Alex Research Report: Unlocking the huge potential of Bitcoin DeFi and BRC-20

Author: Charlotte, Kevin, Metrics Ventures Source: X, @MetricsVentures

TL;DR

1. The inscription has fully detonated the Bitcoin ecological narrative, but The popularity of Inscription has also brought issues such as insufficient Bitcoin ecological infrastructure and crowded transactions back into public view. After Inscription, the market has begun to explore the infrastructure and functional products of the Bitcoin ecosystem. Due to the limitations of the Bitcoin network itself, smart contract products can only be deployed in expansion plans.

2. Alex Lab is a DeFi infrastructure built on Bitcoin's second-layer Stacks. The functions that have been launched and are being developed include Bitcoin A series of functions such as currency oracle, Bitcoin bridge, AMM, order book, pledge, Launchpad, etc. build a complete DeFi basic suite.

3. From a competitive perspective, Alex Lab is the absolute leader on Stacks. Compared with other expansion solutions, Stacks is currently the second-layer expansion solution with the healthiest ecology and data growth. It is comparable to Rootstock. Sovryn is the leading DeFi protocol on Rootstock, but the current business focus of the two is different.

4. The Nakamoto upgrade and the issuance of sBTC are expected to be launched in the first quarter of 2024. The Nakamoto upgrade will bring an overall improvement to the performance of Stacks,sBTC It will unlock new opportunities for Bitcoin DeFi, and Alex Lab will be the best target to lay out this upgrade.

5. Based on ALEX’s valuation and TVL, ALEX can be used as a leverage target to lay out the STX ecosystem. ALEX is currently not listed on large CEX and has a certain liquidity discount. Future listing may bring about an increase in currency prices.

1 Introduction: After the inscription, where is the next Alpha in the ecosystem?

The domino effect of the explosion of inscriptions demonstrates the potential of the Bitcoin blockchain. If there was still a debate about the legitimacy of establishing the Bitcoin ecosystem a few months ago, now this issue seems to have been diluted by the extremely high market enthusiasm - people have higher expectations for the Bitcoin ecosystem. The attention of the Bitcoin ecosystem started with Inscription,but it will not stop at Meme. After Inscription, the market will begin to explore the infrastructure and functional products of the entire ecosystem.

First of all, the popularity of Inscription has also brought long-standing problems in the Bitcoin ecosystem back into public view. First of all, there is a serious lack of infrastructure in the Bitcoin ecosystem, which greatly limits the trading of BRC-20 tokens.Binance Research also mentioned in its research report on BRC-20: decentralized indexing and fully functional The deployment of DEX will lead BRC-20 to the next level. Secondly, Bitcoin’s extremely low TPS and block capacity have resulted in extreme congestion and extremely high transaction fees, which have also restricted the issuance and trading of inscriptions. The discussion of Bitcoin expansion plans has returned to the market focus.

Secondly, as the BTC halving approaches, the issue of sustainability of BTC miners’ income has once again triggered discussions. Miners' income consists of transaction fees and mining rewards. Due to the limited ecological applications on the Bitcoin network, the vast majority of current income is composed of mining rewards. As the room for BTC market value to increase decreases, mining rewards after the halving may not be able to support the security of the BTC network in the long term. The expansion of BTC ecological applications may introduce ongoing transaction fees and introduce a sustainable source of income for Bitcoin miners.

At the same time, the Bitcoin blockchain is the blockchain with the strongest consensus, legitimacy, security and decentralization. In the Bitcoin network Building smart contracts on it will be a very inspiring narrative. However, Bitcoin itself does not have Turing completeness, and smart contracts cannot be built on it. In order to expand the potential of the Bitcoin blockchain, we must now turn our attention to Bitcoin L2. Unlike Ethereum, the Bitcoin smart contract experience does not allow users to choose between L1 and L2. L2 is currently given to Bitcoin smart contracts. Necessary technologies for capabilities, the main L2 include Lightning Network, Stacks, Rootstock and Liquid.

Alex Lab therefore entered our field of vision. Alex is built on Stacks. Stacks, as the smart contract layer of Bitcoin, is currently the most prosperous ecosystem with the highest market value among the second layer of Bitcoin. Alex is the leading DeFi protocol on Stacks. Alex Lab is committed to building Bitcoin's DeFi system. The functions it has launched and is developing include BRC-20 token index, Bitcoin bridge, AMM, order book, pledge, Launchpad and a series of functions, initially building a complete DeFi ecosystem. Function will provide a complete set of infrastructure guarantees for the development of inscriptions and BRC-20 tokens.

