Lightning Labs, the creator of Bitcoin’s layer two solution, announced it was able to secure $70 million in a funding round in order to further develop the Lightning Network for faster, cheaper Bitcoin and stablecoin transactions.
The Series B funding round was led by Valor Equity Partners, with participation from Baillie Gifford, Goldcrest Capital, and several other angel investors. Lightning Labs is responsible for building additional features and software for the layer-two transaction solution.
On Tuesday, Elizabeth Stark, co-founder and CEO of Lightning Labs, will bring assets, like stablecoins, to the Bitcoin blockchain. She explained that Lightning Labs will fulfil its mandate to enable stablecoin transfers on the lightning network using Lightning Labs’ new TARO protocol.
What you should know
- The lightning network, as previously mentioned, is a layer two solution that is touted for enabling instant, low-fee transactions with Bitcoin, without using Bitcoin’s blockchain verification for each transaction.
- It has made it possible for Bitcoin to process up to 25 million transactions per second (TPS), making it faster and better than Bitcoin 7 TPS.
- Labs is known for building and update new and existing features on the Lightning network. It’s already developed a few different products, such as the Lightning Pool for Bitcoin liquidity. Now it’s adding Taro.
- Bitcoin’s Taproot upgrade, which went live back in November 2021, is what made the Taro protocol technically possible. Taproot featured three upgrades to the Bitcoin network which are, Schnorr signatures, Tapscript and Merkelized Abstract Syntax Trees (MAST).
- Taproot provides efficiency, privacy and flexibility gains to Bitcoin, but only if it is built into tools for users by developers. Taro represents what is possible when Taproot is put to work.
- TARO (Taproot Asset Representation Overlay), whose name was inspired by the taro root plant, allows developers to move stablecoins from the Bitcoin network to the Lightning Network. It is expected that TARO will be an open-source protocol powered by the Lightning Network (LN).
How TARO works
In an interview with CoinDesk, Lightning Labs Director of Business Development Ryan Gentry said the protocol is “uniquely enabled by Taproot to embed spending conditions into MASTs without disclosing all details to the blockchain. Using MASTs, Taro embeds data for new assets such that these assets can all be treated as bitcoins.”
Lightning Labs describes Taro an ‘asset overlay network on Bitcoin.’ The security of Taro is based on embedded consensus, which means that transactions on Taro include Bitcoin data that needs to be verified on the Bitcoin blockchain.
There are additional rules to govern that data as defined by the Taro protocol, similar to how LN is an overlay network that uses Bitcoin smart contracts but has its own set of rules to enable the instantaneous transfer of bitcoin (BTC).
Stark mentioned in the same CoinDesk interview that “you issue [the asset] on-chain and then you bring complexity to the end points,” the end point being the Taro protocol.
Lightning Labs released the technical specifications for Taro as a Bitcoin Improvement Proposal (BIP) so that the protocol can be built with feedback from the broader developer community.
While Taro might become available first on lnd, Lightning Labs’ implementation of LN, its status as an open-source protocol will allow other popular LN implementations, like ACINQ’s eclair or Blockstream’s Core Lightning, to use Taro. During the interview, Stark pointed to this as a critical aspect of Taro.
A critical distinction between Taro and other stablecoins, like UST on Terra, is that Taro is only the infrastructure to enable the movement of assets over Lightning, be they stablecoins or some other asset. Taro is not a stablecoin, collateralized, algorithmic or otherwise, it is simply infrastructure to enable the movement of assets. However, stablecoin transfers is the major selling point of this infrastructure and developers still need to build projects using Taro.
Bottom line
Bitcoin’s Lightning Network is currently being used by the country of El Salvador, the Bitcoin payments company Strike, Twitter’s tipping feature, and the Kraken cryptocurrency exchange, to name a few. Now, anyone looking to transfer stablecoins will be able to do so through the Lightning Network.
The news comes as regulation of stablecoin is looming. Last month, President Biden signed an executive order asking the U.S. federal government to investigate cryptocurrencies and “produce a report on the future of money and payment systems.” Last week, two U.S. lawmakers introduced a bill that would require stablecoins to be backed by both U.S. dollars and government securities.
