Lightning Labs Leading the Charge to Introduce Stablecoins on Bitcoin

Lightning Labs CEO Elizabeth Stark is optimistic that the new features introduced by the Lightning Network Taproot Assets protocol will support stablecoin functionality on Bitcoin.

At FT Live’s Crypto and Digital Assets summit in London, Stark provided an overview of Bitcoin and the Lightning Network to an audience comprised of traditional finance professionals. The Taproot Assets protocol from Lightning Labs is designed to create capabilities for issuing assets on Bitcoin, which can be transferred through the Lightning Network for immediate, high-volume, low-cost transactions.

This builds on the groundwork established by the 2021 Lightning Network Taproot upgrade, which enhanced Bitcoin’s smart contract and scripting functionalities.

This advancement would promote the utilization of stablecoins on the Bitcoin network, allowing them to leverage the features provided by the Taproot Asset protocol. Stark noted that developers have made notable progress toward this objective, leading to the testing of transactions on Lightning:

“We released an early part of the code in October and recently demonstrated the first-ever transaction involving an asset on Lightning. The concept is to have crypto dollars and stablecoins on the Bitcoin blockchain.”

excited to announce that I’ve just made the first mainnet *asset* keysend payment w/ Taproot Asset channels!

below you can see me sending beefbux across nodes instantly

the demo uses a dev version of litd (Lightning Terminal Daemon) that packages lnd+tapd

pic.twitter.com/2IVh071YhL

— Olaoluwa Osuntokun (@roasbeef) May 2, 2024

Stark contended that these assets face challenges on existing blockchains due to elevated transaction fees and other complications.

She pointed out Bitcoin’s network as the optimal blockchain to support stablecoins because it “is the most secure and decentralized.”

Bitcoin and StableCoin Adoption

Stark emphasized the increasing adoption of stablecoins since the onset of the COVID-19 pandemic. She noted that emerging markets and countries dealing with hyperinflation and depreciating fiat currencies have contributed to this trend, as they seek alternative stores of value. She elaborated:

“The most persistent users have been those in search of a stable store of value. In some instances, they’re utilizing Bitcoin. In others, they’re relying on stablecoins, and in certain cases, it’s a combination of both.”

In 2021, El Salvador became the first nation to recognize Bitcoin as legal tender, and since then, it has experienced significant adoption among its citizens, leading to substantial economic growth.

The leading stablecoin entities $USDT and $USDC collectively hold more United States Treasury bonds than major countries like Germany and South Korea. Stark highlighted this point as noteworthy, especially since end-users do not gain from the interest accrued by holding stablecoins.

Lightning Labs Will Fuel Stablecoin Adoption

Stark asserts that there is a necessity for infrastructure to facilitate the issuance of stablecoins and real-world assets on the Bitcoin blockchain. She clarified:

“That’s why we’re developing this protocol, this technology right now. We’re not issuing assets; we’re constructing the rails. Asset issuers will utilize our technology to create real-world tokenized assets.”

She added that the applications of this infrastructure could empower financial institutions to issue gold assets, stablecoins, and other fiat-backed assets on Bitcoin. However, the most significant advantage of the Lightning network lies in its low transaction fees, especially compared to other blockchains and traditional financial systems.

Stark commented:

“If you examine Visa, where fees in the U.S. can exceed 3%, or even 1%, the costs associated with transacting stablecoins on Lightning can be considerably lower, often just a cent or less.”

This would promote adoption not only in difficult economic situations but also globally. It would enable international transactions at significantly lower rates than conventional networks, providing the Lightning Network with a competitive advantage.

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