Stacks: the only Bitcoin L2 at a unique moment for Bitcoin

Stacks (“STX”) is a decentralized network that supports smart contract programmability. It is a Layer 2 (“L2”) to Bitcoin because transaction finality and security of Stacks is tied to the Bitcoin network. Thesis Summary Using Bitcoin as a base layer for a smart contract platform has the potential to create a lot of value DeFi summer was a major unlock for ETH and remains the primary area of PMF There is clearly demand for BTC-collateralized yield based on the growth of CeFi (BlockFi, Celsius) last cycle Stacks is the best positioned to capture the opportunity to be Bitcoin’s smart contract layer There is no competitor that is live, outside of payments (Lightning Network, which has many issues of its own) There are many BTC L2 competitors being funded, but none will have a functional product for at least the next 6-12 months Why now? Bitcoin’s mindshare is at a peak because of a unique confluence of multiple factors Ordinal and Rune inscription activity driving increased attention to innovation on Bitcoin Bitcoin spot ETF launch this past January April halving, now only weeks away Price action - Bitcoin has led the crypto market in 2023 and 2024 YTD The Bitcoin community is culturally open to L2s now Bitcoin needs transaction fees to scale in order to pay for security long-term, a security problem that becomes increasingly pertinent with each halving Stacks and other L2s are the only viable way forward other than creating tail emissions (which would be a death knell) STX fundamentals are strong and set to accelerate with the Nakamoto upgrade (full rollout roughly May 9th) Transactions and user trends are up and to the right over last few months Nakamoto upgrade enables >100x faster transaction speeds, making this an actual usable product (current UX is bad, straight up) If people are already tripping over themselves trying to use the chain in its current state today - imagine what happens when the chain actually becomes performant? Valuation and upside potential $4.5bn circ. market cap is roughly ~250x Mkt Cap / Fees (T28D Ann.) Discount to L1/L2 peer median ~750x Market Cap / Fees and ETH L2s at 170x-490x ~170-240% near-term upside to $7-9 post Nakamoto upgrade (in May) Fundamental case: $7 PT or $10bn FDV Transactions should conservatively 5x post Nakamoto (100x increase in throughput) $80mm fees x 125x (ARB multiple, low-end of all peers) = $10bn FDV Relative valuation case: $8.60 PT implies 1.0% of BTC market cap vs current 40bps 10x bull case upside based on peer AVP OP and ARB are each ~3% of ETH market cap If STX can capture as much value of its base layer BTC as OP and ARB have of their ETH base layer, it would be >900% upside Mega bull case is >25x upside: STX is the ONLY L2, so in theory it could be the sum of all ETH L2s or >8% of base layer market cap Two key misunderstanding: TAM: Bitcoin historically hasn’t been anything except store of value Counter: The advent of Ordinals and continued STX activity proves that may not be true Tech: Stacks is basically an unusable chain today Counter: the Nakamoto release makes it on par with other modern blockchains (effectively a “mainnet” launch moment) Key risks / concerns Technology: there is still some implementation risk around Nakamoto and SBTC Competition: there are other live “Bitcoin L2s” (e.g. MerlinChain, CoreDAO), and even though all of them are vaporware they can take attention and liquidity away from STX; there are many real venture-backed Bitcoin L2s coming to market over next 6-12mths Relative valuation framework is compelling, but it’s possible convergence happens with ETH L2s re-rating lower rather than Bitcoin L2s rerating higher Exhibit: Stacks KPIs Exhibit: Peer Comps Exhibit: Stacks Relative Valuation