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

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

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

A recently published investment thesis by North Rock Digital highlighted Stacks' focus on decentralized finance (DeFi), the 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 inflection point in the community (sparked by ordinals) and transformative Stacks upgrade coming later this year,” North Rock Digital founder Hal Press said in a tweet over the weekend.

The firm noted that Stacks has a strong community, experienced leadership and a clear roadmap for growth, and concluded that investing in Stacks could yield significant returns as the project develops and gains adoption.

Since its launch, Ordinals has caused a spike in bitcoin transactions and a resurgence in Bitcoin network development. It has also reignited discussions of Bitcoin scaling – a controversial topic in crypto circles.

So far, over 197,000 unique inscriptions, a term for each individual token on Ordinals, have been conducted, Dune Analytics data shows.

North Rock did not disclose specifics of its STX investment. Press did not immediately respond to requests for comments.

In its thesis, North Rock said Stacks offers several advantages over blockchain platforms such as Ethereum including lower gas fees, faster transaction times and enhanced 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 show.

With the halving only a year away we have been thinking about how to position for what will be the largest theme in crypto over the next twelve months. We have spent several months looking for the best ways to get exposure to this theme and all roads have led back to $STX.

— Hal Press (@NorthRockLP) February 25, 2023

A Stacks upgrade scheduled for March 20 may have also contributed to the recent price growth of STX. Developers introduced the Stacks 2.1 upgrade in a post last week that details 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. Stacking is a process in which STX token holders can lock up 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, enhanced scalability through the use of a new "microblocks" feature and better support for non-fungible tokens (NFTs).