What Is Stacks (STX) and How Does It Work?

Stacks adds smart contracts and decentralized apps to Bitcoin without changing Bitcoin itself. Its STX token pays network fees and can be locked to earn BTC rewards. In 2026, Stacks added Bitcoin Staking, which lets BTC holders earn rewards without moving their coins off Bitcoin. This guide explains how Stacks works, what STX is used for, and how US taxes apply when you buy, stack, or sell.

Stacks miners commit BTC through Proof of Transfer for the chance to produce Stacks blocks for a period called a tenure. A selected miner can produce multiple blocks during that tenure, while Stackers and signers validate and approve them.

The Nakamoto upgrade separated Stacks block production from Bitcoin's block interval, cutting confirmation times to seconds while keeping settlement on Bitcoin.

Smart contracts use Clarity, a language designed to make contract behavior easier to analyze before execution.

What makes Stacks unique?

• Proof of Transfer: Links Stacks block production and incentives to Bitcoin without changing Bitcoin's rules.

• Bitcoin finality: Since the Nakamoto upgrade, reversing a confirmed Stacks transaction is at least as hard as reorganizing Bitcoin.

• Clarity smart contracts: Use a language that makes contract behavior easier to inspect before execution.

• sBTC: A 1:1 Bitcoin-backed asset that lets BTC move between Bitcoin and Stacks for use in smart contracts and DeFi.

• Bitcoin Staking: Lets BTC be bonded alongside STX to earn BTC-denominated rewards while the BTC stays locked on Bitcoin's own network.

What is sBTC?

sBTC is a Bitcoin-backed asset that lets BTC move between Bitcoin and Stacks for use in smart contracts and DeFi. Each sBTC is designed to be backed 1:1 by BTC.

Deposits into sBTC launched in December 2024, and withdrawals followed on April 30, 2025. A network of signers processes deposits and withdrawals, rather than a single custodian. Once BTC is on Stacks as sBTC, you can use it in supported lending, trading, and other DeFi apps.

What is Bitcoin Staking on Stacks?

Bitcoin Staking launched on Stacks in September 2026, after the PoX-5 upgrade activated on July 30. It pairs BTC locked on Bitcoin with STX locked on Stacks. The BTC stays on Bitcoin under a time lock rather than being bridged to another blockchain, and rewards come from the BTC that Stacks miners commit through Proof of Transfer.

The first bonding period, called the Genesis Bond, opened September 10, 2026, for institutional participants. Four institutions participated, bonding 230 BTC alongside 3.57 million STX during the first two weeks. Access for other holders is expanding in phases, including through staking pools.

Bitcoin Staking is separate from traditional STX Stacking. STX-only Stackers still take part in consensus and can earn BTC rewards under PoX-5.

Demand for STX comes partly from its role in transaction fees, Proof of Transfer incentives, Stacking, and the apps built on Stacks. Since PoX-5, STX also acts as the capacity asset for Bitcoin Staking, because each bonded BTC position must be paired with locked STX.

Stacks key features

• Proof of Transfer: Stacks miners commit BTC to compete for the right to produce blocks.

• Nakamoto block production: Stacks blocks confirm in seconds instead of waiting for each new Bitcoin block.

• Clarity smart contracts: A purpose-built contract language with predictable execution.

• Stacking: STX holders lock tokens and take part in consensus with the potential to earn BTC rewards.

• sBTC: A 1:1 Bitcoin-backed asset for using BTC in Stacks apps.

• Bitcoin Staking: BTC can be bonded alongside STX to earn BTC-denominated rewards.

Pros

• Transactions ultimately settle on Bitcoin and receive Bitcoin finality

• STX holders can take part in Stacking and potentially earn BTC rewards

• sBTC brings Bitcoin to smart contracts and DeFi on Stacks

• Clarity is designed to make smart contract behavior easier to inspect

Cons

• Stacks has a smaller app ecosystem than major smart contract networks such as Ethereum

• sBTC relies on a signer system that is still becoming more decentralized

• Bitcoin Staking is new, and how people can participate may keep changing

• STX and BTC are volatile, and DeFi apps add smart contract and liquidity risks

STX pays transaction and smart contract fees and rewards Stacks block production. Holders can lock STX through Stacking to take part in consensus and potentially earn BTC rewards. Under PoX-5, STX also acts as the capacity asset for Bitcoin Staking, since bonded BTC positions must be paired with a corresponding locked STX position. STX holders can also vote on Stacks Improvement Proposals when a proposal uses token-based voting.

STX doesn't have a fixed maximum supply. New STX enters circulation through network rewards, and the issuance schedule can change through the Stacks Improvement Proposal process.

The PoX-5 upgrade in July 2026 restored the block reward to 1,000 STX per Bitcoin block during its startup period, and the network plans to revisit rewards in a future upgrade. Because circulating supply and issuance both change over time, check a current source for supply figures.

• Create an account on an exchange that supports STX where you live, such as Coinbase or Kraken, and complete identity verification.

• Deposit USD, BTC, or USDT.

• Enter a market or limit order for STX.

• Withdraw STX to a wallet that supports Stacks, such as Leather (formerly Hiro Wallet), Xverse, or a Ledger hardware device, for added security.

Yes, Stacks is one potential way to earn passive income with crypto. You can lock STX through Stacking, which means taking part in Stacks consensus in exchange for potential BTC rewards.

Solo Stacking requires a minimum amount of STX that changes with network participation. Smaller holders can use a Stacking pool, though each pool has its own custody, reward, and token terms.

Stacks also launched Bitcoin Staking in September 2026, which lets participants bond BTC with STX to earn BTC-denominated rewards. Access was limited during the initial rollout, and pools offer another way to take part.

Reward rates change and aren't guaranteed, so don't treat a current yield as a fixed feature of STX.

For US taxpayers:

• Buying STX: Buying STX with US dollars generally isn't taxable by itself.

• Selling or swapping STX: Selling STX or swapping it for another crypto is generally a taxable disposal of the STX you give up, creating a capital gain or loss reported on Form 8949 and Schedule D.

• Stacking rewards: BTC or other crypto rewards are generally ordinary income when you gain dominion and control over them, usually reported on Schedule 1, not on Form 8949. That income amount becomes your cost basis when you later sell or swap the rewards.

• Bitcoin Staking: PoX-5 introduced new arrangements that lock both BTC and STX. The tax result depends on whether you keep ownership, receive another token, use a pool, or enter other DeFi transactions. The IRS hasn't issued guidance specific to Bitcoin Staking on Stacks.

• sBTC: Moving BTC into or out of sBTC needs separate tax analysis, so don't assume every deposit or withdrawal is taxable or tax-free.

• Transaction fees: Fees tied to buying or selling an investment can affect your cost basis or proceeds, and paying a network fee in crypto can itself be a disposal of that crypto.

Keep records of STX and BTC purchase dates, cost basis, Stacking rewards, sBTC transactions, wallet transfers, and network fees. Since January 1, 2025, the IRS has generally required you to track cost basis wallet by wallet or account by account. Learn more in our crypto staking tax guide and DeFi tax guide.