2 Deconstructing Alex Lab: the infrastructure leader of Bitcoin DeFi

Alex Lab provides a wealth of products around Bitcoin ecological finance. The core products include:

• AMM and Orderbook DEX for trading;

• Launchpad for discovering and participating in IDOs in the Stacks ecosystem;

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• Staking and liquidity mining;

• Cross-chain bridge connecting the first and second layers of Bitcoin as well as Stacks and other chains;

• Remove BRC-20 Centralized indexed Bitcoin oracle.

AMM and order book

Alex Lab launches AMM Swap and B20 market (Orderbook) at the same time. We will not delve into the specific mathematical curves of AMM here. There are currently 5 pools on AMM with liquidity exceeding $1M, namely: STX-aBTC ($2.71M), STX-ALEX ($23.76M), STX-xBTC ($5.84M), STX-sUSDT ($1.49M), ALEX- atALEX ($6.82M).

The B20 market is in the form of an order book and adopts an on-chain/off-chain hybrid design. The commitment to buy or sell certain assets is transmitted through encrypted signatures and is on-chain. Before settlement, the off-chain matching engine performs matching, so users can create and cancel orders without paying gas fees. Currently, multiple BRC20 token-sUSDT trading pairs are online. The current 24-hour trading volume of the B20 market is 675k, and the cumulative trading volume is 55.8M.

Launchpad Platform

Alex Launchpad uses a hybrid on-chain/off-chain model to provide an IDO platform for BRC-20 tokens. All transactions related to user funds are on-chain, and the lottery part with higher computational cost is completed off-chain and submitted to the on-chain contract for verification. The community can decide on IDO projects through voting governance. 5 IDO projects have been completed so far:

•ALEX (2022.1.19)

•BANANA (2022.6.21)

•ORMM (2023.7.28, BRC20 token)

">•Bluewheel Mining (2023.8.25)

•CHAX (2023.11.13, BRC20 token)

Currently there are not many ecological projects on Stacks, and there are even fewer currency issuance projects. ALEX’s Launchpad has not yet shown much ecological value.

Recently, Alex upgraded to the multi-chain Launchpad, and projects can be issued on BRC20, Stacks and ERC20. Currently, the first ALEX multi-chain Launchpad candidate project is OrdzGames, a game project located on the Bitcoin network, and the community will complete voting on December 23.

Staking and Liquidity Mining

Alex Lab's The level of native token staking income has a great relationship with whether to choose automatic staking (see the Token Economics section). The current total pledged amount is 143.6M, and the token circulation is 642.1M, and the ratio between the two is 22.4%.

Users can also choose to pledge LP tokens for liquidity mining. The current main LP pairs are STX-ALEX and STX-xBTC. The current APRs are 34.94% and 63.6% respectively. They are issued in ALEX tokens, but the pledge amount The performance is not ideal.

Cross-chain bridge

Alex Lab currently develops cross-chain bridges between Stacks and the Bitcoin network, Ethereum and BSC Mainnet , the cross-chain with Bitcoin layer supports bridging of BTC and BRC-20 tokens, and the cross-chain with Ethereum and BSC supports USDT, LUNR and BTCB (BSC)/WBTC (Ethereum) bridging. The current total cross-chain value accumulation is $11,568,749, the total cross-chain fees incurred are $76,067, and the current TVL is $2,324,830.

Bitcoin Oracle

The Bitcoin Oracle mentioned here is different from the one we use in Ethereum The oracle machine that is often mentioned on the market currently refers to the establishment of a decentralized, tamper-proof and censorship-resistant index for BRC-20 on Bitcoin. Although BRC20 fully exists on the chain, Bitcoin L1 does not natively support BRC-20 tokens and cannot read inscription data.

Users who have played with inscriptions and BRC-20 tokens all know the importance of the index. The index will remind you which inscriptions have been completed, and record transfers and other operations. , is the basis for building the BRC-20 market. The current BRC-20 market relies on centralized off-chain indexers. Errors in a single indexer may come from performance issues or may occur due to censorship or even malicious behavior, putting user assets at risk.

