Very valuable input @JakeBlockchain and @MattySTX!
I’m in favor the cap, especially in the first year or so. Whether that’s 250%, 200%, or 150%, it should be modeled out in a security analysis looking at market volatility.
I think this cap is needed to get market adoption. There has already been several well known maxis argue that market volatility of the STX token is the key attack vector of this model. The cap is the key argument against this issue.
Right now we are at only $2.2M in BTC on Stacks via xBTC. Recent interest in Stacks has led to the market cap of stacked STX to reach $236M as of this writing.
Meaning, there’s room for $115M in sBTC to be minted. More than a 50x increase. What makes us think we will exceed this limit from the start? I think this is putting the cart before the horse. Naturally, increased BTC volume on STX will lead to a re-pricing of the network value, and it would be wise to measure this effect before deciding we need to remove the cap which will decrease Stacks’s ability to win the narrative war that this is an innovative and successfully decentralized/safe BTC peg. There may be no need to remove the cap at all to get the desired effect here.
I don’t see any rush. It would be better to make this decision when we have more data and the system is live. $100M in BTC liquidity would be a game changer, so let’s focus on reaching that goal first.
Changing the system to shoot for greater liquidity—when we don’t know where it will come from—is going to shoot us in the foot when we have already seen people criticize the network when they didn’t think about the cap.
In other words:
- Removing the cap may not be necessary due to the flywheel effect
- Removing the cap will hurt sBTC in the court of public opinion—we’ve seen this already
- $100M in BTC is plenty of room to grow
- We don’t have evidence of demand to warrant removing the cap
I agree with you on the bootstrap side, but due to the still untested protocol environment, I think it would be nice to put some restrictions on it.
This is just my idea. Although it is a centralized asset, if you we xBTC, we can increase liquidity through a stable swap between xBTC <> sBTC, and it will help grow both assets and secure liquidity in an emergency.
And personally, I’m also interested in bringing (non-wrapping) Bitcoin assets via cross-chain messaging.
Thanks for your comments @OwensTrevor
In general, I would suggest that it’s unlikely that sBTC will get desired traction unless the cap issue is resolved. While it’s tempting to think that this issue can be revisited at a later stage when some initial sBTC will have been minted & there has been a marketcap effect on STX price, sBTC likely won’t get minted in size precisely because there is a cap. sBTC’s killer usecase is collateral and the cap undermines this usecase by introducing long tail liquidation risk. If it isn’t collateral, I wonder where this first $100m of BTC liquidity is going to come from? @xan added a valuable comment on the institutional perspective above.
On this point ‘There has already been several well known maxis argue that market volatility of the STX token is the key attack vector of this model. The cap is the key argument against this issue.’ It’s important to recognise that the volatility of the STX token is an issue when the model is capped, not in a version of sBTC without cap. Especially after FTX, the most common argument is seems to be something along the lines of ‘don’t collateralise your operation with your own token’. A version of sBTC without cap doesn’t rely on any collateral logic to claim incentive compatibility. Rather, this system makes the honest claim that an sBTC user places trust in the Stacks network for the duration of the operation for which they require sBTC (as is also the case when a cap exists, since the Stacks network could choose to abolish the cap at any given time, thus requiring the sBTC user to place trust in the Stacks network regardless of whether or not there is a cap).
PS: it’s also unclear how a cap would get enforced since Bitcoin transactions famously cannot be stopped
May I bring up a slight different angle from governance perspective.
If BTC were pegged in, receiving sBTC derivative & if sBTC were a first class citizen on Stacks. Does this mean $sBTC would receive as much governance voting rights as $STX token. (voting like we did last November~December for Stacks 2.1 activation)
Assuming if it doesn’t receive voting rights at all, then has probably no impact.
However if assuming if sBTC does have some voting rights, then having uncapped sBTC “printing” will mean uncapped “governance” voting power? The result of which means it can have uncapped influence the future Stacks network direction. Cannot think of a solution right now. Will put more thoughts into it as this convo evolves. If my train of thought is wrong I apologize!
Tagging Governance CAB chairperson @whoabuddy for more gov expert view.
Thanks for starting this discussion Tycho. I agree it’s critical that we resolve this, given it’s importance for strategic product-market fit.
- We could launch an MVP version of sBTC with strict guardrails on the cap. This would allow us to test in production with only a limited amount of sBTC at risk.
- Once the protocol is battle tested and highly reputable signers are confirmed, we can consider lifting the cap. For this stage, it’s important that we have publicly verifiable data for the locked STX, so users can make informed decisions about the level of risk. Moving toward, messaging such as “trust-minimized” can help with broader positioning for this.
I think we should limit governance rights to STX. This give additional utility to the STX token to determine network parameters. The decision to lift the cap should be determined by STX token holders.
@Tycho I’d like to invite you to discuss this topic at this weeks GTM meeting, since it deserves community discussion for how to address it. Look forward to having you share your perspective!
Would be happy to chat more about this in the GTM meeting. I can lay out the arguments that have been surfaced here so far for both sides.
Very much agreed that STX should be the only asset with governance rights (adding another asset will introduce many many edge-cases) + that knowing which signers will participate is an important input for weighing all the pros/cons for cap/no cap.
I very much agree capping sBTC could limit institutional and HNW retail adoption, though haven’t fully formed my thoughts about whether uncapped sBTC should be a condition of launch.
