like pioneers in Bitcoin, building on Bitcoin and Bitcoin out in space. And now there's a revival, right? Like with Ardnalls and other exciting things happening.

SPDC to me personally is 1 of the most important things that can happen. I think once people see Bitcoin sample actually being deployed and the lead in an easy, fast way, I think that's going to be a big aha moment for the industry that Bitcoin has actually outgrown the financial sector. I'm actually in the UN, CEB, and generally always interested in building on Bitcoin. So if you're interested in that, I think you should take that.

Awesome. Thanks a ton, Yib. We will be sure to put those links in the show notes as well. So everyone, all the listeners can easily find you and the great work you're doing. So thanks again.

This is a great conversation. We really enjoyed

you