Bitcoin Layer 2 Stacks says its latest upgrade boosts DeFi capacity by up to 30x

Bitcoin Layer 2 developer Stacks Labs said its SIP-034 upgrade has now been implemented, increasing effective network capacity for certain decentralized finance applications by up to 30x by removing a key processing bottleneck.

The upgrade was activated through a governance vote last November and has now been implemented on mainnet, enabling developers to use the improvements in live applications, Stacks Labs product lead Alex Huth told The Block.

SIP-034 changes how the Stacks network handles transaction processing limits. Previously, if any one of several resource limits was reached during block production, the network would reset all limits, effectively stopping further processing even if unused capacity remained.

The upgrade now allows the network to reset only the specific limit that has been exhausted, rather than all limits at once. This enables more efficient use of available capacity and allows more transactions to be processed within the same block.

"Every transaction gets measured against multiple resource budgets, think of it similarly to how long the computer takes to process or how many times it reads or writes to a smart contract," Huth said. "Before, if any one of those budgets got filled up all of the rest of the processing capacity had to stop. Now, the signers can look at a block, see that there's still more room to go, and allow it to safely keep processing instead of one full lane shutting down the whole highway."

The improvement is not uniform across all applications. Huth said the biggest gains are expected in read-heavy and complex DeFi use cases, such as concentrated liquidity and advanced automated market maker designs, which were previously constrained by the earlier system.

When asked about the impact on Stacks' STX token, Huth said the upgrade does not directly change tokenomics but could increase activity on the network over time.

"The Stacks chain is now more capable of supporting highly valuable workflows like complicated DeFi applications," Huth said. "Thinking about the institutional interest in Bitcoin DeFi, when you have a more capable chain, you can have more complex DeFi and more active participants, more transactions, more fees, and more value surrounding the chain. Anything that makes the chain more active has a compounding effect."

The STX token is currently ranked the 102nd largest cryptocurrency with a market capitalization of over $480 million. It was trading at around $0.26, up nearly 1% over the past 24 hours, according to The Block's STX price page.

Stacks is a Bitcoin Layer 2 network cofounded by Muneeb Ali that enables smart contracts and scalability for the Bitcoin blockchain. It allows developers to build decentralized applications and supports bitcoin-native yield products through its ecosystem, including the bitcoin-backed asset sBTC and its proof-of-transfer consensus mechanism, which lets STX holders earn bitcoin rewards by participating in the network.