Composed of four elements, Strengths, Weaknesses, Opportunities,, a SWOT analysis framework provides excellent insight for establishing a high-level understanding of the state of a project’s well-being through the lens of a birds-eye view.
It can help formulate decisions around which areas require more attention, set performance goals, and organize a foundational understanding of where a project is headed.
Rarely (if ever) used in crypto, it is time to apply this timeless method of evaluation to the digital asset space.
the layer 2 solution that is bringing smart contract capabilities to the Bitcoin network, will get a SWOT.
?? Strengths (Internal) (Helpful)
1. PoX Consensus Model
Very novel, creative solution for tithing the operational logic of the Stacks network to Bitcoin. Proof-of-Transfer is a mechanism that utilizes transactional entropy as the underlying modality to mint new tokens. Credit must be given to Stacks for creating this system (which never existed prior), and acts as a very abstract social pegging. Based on the use of assets from Proof-Of-Work-based chains, miners on the Bitcoin Network transfer their assets to Validators on Stacks (called Stackers) in return for the chance to stream the next batch of blocks and receive the newly minted STX tokens.
2. On-Chain TVL increasing
The trendline of how much value is locked on Stacks in USD terms has been showing directionally improving. While it is possible that the trend benefits alongside a greater market recovery from the beginning of 2023, the fact there are already DEFI and NFT initiatives taking place on-chain signals a blue ocean of opportunity.
Attempting to bring TVL into its ecosystem in the form of Bitcoin and replicate the massive success of WBTC, sBTC promises to be the most trustless method of bridging BTC. Utilizing a two-way pegging system where users would deposit BTC into a nominated address that would then in turn be minted on Stacks at a 1:1 ratio and de-peg or move their assets back off of Stacks onto Bitcoin. What sets sBTC apart from all other pegging systems in the industry today, is in the architecture of capital flows. Bridging a BTC from Bitcoin to Stacks is permissionless and maximally frictionless; withdrawing requires some form of authority attestation; Stacks has devised a model for establishing the withdrawal authority in a maximally decentralized way.
4. Bridges to EVM chain
Connecting the most prominent networks in terms of unlocks a new degree of capital, a new grade of developers, and a greater surface area for potentially marketing Stack’s network in the smorgasbord of applications that live around the EVM ecosystem. At this time, Stacks is only bridged to Ethereum and BINANCE Smart Chain; however, introducing each new network should provide the project with some exciting technical roadmap developments over the next months/years.
5. Uses Bitcoin as Data Availability Layer
In the new modular landscape where technologies are constantly introducing more complexity and more diversity in an attempt to cater to a still extremely young market, Stacks focus on the Bitcoin ecosystem for data availability brings a novel level of decentralization and security to the dapp space. Data availability is arguably the most important part of any decentralized information system; given that Bitcoin is the most resilient (by raw computational power) and the most ridging, the data that Bitcoin’s network governs can be thought of as being the most secure. This anchoring to Bitcoin allows STX to inherit some of its most desirable properties.
6. STX token was sold as an Approved Security
Stacks token was the first to receive the regulatory green light to be sold to the public as a compliant digital asset. This makes STX an extremely interesting asset for potential Tradfi market participants. The sale took place in 2019, setting a precedent for any other projects in the space to follow in their footsteps.
7. STX Validator Incentives
STX has one of the few, possibly only, models for the network participants (validators) to earn real yield through their involvement. Given that Stackers actually receive BTC that is used within its consensus model, there can be a real-world demand vector attributed to the STX token (even if only through second or third-degree relationships).
?? Weaknesses (Internal) (Harmful)
1. BNS Abandoned Twice
Stacks released BNS (Bitcoin Name Services) sometime in July of 2022. With over a year of observation, it seems that BNS does not really have that much of an important place in the digital asset market. Surely, it was released in the mother of all crypto bear markets, where approximately 300,000 BNS domains were sold. However, it has drawn a pattern of hype followed by absolute disregard. If the hype cooled down to a low of -95%, it would be feasible, but as the charts show us, the hype is followed by a fall to actual 0 in some cases. Moreover, all on-chain activity is to some degree faked by either project founders or supporters, or at the very least not Sybil conscious (a single entity can easily just own multiple BNS domains), likely arriving at a true number some odd 10x lower than the total amount sold. *This is by no means an existential crisis of any kind for Stacks, just some worthwhile food for thought in gauging ecosystemic resilience.
