Is the Lightning Network bitcoin’s killer app? It could be, but it surely nonetheless has a protracted highway forward. One of the stops on that highway is the doable inclusion of stablecoins. Does bitcoin want them? Aren’t there inherent counterparty dangers with these? The debate over these questions rages on. And of their newest publish, The Bitcoin Layer makes the case for this growth to be essential 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 the entire belongings it will convey to The Lightning Network is the mom of all onramps. However, the dangers it brings forth are as large because the alternatives it presents.
Let’s discover what The Bitcoin Layer has to say earlier than leaping to conclusions. They would possibly shock us.
Making Lightning Interoperable With Everything
The first a 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 these markets, “participants can buy and sell collateral as needed—eventually blossoming into a deep and liquid capital market.”
Not solely that, The Bitcoin Layer additionally 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 that is the place the Taro protocol is available in. When it was introduced, our sister site Bitcoinist posed the next 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 gives convincing sufficient solutions to these 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 worth 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 community is counterparty-free, however, what in regards to the belongings’ inherent counterparty threat?
Conceptual Future Bitcoin-Lightning Risk Curve | Source: The Bitcoin Layer
According to The Bitcoin Layer, it’s all about threat 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 an important step within the strategy of bitcoin fulfilling its future of changing into the world reserve forex.
“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 threat.
Does The Lightning Network Need Stablecoins, Though?
The reply to that query continues to be up within the air. The Bitcoin Layer acknowledges the inherent counterparty threat these current. It even places them virtually on the high of the danger curve. However, they take into account them essential and even welcome each different asset on the earth to The Lightning Network. According to their concept, that’s how “a bitcoin-denominated capital market” emerges.
Of course, that is all hypothesis. The Taro protocol has not been accredited. Bitcoin’s liquidity is much away from what it must be to develop into the worldwide reserve forex. And, despite the fact that stablecoins on The Lightning Network might be closer than we think, the entire situation takes place in a distant future.
Featured Image by WikimediaImages from Pixabay | Charts by TradingView and The Bitcoin Layer
