Leveraging Layer-2

SatoshiDEX, a decentralized exchange (DEX) built on the Bitcoin network, leverages the Layer 2 Stacks blockchain solution to achieve the dual goals of security and scalability. By building on Stacks, SatoshiDEX strikes a crucial balance between security, scalability, and community-driven innovation. This strategic choice enables the project to offer a secure, efficient, and accessible DeFi experience on the Bitcoin network, ultimately contributing to the wider adoption and advancement of decentralized finance within the Bitcoin ecosystem.

Stacks is a Bitcoin layer for smart contracts; it enables smart contracts and decentralized applications to trustlessly use Bitcoin as an asset and settle transactions on the Bitcoin blockchain. The initial version of Stacks, launched in early 2021, introduced Bitcoin settlement of transactions, the Clarity language for safe contracts that can respond to Bitcoin transactions, and atomic swaps of assets with BTC. The next major proposed upgrade of Stacks, the Nakamoto release (expected 2024), adds important capabilities that will enhance the power of Stacks as a Bitcoin layer: (a) a decentralized, two-way Bitcoin peg to move BTC in/out of the layer and write to Bitcoin, (b) transactions secured by Bitcoin finality, and (c) fast transactions between Bitcoin blocks. The resulting Stacks layer makes Bitcoin a fully programmable asset in a trustless manner. This can make hundreds of billions of dollars of passive Bitcoin capital productive, unlock it for decentralized applications, and make Bitcoin the backbone of a more secure web3.

Bitcoin is the most decentralized, secure, and durable blockchain. BTC is a unique, widely held asset and the Bitcoin blockchain is the best final settlement layer for transactions. Applications that want to maximize decentralization and durability should use BTC as their asset and perform final settlement on the Bitcoin blockchain. However, to preserve its valuable properties, the Bitcoin blockchain is—by design—slow, minimal, and resistant to change. For example, it does not natively provide fully-expressive smart contracts or fast performance, so sophisticated applications cannot be built directly on it. Therefore, BTC remains a passive asset and most applications are instead built on Ethereum and other layer-1 (L1) blockchains that have less powerful native assets than BTC. Bitcoin layers extend the functionality and improve the performance of Bitcoin without changing the Bitcoin L1. Examples include fast payments (Lightning) and general smart contracts (Stacks and RSK). In its conservatism toward changes, Bitcoin is comparable to FedWire as a settlement layer and to TCP/IP as the internet protocol: Higher-level layers are built on top of these, with additional functionality and innovation, but the base remains simple and stable. Bitcoin layers enable sophisticated applications that require fully-expressive smart contracts, high performance, or greater privacy.

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