2. Bitcoin MEV
Sharing a security model is known to be an obvious risk factor for MEV. Stacks was (and at this time still is) subject to the economic vulnerability present in the current version of PoX, where Bitcoin Miners can technically conduct fraudulent transactions without there being any risk to them; Stacks Network cannot punish Bitcoin Miners. Savvy miners came in and began to only include the actions related to their own nodes, pushing assets through a bottleneck that totally eliminated competition from other STX miners.
?? Opportunities (External) (Helpful)
1. Ultra Low Network DAU/DAA
Both an opportunity and a threat. At the painfully modest level of roughly 3,000 Daily active users (not knowing how many of these are Sybils or bots), in the event the network gains a tiny portion of the interest that will flood the markets at some point, the potential external economic impact easily qualifies as enough to break previous ATH’s. Moreover, considering how much quality infrastructure has actually been developed in the process, is STX attracts the developer community then orders of magnitude growth await in terms of useability, adoption, and access.
2. No Real Competition
Stacks has carved out a decently strong reputation for itself as THE project that is approaching Bitcoin programmability, scalability, and interoperability in the most crypto-pure way “decentralized.” Positioned very uniquely against the few other participants (Liquid, Lighting Network, Rootstock), Stacks is the only one to provide the spectrum of benefits with minimal negative externalities.
3. Appealing to TradFi
Stacks has carved out a niche that ticks the boxes for many traditional financial entities to be interested in participating in its ecosystem. The real yield of Bitcoin, the security of Bitcoin, a digital asset that was brought to market under regularity supervision, scalable smart contract environment, and reputable foundings with tremendous backing from prominent VCs. STX is easily a crypto that likely every major enterprise will, at the very least, consider in their Web3 journies.
?? Threats (External) (Harmful)
1. Graveyard of Bitcoin-based Solutions
Rootstock, colored coins, Ordinals, and a handful of other attempts have been made to introduce more functionality on Bitcoin. Nearly all of them have failed to pick up steam, existing only within tiny niche communities until eventually dying off and becoming relics. If attempting to evaluate the long-term survivability of Stacks based on the niche it is operating in, the odds are stacked against them (pun intended).
2. Ultra Low Network DAU/DAA
Both an opportunity and a threat. Ultra-low levels of adoption could be a direct indicator of the relative unimportance of the project or just perhaps a failure in marketing to users. Considering that at the absolute peak hype, the Stacks networks showed just about 9,000 daily active addresses. More likely than not, a decent portion of this can be attributed to bot activity, which dampens the interest levels even further. This extremely low level of engagement shows one of two things, either honesty from the network operators in showing activity or total disregard for the network, and the first inadvertantly points to the second.
Positive, unorthodox overall feeling about the project.
Technology is there.
Unique market position and produce offering is there.
Marketing and social presence definitely lagging, but out of all things, it is easiest to sort out. I'm not saying building communities is easy; I'm saying that building quality products is much more noble.
Stacks is to Bitcoin what Polygon is to Ethereum.
To be totally honest, I was an extreme skeptic of stacks. I actually considered it trash for a long while. But, after a thorough digging, I am humbled to admit that I was wrong; it's legit.
While I now see the value proposition and understand why institutions might find this attractive, I would still NOT deposit my Bitcoin into sBTC, and will most likely never use the smart contract network itself.
Would I invest in the token itself (STX)?
Yes. Small, controlled DCA with a better chance for higher returns than just holding Bitcoin. Under a different set of circumstances (where I had far more wealth), I would definitely explore becoming a validator on their network; but from my calculations, anything less than ~$500,000 is not worth the time.
If you know something that I don’t or feel as though I might have missed anything worth noting, please do share, I would tremendously appreciate some feedback.
Thank you so much for reading,
I hope this serves you well on your journey.
Live long and prosper ??
