The project formerly known as “Taro” has been rebranded “Taproot Assets” after Lightning Labs was hit with a trademark infringement lawsuit. The new offering comes with a “core set of features to bitcoinize the dollar,” according to the firm.
Lightning Labs’ Taro Project Faces Halt as Judge Issues Temporary Injunction for Trademark Infringement
The decision in the case brought by fellow blockchain software developer Tari Labs raises questions about trademark enforcement in the open source community.
Asset management firm launches BTC Lightning Network startup accelerator
The startup accelerator will consist of four yearly 8-week programs, with successful applicants receiving $250,000 and one receiving an additional $500,000 at the end of the program.
Lightning Speed: Taro Wants To Abolish Cross-Border Payments, Disrupt The Market
Have you heard about Taro? It’s an improvement proposal for the Lightning Network that Lightning Labs introduced in April. “Taro makes Bitcoin and Lightning multi-asset networks,” the company claims in the latest edition of their newsletter. They also explain in simple words what the protocol does, how it does it, and the implications of its implementation.
“In a world of omnipresent communications connectivity, nobody says “cross-border messaging” anymore. Taro promises to do the same thing to “cross-border payments” by decentralizing the entire global FX market into a protocol that can run on a Raspberry Pi by anyone, anywhere.”
Is the Lightning Labs exaggerating? Or is Taro the protocol that will bring the next billion people to the Lightning Network? “The opportunity provided by Taro bringing assets like stablecoins to the Lightning Network is clearly enormous,” the company claims. Can Lightning Labs back that case and argue it convincingly? Let’s find out.
What Taro Does And How It Does It
The first thing Lightning Labs makes clear is the psychology behind the improvement proposal. It almost seems like bitcoin’s Lightning Network will be serving Taro and not the other way around.
“Instead of starting from scratch and bootstrapping a new ecosystem of nodes and liquidity, Taro will leverage the existing network effects of both the infrastructure that’s been built out over the last several years plus the 4000+ BTC allocated to the network today as a global routing currency.”
How does it work, though? The “edge nodes” are the key. By “integrating with Taro,” normal Lightning nodes can now “process an instantaneous conversion from L-USD into BTC or vice versa, for a small fee.” That means that “every Taro transaction on the Lightning Network will be converted into BTC by the first hop, routed across the network as BTC, and then converted back into a Taro asset by the last hop before the destination”
What is a “Taro asset”? Whatever you want, your BTC can be “converted into different assets such as USD to EUR or USD to BTC.” Or, as Bitrefil’s Sergej Kotliar puts it, “Pay in currency of sender’s choice, receive in currency of recipient’s choice. This means that every wallet can now have native Strike-type “USD balance” functionality for example. With no need to trust the wallet, the only trust lies in the issuer of the token.”
The trust model is the main difference from Galoy’s Stablesats, another novel concept that looks for a similar result.
BTC price chart for 08/13/2022 on Bitstamp | Source: BTC/USD on TradingView.com
What Does Taro Mean For The Lightning Network?
In a recent interview published by NewsBTC, AXX’s head of research and strategy Ben Caselin explained the protocol further
“In Taro, smart contracts and asset transfers are not executed by the blockchain, and they are also not enforced by the blockchain. Instead, transfers are executed by the sender of an asset (who has to make a corresponding bitcoin transaction), and enforced by the recipient, same as the Lightning Network.”
And in the previous Lightning Speed, we theorized about how big could this development be for the Lightning Network.
“According to The Bitcoin Layer, “a global capital market operating on top of bitcoin-denominated financial rails is inching closer with each new onramp.” And the Taro protocol and all of the assets it would bring to The Lightning Network is the mother of all onramps.”
Back to Lightning Lab’s newsletter, the company toyed with even bigger expectations. For example:
“A community bank could issue a local stablecoin on Taro and it would only need a handful of nodes or liquidity providers to make a market between the local currency and the BTC core of the Lightning Network to be connected to a global community of buyers and sellers. No permissioning required!”
They’ll Never See It Coming
According to Lightning Labs, bitcoin “renders cross-border payments obsolete.” Stablecoins are a huge business and so are cross-border payments. In the intersection between them, Taro stands tall. “Visa’s 65% operating margin is one of the highest of all the companies in the S&P 500 index, and this margin is Lightning and Taro’s opportunity. They’ll never see it coming.”
