The implementation of the Taproot upgrade on the Bitcoin network has brought stablecoins closer to reality, thanks to new functionality developed by Lightning Labs. Elizabeth Stark, CEO of Lightning Labs, discussed these developments at the FT Live’s Crypto and Digital Assets summit in London. She also provided a comprehensive explanation of Bitcoin and the Lightning Network for the audience, which consisted of traditional finance players.
Lightning Labs’ Taproot Assets protocol is focused on bringing stablecoins and tokenized assets to the Bitcoin network. Stark revealed that developers have made significant progress in achieving this goal, including successful testing of transactions on Lightning. She emphasized that digital assets have traditionally operated on other blockchains, which have been plagued by high fees and other issues. In contrast, Bitcoin’s network is considered the most secure and decentralized, making it well-suited for facilitating the use of stablecoins.
Stark further discussed the value of Bitcoin and stablecoins as a store of value, particularly for nations dealing with inflation and the devaluation of fiat currencies. She noted that stablecoin adoption has increased significantly since the COVID-19 pandemic, with users primarily located in emerging markets. These users are looking for a stable store of value, and they often utilize either Bitcoin or stablecoins, or a combination of both.
Interestingly, the two largest players in the stablecoin market, Tether (USDT) and Circle (USDC), hold more United States Treasury bonds than major nations like Germany and South Korea. Stark found this fact intriguing, considering that end users do not benefit from the interest earned by holding stablecoins. However, for individuals in countries experiencing hyperinflation or economic instability, holding stablecoins provides a means of preserving value.
Stark emphasized the need for infrastructure to support the issuance of stablecoins and real-world assets on the Bitcoin blockchain, given the significant growth in the stablecoin market. Lightning Labs is currently building this protocol to enable asset issuers to tokenize real-world assets. Financial institutions could issue assets such as gold, stablecoins, and fiat-backed assets on Bitcoin and transact over the Lightning Network.
One of the most compelling advantages of Lightning-powered stablecoins is their relative cost compared to other blockchains and traditional financial systems. Stark highlighted that this could enable people to transact globally at significantly lower rates compared to traditional networks.
In conclusion, the new functionality developed by Lightning Labs using Bitcoin’s Taproot upgrade brings stablecoins closer to reality. The Bitcoin network’s security and decentralization make it an ideal platform for stablecoin use. The infrastructure being built by Lightning Labs will allow for the issuance of stablecoins and real-world assets on the Bitcoin blockchain, providing individuals with a secure store of value. The Lightning Network’s lower transaction costs compared to traditional networks further enhance the appeal of stablecoin transactions on Bitcoin.