Hongbeom Park

Stacks Thesis (STX)

HongbeomOct 21, 2021Investment
3 min read|

While we have BitFi on other chains like Ethereum and RUNE, it's still a tiny fraction of the Bitcoin market cap. Most Bitcoiners don't trust these platforms. A significant percentage of Bitcoin either stays unused or sits on CeFi platforms.

Any chain that can capture those untapped Bitcoins will see huge price appreciation.

STX is a bet on Stacks becoming the BitFi platform. Stacks offer two value props: Clairty and PoX. Clarity is a new smart contract language that has visibility into the state of the Bitcoin blockchain. This makes the BitFi devs life a bit easier. The decidable language is intentionally non-Turing complete, which makes smart contracts more predictable and secure. The founder of Stacks described it better: "Clarity is Bitcoin's way of building things." And PoX consensus mechanism enables a yield earning mechanism where you stack STX and earn up to 10% APY in Bitcoin. For the hardcore Bitcoiners, the bitcoin yields seem interesting.

Short-term price catalysts for STX are DeFi and Coinbase listing. Two Stacks DeFi projects are launching soon: Arkadiko and Alexgo. They are gaining some traction on Twitter, but we will have to wait and see how well they work after launch. STX is still unavailable on Coinbase. If STX gets registered on Coinbase, the improved liquidity will easily double the price.

The biggest issue with Stacks is scalability. Despite the low number of transactions, the Stacks is painfully slow. And devs don't want to build on a slow backend, period. The decidable language is cool, but when the backend is slow as fuck, devs can't afford to care about a cool programming language. The same thing applies to PoX. Nothing matters when your blockchain is as slow as Ethereum. The best product builders would pick Ethereum rollups or Solana.

The scalability solutions are at least six months away. The timeline should be worrisome to anyone that believes in the halvening cycle theory. According to the theory, the peak of the cycle is within 3-6 months. And I don't want to hold any altcoin during the bear market.

Every STX investor should ask how well Stacks can realistically compete against the existing players in 6-12 months. For DeFi users, they have RUNE, RSK, and wBTC. The Bitcoin whales would use Blockfi. Stacks could gain some traction in this cycle, but it has a low chance of mooning like Terra or Solana. Despite the lack of fundamentals, I still consider STX a buy for one reason: STX is the only small-cap layer one chain that's relatively cheap. If things work out, the potential upside is huge. STX market cap is around three billion dollars at the time of writing, and the other layer one chains are valued at around 10-50 billion. I would keep a small percentage of my crypto portfolio in STX for the next 3-6 months in case the Stacks DeFi takes off or coinbase lists STX.