As a result, Alex Lab is working with Domo, the founder of the BRC-20 token standard,as well as existing major off-chain indexers (such as BestinSlot, OKX, Hiro system, Unisat, etc.) to build an on-chain index for BRC-20. Specifically, Bitcoin Oracle aggregates data from off-chain indexers and then validates each transaction through Stacks, choosing to accept or reject, to provide a single, reliable source of truth that Dapps and wallets can efficiently access and query Bitcoin Oracle’s data. and events. Recently, Alex’s official Twitter posted an announcement that the Bitcoin oracle will support STX20.

3 Competitive landscape: The absolute leader in Bitcoin DeFi

Alex Lab has no competitors on Stacks, so the competitive landscape The analysis needs to look at the entire BTC Layer2 and look for Alex’s opponents. First, we must look for Stacks’ opponents.

At present, the second-layer Bitcoin network mainly includes Lightning Network, Rootstock, Stacks, and Liquid Network. According to the research report of Crypto.com, their main performances are as follows: Difference:

Stacks is the most prosperous ecosystem among Bitcoin expansion solutions. As a payment channel, Lightning Network itself cannot support the construction of smart contracts, so it is not a direct competitor of Stacks. Liquid Network's consensus mechanism causes it to be considered a highly centralized protocol, making it difficult to inherit the legitimacy of the BTC network. Currently, the most direct competitor to Stacks is Rootstock. Rootstock is an EVM-compatible side chain on Bitcoin. Bitcoin miners can perform merged mining when mining and obtain the transaction fees in Rootstock. income. The advantage of Rootstock is that it is compatible with EVM, started earlier, and currently has a higher TVL (as of 2023/12/17). However, in comparison, Stacks has the advantage of being more decentralized technically and with faster data Growth and ecological development speed.

•Technically, Stacks will introduce decentralized anchored sBTC after the Nakamoto upgrade, while RSK’s BTC cross-chain dependency There is a centralization problem due to trust in pre-established alliances. After Nakamoto upgrades, Stacks will introduce subnets to support more languages ​​and execution environments.

•In terms of data, Stacks’ TVL has grown rapidly after 2023 and has been equal to the previous high, while Rootstack’s data has grown more slowly. , currently only reaching 50% of the previous high.

•Ecological development,According to veDAO’s statistics on the Bitcoin ecosystem (https://docs.google.com/spreadsheets/d/1DcGIbjZX3gDDwF2wqTHijOftss4j1UxeciJuT2Y6Ebk/edit#gid=1323064746), there are fewer projects on RootStack, and the main four Dapps include Sovryn and Money on Chain, Liquality and Tropykus, Liquality is the wallet infrastructure, and the other three are basic DeFi applications. The ecosystem on Stacks is flourishing. According to veDAO statistics, more than 60 Dapps have been released, covering DeFi, wallets, NFTs, games, social networking, etc.

The largest DEX on Rootstock is Sovryn, which can be regarded as a competitor of Alex Lab. Sovryn provides almost a full set of DeFi services, including stablecoins, AMM, and lending. Pools and margin trading, etc. However, there are differences in business focus between the two. Sovryn mainly focuses on stablecoins in the Bitcoin ecosystem, while Alex’s recent development focus is on providing infrastructure for BRC-20 tokens. Judging from the data performance, Sovryn's TVL growth rate is weak, while Alex Lab has followed the spring breeze of BRC-20 and has been rising.

4 Nakamoto Upgrade: Bitcoin DeFi New Opportunities

Stacks will receive its next major upgrade in early 2021 and in the first quarter of 2024: the Nakamoto upgrade. This upgrade will bring three main functional upgrades:

(1) Decentralized two-way anchoring of Bitcoin, that is, the issuance of sBTC ;

(2) Transactions guaranteed by Bitcoin finality;

(3) Fast transactions between Bitcoin blocks.

The issuance of sBTC will unlock Bitcoin as a fully programmable productive asset, allowing smart contracts to be written without trust. Enter the Bitcoin blockchain and unlock the application of Bitcoin assets in DeFi.

The main mechanism of sBTC is summarized as follows: the user sends BTC to a pegged wallet/script on the Bitcoin network, and the same amount of sBTC is made and sent to the user's choice On the Stacks address, a 1:1 peg is maintained; when the user wishes to send the assets back, sBTC will be burned and the BTC will be transferred to the user's address in the Bitcoin network. Since the Bitcoin network does not have Turing completeness, locking BTC on Bitcoin needs to be done through a managed wallet/script rather than a smart contract, and is managed by a group of Signers. When Peg-out (on the anchor chain) After burning the anchored assets), the release of BTC must be completed manually by Signers. Therefore, the Peg-in process ensures the release and transfer of assets by the smart contract of the target chain, while Peg-out requires the manager to complete the release of assets. The key point of BTC anchoring lies in the Peg-out process.

