Lightning Labs, a prominent Bitcoin development firm, is paving the way for the introduction of stablecoins and tokenized assets on the Bitcoin blockchain.
The company’s CEO, Elizabeth Stark, recently unveiled their latest endeavor, the Taproot Assets protocol, at the FT Live’s Crypto and Digital Assets Summit in London.
TLDR
- Lightning Labs is developing a protocol called Taproot Assets that will enable the issuance and transfer of stablecoins and tokenized assets on the Bitcoin blockchain and Lightning Network.
- Elizabeth Stark, CEO of Lightning Labs, believes that Bitcoin’s secure and decentralized network makes it the ideal blockchain for stablecoins.
- Stablecoin adoption has grown significantly since the COVID-19 pandemic, especially in countries with high inflation and devaluing fiat currencies, as people seek stable stores of value.
- Lightning Labs’ protocol aims to facilitate global transactions with stablecoins at significantly lower fees (less than a cent) compared to traditional financial networks like Visa.
- The two largest stablecoins, Tether (USDT) and USD Coin (USDC), hold more U.S. Treasury bonds combined than major nations like Germany and South Korea.
Taproot Assets builds upon the foundation laid by the 2021 Lightning Network Taproot upgrade, which expanded Bitcoin’s smart contract and scripting capabilities.
The protocol aims to enable the issuance and transfer of stablecoins and other real-world assets on the Bitcoin network, leveraging the Lightning Network’s instantaneous, high-volume, and low-fee transaction capabilities.
Stark emphasized the significance of bringing stablecoins to the Bitcoin ecosystem, citing the network’s unparalleled security and decentralization as key factors that make it an ideal blockchain for such digital assets.
She noted that developers have already made substantial progress, successfully demonstrating the first-ever transaction of an asset on the Lightning Network.
JUST IN: Computer scientist completes the first ever multi-hop asset payment routed through #Bitcoin on the Lightning Network 👀
— Bitcoin Magazine (@BitcoinMagazine) May 9, 2024
The move comes amid growing stablecoin adoption, particularly in emerging markets and nations grappling with hyperinflation and devaluing fiat currencies. Stark explained that these users have turned to stablecoins and Bitcoin as stable stores of value, highlighting the “stickiest users” as those seeking a reliable alternative to their local currencies.
Notably, the two largest stablecoin players, Tether (USDT) and Circle’s USD Coin (USDC), hold more United States Treasury bonds combined than major nations like Germany and South Korea.
This statistic underscores the significant role stablecoins play in the global financial landscape, despite end-users not benefiting from the interest earned on these holdings.
Lightning Labs’ endeavor aims to capitalize on this increasing demand for stablecoins while addressing the limitations of existing blockchain networks, such as high transaction fees and other issues.
By leveraging the Bitcoin network and the Lightning Network, Stark believes that financial institutions will be able to issue stablecoins, gold-backed assets, and other fiat-backed assets at significantly lower costs.
Stark highlighted the potential cost savings, stating that while fees on traditional networks like Visa can reach up to 3% in the United States, transactions with stablecoins on the Lightning Network could cost less than a cent. This competitive advantage could fuel global adoption, enabling people to transact internationally at substantially lower rates than traditional financial networks.
