Lightning Labs, led by CEO Elizabeth Stark, has unveiled a groundbreaking development leveraging Bitcoin's Taproot upgrade to pave the way for stablecoins and tokenized assets on the Bitcoin network. Stark shared insights into this innovation during the FT Live’s Crypto and Digital Assets summit in London, providing traditional finance players with an in-depth explanation of Bitcoin and the Lightning Network.
The Taproot Assets protocol, developed by Lightning Labs, aims to introduce functionality enabling stablecoins and tokenized assets to operate on the Bitcoin blockchain. Stark highlighted significant progress in this endeavor, including the testing of transactions on the Lightning Network:
"In October, we released a preliminary version of the code, and we recently showcased the first-ever transaction of an asset on the Lightning Network. Our objective is to enable the existence of crypto dollars and stablecoins directly on the Bitcoin blockchain."
Stark emphasized that while these digital assets have historically operated on other blockchains plagued by high fees and other challenges, Bitcoin's network is uniquely positioned to support stablecoins due to its unparalleled security and decentralization.
The value of Stablecoins and Bitcoin as a store of value
Stark emphasized the significance of Bitcoin and stablecoins as stores of value, particularly in regions facing challenges related to inflation and the depreciation of fiat currencies.
She noted a substantial increase in stablecoin adoption, especially among users in emerging economies, during the COVID-19 pandemic. Stark highlighted that individuals seeking a reliable store of value have gravitated towards both Bitcoin and stablecoins, or sometimes a combination of both.
Stark also pointed out an intriguing observation: the two largest stablecoin issuers, Tether and Circle, collectively hold a greater amount of United States Treasury bonds than several major nations like Germany and South Korea. Despite this, end users do not benefit from the interest earned on these holdings.
In countries dealing with hyperinflation or unstable economic conditions, the decision to hold stablecoins is often driven by the necessity for a dependable store of value.
Stablecoins powered by lightning will be stronger
Stark emphasized the necessity for infrastructure that facilitates the issuance of stablecoins and real-world assets on the Bitcoin blockchain, given the substantial growth in the stablecoin market.
She clarified that Lightning Labs is focused on developing the protocol and technology to support this initiative, rather than directly issuing assets. Instead, they aim to provide the framework for asset issuers to tokenize real-world assets using their technology.
Stark highlighted the potential for financial institutions to leverage this infrastructure to issue assets such as gold-backed tokens, stablecoins, and fiat-backed assets on the Bitcoin blockchain, with transactions occurring over the Lightning Network.
In terms of cost, Stark pointed out the significant advantage of using Lightning for transactions compared to other blockchains and traditional financial systems. She noted that while fees on platforms like Visa can be as high as 3% or 1%, transactions with stablecoins on Lightning could be substantially lower, potentially costing just a cent or even less. This cost efficiency could make global transactions more competitive compared to traditional networks.
May 2024, Cryptoniteuae