The group that maintains the peg locks STX and then performs the threshold signature task of maintaining the peg (this threshold is determined by the proportion of STX locked by this group of participants). After the peg operation is completed correctly, BTC will be obtained as a reward. The permission to participate in maintaining the pegged transaction is open to everyone, and anyone can become a signer of the pegged transaction. As a security guarantee, sBTC requires two important thresholds: (1) The signature threshold is set at 70%, and more than 71% of Stackers must commit evil before security problems will occur; (2) Liveness Ratio: that is, the supply of sBTC is locked with STX The maximum proportion of value, which is currently required to default to 60%. **These two values ​​ensure that the locked value of the STX that signs the transaction is greater than the value of the BTC processed, avoiding evil behavior through economic incentives. In addition, signer selection, Peg-out requests, etc. occur in L1. Following Bitcoin’s censorship resistance, Stacks can directly read transactions on Bitcoin, so there is no need to rely on external oracles. These all make sBTC closer to Security of BTC.

• How will Nakamoto upgrade and sBTC empower the development of Alex Lab?

First of all, the Nakamoto upgrade will make Stacks transactions more secure and reliable, and greatly improve network performance. The introduction of subnets will support other programming languages ​​and environments. It becomes possible, such as the EVM subnet, which makes the migration of projects more convenient, provides conditions for the explosion of ecological projects, and strengthens Stacks' leading position in the Bitcoin ecosystem. As the largest DEX in the Stacks ecosystem, Alex will directly benefit from this improvement.

Secondly, BTC is the most decentralized and safest asset. It can unlock the huge market value potential of BTC. Introducing BTC into DeFi will greatly improve the security of DeFi. sex and orthodoxy. It should be pointed out that currently the assets anchored to BTC on the market (such as wBTC on Ethereum) are entrusted to centralized entities or a group of trusted managers, which inherently has trust issues and runs counter to the spirit of Bitcoin. In contrast, sBTC is operated by a permissionless, decentralized, and dynamic set of participants, with economic incentives designed to maintain the correct peg. Although it still introduces risks and complexity, it is very close to the security of BTC. Leveraging the huge value of BTC and maximizing the security of BTC will bring a new narrative to DeFi, and Alex, as the leading DeFi application on Stacks, will be the core direct revenue target of this upgrade.

To sum up, the Nakamoto upgrade will bring a great improvement to the performance of Stacks, and will greatly attract the attention of the market in terms of narrative and fundamentals. Alex Lab is the largest application In view of the fact that Stacks’ market value increment space is already relatively small, Alex will be the best target for this upgrade.

What is the current progress of the Nakamoto upgrade and sBTC? What will the future timeline look like?

In October 2023, Stacks launched a developer version of sBTC, allowing developers to build and test using early sBTC versions. On December 15, Stacks Lianchuang issued a statement stating that the code writing for the Stacks Nakamoto test network (codenamed Neon) has been completed, and the launch of the test network at the end of the year has been locked.

According to the latest timeline released by the Stacks Foundation, the Nakamoto upgrade will be released before the Bitcoin halving. Release on the mainnet to confirm stability After the release, sBTC will be launched subsequently. In the initial version of the roadmap, Nakamoto and sBTC were planned to be released together, but they are currently planned to be implemented through separate upgrades to reduce the overall complexity and improve the predictability and security of upgrades. The team plans to launch the public test network Argon in the first quarter of 2024 and launch the Nakamoto upgrade of the main network before the Bitcoin halving.sBTC is expected to be launched on Stacks about 2 months after the upgrade.

But what needs to be reminded is that the Nakamoto upgrade has gone through many changes from initially planned to be completed this summer to delayed to the end of 2023 and then to Q1 next year. After two postponements, if the Nakamoto upgrade cannot be completed before the Bitcoin halving, expectations will be disappointed again. The upgrade narrative cannot be superimposed on the halving narrative, which may have a certain impact on the overall currency price of the Stacks ecosystem. It is necessary to pay close attention to the progress of Stacks upgrade in the future. The latest time node will be the launch of the test network Neon at the end of December.

