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Lightning Labs CEO, Elizabeth Stark, believes that the new functionality introduced by the Lightning Network Taproot Assets protocol will pave the way for stablecoins on Bitcoin.
At FT Live’s Crypto and Digital Assets summit in London, Stark explained how Lightning Labs’ Taproot Assets protocol is enhancing Bitcoin's capabilities by allowing the issuance of assets on the Bitcoin blockchain. These assets can then be transferred over the Lightning Network, enabling instant, high-volume, and low-fee transactions.
The Taproot Assets protocol builds upon the foundation laid by the 2021 Lightning Network Taproot upgrade, which expanded Bitcoin’s smart contract and scripting capabilities.
This development could open the door for stablecoins to leverage the Taproot Asset protocol's functionality. According to Stark, significant progress has been made in this direction, including the testing of transactions on Lightning:
“We released an early part of the code in October and recently demoed the first-ever transaction on Lightning of an asset. The idea is to have crypto dollars and stablecoins on the Bitcoin blockchain.”
Stark argued that the high transaction fees and other issues associated with current blockchains make them unsuitable for stablecoin operations. She believes Bitcoin's network is the most suitable due to its security and decentralization.
Stark pointed out the increasing adoption of stablecoins since the COVID-19 pandemic, especially in emerging markets and nations facing hyperinflation and currency devaluation. She explained:
“The stickiest users have been those looking for a stable store of value. In some cases, they’re using Bitcoin. In other cases, they’re using stablecoins, and in some cases, it’s a combination of both.”
El Salvador's adoption of Bitcoin as legal tender in 2021 has been a significant milestone, leading to considerable economic growth.
Highlighting the dominance of stablecoins, Stark mentioned that major players like USDT and USDC hold more United States Treasury bonds combined than major nations like Germany and South Korea. She pointed out that end-users don’t benefit from holding stablecoins, given that they don’t earn interest.
Stark emphasized the need for infrastructure to enable the issuance of stablecoins and real-world assets on the Bitcoin blockchain. She stated:
“That’s why we’re building this protocol, this technology right now. We’re not issuing assets, we’re building the rails. Asset issuers will use our technology to issue real-world tokenized assets.”
The Lightning Network’s low transaction fees compared to traditional networks like Visa make it an attractive option for global transactions. Stark noted:
“If you look at Visa where fees in the U.S. can be upward of 3%, or even 1%, the fees, transacting with stablecoins on Lightning can be dramatically lower, a cent or less than that.”
This significantly lowers the barrier to entry, fueling adoption not only in challenging economic climates but globally. It positions the Lightning Network as a competitive alternative to traditional financial systems.
