Allure of Bitcoin Ordinals, DeFi Drives Crypto Assets to Bitcoin Layer 2-Token Stacks

Prominent crypto investment funds are turning to Stacks Network tokens as they bet on the growth of Bitcoin. Stacks is a so-called layer 2 follow-chain for smart contracts focused on bitcoin (BTC), the largest cryptocurrency by market capitalization, which enables the creation of related financial products.

Stack’s STX tokens have jumped around 23% in the past 24 hours, adding to a 50% increase over a seven-day rolling period, CoinGecko data shows. Demand for the tokens has surged since the arrival of the Ordinals protocol, which went live on January 21 and allows users to enter references to digital art in small transactions on the Bitcoin blockchain. The token’s market capitalization topped $1.2 billion as of Monday.

A recently published investment paper by North Rock Digital highlighted Stacks’ focus on decentralized finance (DeFi), its innovative use of smart contracts and its compatibility with Bitcoin as key strengths that set it apart from other blockchain projects.

“We believe there is a massive and relatively untapped market opportunity, a huge cultural turning point in society (triggered by Ordinals) and transformative Stacks upgrade coming later this year,” North Rock Digital founder Hal Press said in a tweet over the weekend.

Noting that Stacks has a strong community, experienced leadership and a clear roadmap for growth, the firm concluded that investing in Stacks could provide significant returns as the project develops and is deployed.

Since its launch, Ordinals have caused an increase in bitcoin transactions and a resurgence in Bitcoin network development. There has also been a resurgence of discussions about Bitcoin scaling – a controversial topic in crypto circles.

So far, over 197,000 unique inscriptions, a designation for each individual symbol of the Ordinals, have been performed, data from Dune Analytics shows.

North Rock did not disclose details of the STX investment. Press did not immediately respond to requests for comment.

In its thesis, North Rock said Stacks offers several advantages over blockchain platforms like Ethereum, including lower gas fees, faster transaction times and improved security.

The analysis also explores potential use cases for Stacks technology, including the creation of decentralized social media platforms, prediction and trading markets, and lending and borrowing applications. Such products are the bedrock for $50 billion in locked token value on applications built on other blockchains, data from DeFiLlama shows.

A Stacks upgrade scheduled for March 20 may also have contributed to the recent price increase of STX. Developers introduced the Stacks 2.1 upgrade in a post last week detailing several new features and improvements to the protocol.

One of the main features is the introduction of “Stacking 2.0”, an updated version of the Stacks consensus mechanism. Staking is a process where STX token holders can unlock their tokens to help secure the network and earn rewards.

Stacking 2.0 aims to make the process more accessible and inclusive by allowing smaller token holders to participate and earn rewards. The upgrade will also add improvements to smart contract functionality, improved scalability through the use of a new “microblock” feature, and better support for non-fungible tokens (NFT).