As I’ve thought through this, the sBTC cap and collateralization debates seem to be functions of the desired trustlessness of the peg wallet.
ie. in a fully trusted scenario, there could be a single institution managing the peg wallet with no cap and no collateral requirements. obviously, the recent FTX debacle with unbacked wBTC probably makes this a non-starter for most personas required for sBTC to reach meaningful scale
on the other hand, in a fully trustless scenario with a peg wallet managed by cabal of shadowy super coders, collateralization (skin in the game) is pretty much the only defense against dishonest signers. if we’ve learned anything from the $2b+ bridge hacks on other chains (Cross-Chain Crypto Bridge Hacks Hit $2 Billion: Chainalysis - Decrypt), there will be dishonest signers when the stakes are high enough
the most compelling answers i’ve heard in these debates and what I currently believe is the best path forward is to focus on the credibility of the peg wallet signers. a consortium of trusted entities with access to deep pools of liquidity that can be trusted to maintain the peg wallet during periods of extreme market volatility feels like the most promising path forward
not sure if any biz dev conversations have started w potential institutional peg wallet signers and if they have, how far along they are, but my gut says who the peg wallet signers will be is a critical constraint that should be factored into these discussions
also, one other question: does the peg wallet collateral have anything to do with stacking (other than compete with it for STX in circulation)? my current understanding is STX deposited as collateral in the peg wallet can’t also be stacked (and stacked STX can’t be used as collateral in peg wallet)
I find myself more convinced of the arguments against a hard cap. Probably is something best determined by the market and each individual participant and with the appropriate monitoring tools for people to make well-informed decisions.
In addition to this, we could introduce a mechanism whereby on peg-in, a user could indicate their peg-out priority preference. They could indicate something like a minimum collateralization ratio (CR). Those that have specified a lower mimimum CR would have their peg-outs processed first. Of course we’d need a way to incentivize those that indicate a lower liquidity preference as they are essentially performing the service of giving longer term stability to the peg.
Having a mechanism like this can give the market more information about the ‘depth’ of the peg. For instance I may be more comfortable pegging-in if I know I can set a high preference for pegging-out and am able to peg-out before others should the CR get too low for my liking.
I haven’t completely thought through how exactly this would be implemented, but thought it could be an interesting mechanism which could help reduce uncertainty around the peg and give it more stability and just wanted to get the idea out there.
I think this is an intriguing area of research, and we should experiment with different mechanisms, like the one you described.
I created an issue to track and develop the idea your described.
What is your GitHub username so I tag you and keep you involved?
Also, I would love it if you would join our sBTC Eng meeting to discuss more of these ideas!
The Stacks Foundation is preparing to fund research on the initiative you proposed. I encourage you to apply for the grant!
I think it’s too early to start researching one possible solution here, when we haven’t yet a) settled on the priority of the problem (should we revisit this when there’s more clarity on who the signers are?) as well as b) all the possible solutions
Funding grants now for specific solution spaces feels premature imo. I commented that on the Github post
While it may seem like an overly simplistic approach, could incentivizing decentralized stacking be a viable strategy as well? For instance, by offering enhanced rewards to a greater number of addresses below a certain threshold.
Since the beginning of this discussion, do we have a bit more clarity on who are some of the potential signers? Do we have any kind of coordination between community players holding institutional conversations?
I think we need to discuss and prepare this proposal accurately with sBTC peg so that we can have various discussions on defi or future usability, is there anyone who can talk with me?
Another good reason for removing a cap on minted sBTC from the blockworks piece.
“ The supply cap is determined via the consensus protocol mechanism that prices the BTC/STX exchange rate using the 90 day moving average. If the value of sBTC ever surpassed 60% of the stacked STX value, minting would be disabled until further withdrawal requests were processed. This is a great method for removing the reliance on centralized oracle providers and improving decentralization, but it comes with tradeoffs. A stacker with 70% of the total value stacked is able to single-handedly sign BTC peg-outs, manipulate the BTC/STX exchange rate, or choose a malicious fork choice on the Stacks chain. If sBTC had been live during the bug experienced in April, the damage could have been much worse.”
Reducing complexity of sBTC by removing a cap on minted sBTC feels like the way to go. The free market can decide what a sufficient sBTC collateralisation ratio should be instead of an engineering system with potential vulnerabilities
Won’t the advent of sBTC demote the usefulness of STX? I mean, why hold STX if most items get traded in sBTC? Yes, I know there is the reward, but that doesn’t seem that compelling. And if so, won’t this further drive consolidation of STX to whales, further raising concerns over the 70% threshold. Maybe all this will be considered in the tokenomics study.
It’s unlikely that STX will get less useful. With sBTC, STX will remain the gas asset on the Stacks network (even if sBTC->STX swaps are used to pay for gas under the hood). With increased activity on the network (driven by sBTC), more STX will be paid to Stacks miners, which results in higher rewards for locking up STX
agree. played out in a similar way on ethereum network, ie. there’s lots of wBTC in circulation and still plenty of reason to use and hold ETH
Cool. The balance of additional fees from increased adoption translating to higher rewards to stackers makes sense.
But if holding STX would be primarily for those rewards, and you seem to confirm this decreased utility for STX by relegating it to just paying gas. And I apologize if I’m getting this wrong!
If true, would that lead to more STX consolidation to whales (in the long run)? I guess that’s what I’m getting at since the discussion was about removing the cap.
Also, IMHO, I don’t think STX is, or ever was in the same position as ETH (re:wBTC). Plus, all this is still playing out.