The company expects that the benefit for everyone working on the Lightining Network will be tremendous. “We expect that bringing Taro to market and making Lightning a multi-asset network will dramatically expand the Total Addressable Market for those building Lightning applications.” And you know what more users mean, more of those sweet-sweet fees.}
Featured Image by Joseph Mucira from Pixabay | Charts by TradingView
Lightning Speed: How To Take BTC From Reserve Asset To World Reserve Currency
Is the Lightning Network bitcoin’s killer app? It might be, but it still has a long road ahead. One of the stops on that road is the possible inclusion of stablecoins. Does bitcoin need them? Aren’t there inherent counterparty risks with those? The debate over those questions rages on. And in their latest post, The Bitcoin Layer makes the case for this development to be crucial in The Lightning Networks trajectory.
According to The Bitcoin Layer, “a global capital market operating on top of bitcoin-denominated financial rails is inching closer with each new onramp.” And the Taro protocol and all of the assets it would bring to The Lightning Network is the mother of all onramps. However, the risks it brings forth are as big as the opportunities it presents.
Let’s explore what The Bitcoin Layer has to say before jumping to conclusions. They might surprise us.
Making Lightning Interoperable With Everything
The first part of the article is about Magma, “a Lightning liquidity marketplace that allows nodes to buy and sell liquidity by leasing other network participant’s channels for a minimum specified period of time.” According to the article, Magma’s existence proves “a structural demand for secondary markets of liquidity”. In those markets, “participants can buy and sell collateral as needed—eventually blossoming into a deep and liquid capital market.”
Not only that, The Bitcoin Layer also theorizes about:
“Through time, Lightning Banks will emerge. As market participants lack the technical wherewithal to efficiently operate Lightning channels, most Lightning Network channel management will be subsumed by these entities who specialize in it.”
And this is where the Taro protocol comes in. When it was announced, our sister site Bitcoinist posed the following questions:
“So, the main idea is to create and transact stablecoins over the Lightning Network, but the technology allows users to create any asset including NFTs. And the bitcoin network underpins the whole thing. However, is this a positive development for bitcoin? How will this benefit the Lightning Network? Does a hyperbitcoinized world require tokens?”
And The Bitcoin Layer provides convincing enough answers to those questions. But first…
“Taro makes bitcoin and Lightning interoperable with everything. For the Lightning Network, this means more network volume, more network liquidity, and more routing fees for node operators, driving more innovation and capital into the space. Any increase in demand for transactional capacity that will come from these new assets (think stablecoins) will correspond with increased liquidity on the bitcoin network to facilitate these transactions.”
BTC price chart for 08/09/2022 on Kraken | Source: BTC/USD on TradingView.com
A Bitcoin-Denominated Global Capital Market
“Using sats as the transmittal rails for transactions across every currency opens the door for a bitcoin-denominated global capital market”. No one would contest that. Nor that “the Taro protocol opens the floodgates for this traditional finance liquidity to be subsumed by a faster, counterparty-free settlement network”. The network is counterparty-free, but, what about the assets’ inherent counterparty risk?
Conceptual Future Bitcoin-Lightning Risk Curve | Source: The Bitcoin Layer
According to The Bitcoin Layer, it’s all about risk and the barrier to entry:
“Higher tiers on the risk curve require less maintenance but incur more risk, whereas the lower levels on the risk curve incur less risk but have a higher barrier to entry for the average person who lacks the technical wherewithal for maintenance and security best practices.”
And they make the case that the introduction of Taro is a crucial step in the process of bitcoin fulfilling its destiny of becoming the world reserve currency.
“For bitcoin to become a world reserve currency, a deeply liquid capital market is an intrinsic requirement—and the Taro protocol is a promising step in making that happen. While bitcoin and LN are trillions of dollars away from becoming a legitimate alternative to other capital markets, they arguably maintain the lowest collective risk profile of any capital market in existence, as they are underwritten by an asset that when custodied incurs zero counterparty risk.”
Zero counterparty risk.
Does The Lightning Network Need Stablecoins, Though?
The answer to that question is still up in the air. The Bitcoin Layer acknowledges the inherent counterparty risk those present. It even puts them almost at the top of the risk curve. However, they consider them crucial and even welcome every other asset in the world to The Lightning Network. According to their theory, that’s how “a bitcoin-denominated capital market” emerges.
Of course, this is all speculation. The Taro protocol has not been approved. Bitcoin’s liquidity is far away from what it needs to be to become the global reserve currency. And, even though stablecoins on The Lightning Network might be closer than we think, the whole scenario takes place in a distant future.
Featured Image by WikimediaImages from Pixabay | Charts by TradingView and The Bitcoin Layer
Visa should be ‘scared’: Lightning Labs raises $70M to add stablecoins
The firm has built a new protocol called Taro to enable stablecoins to be sent and received on the Bitcoin Lightning Network.
