Stacks has kicked off its Nakamoto upgrade. This upgrade will create a version of Bitcoin that works with DeFi on the Stacks blockchain. It’s part of a larger effort by various projects to grab a piece of the growing Bitcoin DeFi market.

Muneeb Ali, one of the co-creators of the Stacks blockchain, shared some exciting news. The most important feature of this upgrade is sBTC, a Bitcoin-pegged asset that is secured by the Bitcoin network itself. Until now, Bitcoin hasn’t been part of the Stacks blockchain.

“sBTC is what’s going to matter,” Ali told us. “Until sBTC is live, I don’t even pay attention to any of the metrics.”

Stacks and more than a dozen other projects are working hard to solve Bitcoin’s compatibility issues with major DeFi ecosystems. sBTC is one of these solutions. It lets users lend and stake their Bitcoin on Stacks. Ali believes that if just 5% of all Bitcoin moves to layer 2 solutions like Stacks, we could see a market worth around $70 billion. Right now, it’s less than 1% of Bitcoin.

But the competition is tough. Attention shifts quickly, and projects often use incentives to attract users and deposits. Sometimes, good marketing matters more than the technology behind the project. Recently, a rival called Merlin Chain saw its deposits soar to $2.6 billion after launching a points campaign and airdrop. In contrast, Stacks has seen its deposits drop about 49% since April, now sitting at $95 million. Ali isn’t convinced that these incentives are a good long-term strategy.

“We’re not throwing around incentives because of how Stacks started,” he explained. “We don’t have a large treasury; it’s very decentralized. Those things really matter.”

It’s not just deposits that are declining. According to Electric Capital’s Developer Report, the number of developers working on Stacks has dropped by 24% over the past two years. Stacks is banking on the Nakamoto upgrade and the launch of sBTC to change this trend. But many competitors are already ahead, making it uncertain if Stacks can catch up.

One reason for Stacks’ slower progress is its commitment to decentralization. The easiest way to make Bitcoin compatible with DeFi is to have a trusted company hold Bitcoin deposits and issue equivalent tokens on another blockchain. However, this approach can compromise security and decentralization.

For example, the Ethereum DeFi protocol Sky, previously known as MakerDAO, recently limited its use of Wrapped Bitcoin due to custody concerns. In contrast, Stacks’ sBTC taps directly into the Bitcoin network’s security through smart contracts, which enforce strict rules and eliminate the need for a custodian.

“This is not just another Bitcoin asset,” Ali stated. “It’s actually secured by a consensus of the chain.” Stacks isn’t alone in this approach. Rootstock, another blockchain that relies on the Bitcoin network for security, uses a similar method to secure deposits.

Ali believes there’s a key difference that matters. After Nakamoto, Stacks can’t be attacked even if its validators were to collude. This unique security guarantee sets Stacks apart. However, this added security means Stacks is less agile than its competitors.

Despite these challenges, Ali remains optimistic. “We have a history of doing hard things the right way,” he said. “Sometimes, things take longer than you expect.” The Nakamoto upgrade is expected to wrap up by mid-September.