5 Token Economics and Liquidity Distribution

Token In terms of token distribution, Alex Lab will issue tokens in March 2022. The total number of tokens is 1,000,000,000, which is expected to be fully unlocked within five years (February 2027). The distribution situation is as follows:

•20% to the foundation , allocated to the community reserve pool to support ALEX’s ecosystem, early adopters and future development

•50% is reserved for the community through staking or providing liquidity tokens Coins to earn ALEX

•30% to employees, advisors and early investors and founding team

;">In terms of token usage scenarios, ALEX can be used for staking and governance. The level of staking income has a lot to do with whether to choose automatic staking. Currently, a total of 140 million tokens are pledged, and the APY is 7.25. ALEX and $atALEX (automatically pledged ALEX) can participate in community governance voting, including token economics changes, IDO Project selection etc.

In terms of token performance, the current market value of $ALEX is $287,738,006, the FDV is $439,423,517, the MC/FDV ratio is 65.48%, and the token circulation ratio is already relatively high. In terms of market value, ALEX currently ranks 181st in market value. For comparison, Stacks' current market value is $2,079,014,811, and FDV is $2,645,163,967. The market value is nearly 8 times that of ALEX. Although Stacks, as a second-tier public chain, has a higher valuation than ALEX, ALEX is the absolute leading protocol with the most complete construction on Stacks. In the medium term, ALEX can be used as a leveraged target for investment in Stacks.  

(The above data times are all 2023/12/21)

In terms of liquidity, ALEX's current main trading volume is concentrated on Bithumb, Gate and Alex AMM. The liquidity is relatively poor and it has not yet been listed on major exchanges. Recently, major BRC-20 tokens have been listed on Binance and OKX exchanges. It can be seen that the current mainstream CEX is paying attention to the Bitcoin ecosystem. The announcement of the information on the exchanges has triggered a substantial increase in tokens. As the leader of DeFi in the Bitcoin ecosystem, ALEX will have some room for listing in the future, and the hype and liquidity improvements it will bring will further increase the price growth space of $ALEX.

6 Conclusion

Based on the above analysis, our basic views on Alex Lab can be summarized as follows:

First of all, with the high popularity of Inscription and BRC-20 tokens, the BTC ecosystem has the conditions to become the mainstream narrative of the bull market. Superimposed on the Bitcoin reduction in April Half, will give this track a higher hype value. Considering the security and legitimacy of the Bitcoin network, as well as the sustainable incentive issues for miners, establishing a Bitcoin ecosystem is of great practical significance. DeFi is the cornerstone of the ecosystem. As the leader of Bitcoin DeFi, Alex Lab will provide the foundation for the subsequent expansion of the Bitcoin ecosystem.

Secondly, Alex Lab closely follows the development of BRC-20 tokens and quickly develops on-chain index and Orderbook for BRC-20 The trading market and Launchpad seized the gap in the lack of BRC-20 token infrastructure and quickly seized the opportunity, becoming one of the few in the Bitcoin expansion layer to deeply participate in the BRC-20 token narrative and have practical products on the ground. project, which will unlock more financial use cases for the BRC-20 token.

Thirdly, in terms of competitive landscape, Alex Lab is the absolute leading project on Stacks. After Stacks completes the Nakamoto upgrade, it will Further consolidate its position as the leading Bitcoin expansion solution. Compared with Sovryn, the leader on Rootstock, Alex Lab has significant advantages in data performance, development progress, and connection with the BRC-20 narrative. Therefore, Alex Lab has very strong competitiveness and absolute leading position in the Bitcoin DeFi field.

Fourth, the Nakamoto upgrade is an important event in the field of Bitcoin expansion. The release of sBTC will unlock the potential and value of Bitcoin DeFi , improve security and legitimacy. Alex Lab will be the core target of planning this event.

Fifth, based on the market value and FDV of Alex Lab and Stacks, We believe that in the medium term, ALEX can be used to lay out the Stacks ecosystem. One of the leverage targets. Major exchanges are seizing the Bitcoin ecosystem. The listing of ALEX tokens in the future will bring more liquidity and effectively increase the currency price.

The focus of follow-up observations on Alex Lab will include: the subsequent development of the Bitcoin ecosystem; whether the Nakamoto upgrade and sBTC linkage can meet expectations; Alex Lab’s response to BRC- The number of supported 20-token trading pairs and its status in the BRC-20 financial infrastructure; changes in data such as the number of users, transaction volume, TVL, etc.; the progress of token listings, etc.