Lightning Speed: How To Take BTC From Reserve Asset To World Reserve Currency

Is the Lightning Network bitcoin’s slayer app? It mightiness be, but there’s a agelong roadworthy ahead. One of the stops connected that roadworthy is the imaginable inclusion of stablecoins. Does bitcoin request them? Aren’t determination inherent counterparty risks with those? The statement implicit those questions rages on. And successful their latest post, The Bitcoin Layer makes the lawsuit for this improvement to beryllium crucial. 

According to The Bitcoin Layer, “a planetary superior marketplace operating connected apical of bitcoin-denominated fiscal rails is inching person with each caller onramp.” And the Taro protocol and each of the assets it would bring to The Lightning Network is the parent of each onramps. However, the risks it brings distant are arsenic large arsenic the opportunities it presents. Let’s research what The Bitcoin Layer has to accidental earlier jumping to conclusions. They mightiness astonishment us.

Making Lightning Interoperable With Everything

The archetypal portion of the nonfiction is astir Magma, “a Lightning liquidity marketplace that allows nodes to bargain and merchantability liquidity by leasing different web participant’s channels for a minimum specified play of time.” According to the articles, Magma’s beingness proves “a structural request for secondary markets of liquidity, wherever participants tin bargain and merchantability collateral arsenic needed—eventually blossoming into a heavy and liquid superior market.” 

Not lone that, The Bitcoin Layer besides theorizes about:

“Through time, Lightning Banks volition emerge. As marketplace participants deficiency the method wherewithal to efficiently run Lightning channels, astir Lightning Network transmission absorption volition beryllium subsumed by these entities who specialize successful it.”

And this is wherever the Taro protocol comes in. When it was announced, our sister tract Bitcoinist posed the pursuing questions:

“So, the main thought is to make and transact stablecoins implicit the Lightning Network, but the exertion allows users to make immoderate plus including NFTs. And the bitcoin web underpins the full thing. However, is this a affirmative improvement for bitcoin? How volition this payment the Lightning Network? Does a hyperbitcoinized satellite necessitate tokens?”

And The Bitcoin Layer provides convincing capable answers to those questions. But first…

“Taro makes bitcoin and Lightning interoperable with everything. For the Lightning Network, this means much web volume, much web liquidity, and much routing fees for node operators, driving much innovation and superior into the space. Any summation successful request for transactional capableness that volition travel from these caller assets (think stablecoins) volition correspond with accrued liquidity connected the bitcoin web to facilitate these transactions.” 

BTC terms illustration for 08/09/2022 connected Kraken | Source: BTC/USD connected TradingView.com A Bitcoin-Denominated Global Capital Market

“Using sats arsenic the transmittal rails for transactions crossed each currency opens the doorway for a bitcoin-denominated planetary superior market”. No 1 would contention that. Nor that “the Taro protocol opens the floodgates for this accepted concern liquidity to beryllium subsumed by a faster, counterparty-free colony network”. The web is counterparty-free, but, what astir the assets’ inherent counterparty risk?

Conceptual Future Bitcoin-Lightning Risk Curve | Source: The Bitcoin Layer

According to The Bitcoin Layer, it’s each astir hazard and the obstruction to entry:

“Higher tiers connected the hazard curve necessitate little attraction but incur much risk, whereas the little levels connected the hazard curve incur little hazard but person a higher obstruction to introduction for the mean idiosyncratic who lacks the method wherewithal for attraction and information champion practices.” 

And they marque the lawsuit that the instauration of Taro is simply a important measurement successful the process of bitcoin fulfilling its destiny of becoming the satellite reserve currency.

“For bitcoin to go a satellite reserve currency, a profoundly liquid superior marketplace is an intrinsic requirement—and the Taro protocol is simply a promising measurement successful making that happen. While bitcoin and LN are trillions of dollars distant from becoming a morganatic alternate to different superior markets, they arguably support the lowest corporate hazard illustration of immoderate superior marketplace successful existence, arsenic they are underwritten by an plus that erstwhile custodied incurs zero counterparty risk.”

Zero counterparty risk.

Does The Lightning Network Need Stablecoins, Though?

The reply to that question is inactive up successful the air. The Bitcoin Layer acknowledges the inherent counterparty hazard those present. It adjacent puts them astir astatine the apical of the hazard curve. However, they see them important and adjacent invited each different plus successful the satellite to The Lightning Network. According to their theory, that’s however “a bitcoin-denominated superior market” emerges.

Of course, this is each speculation. The Taro protocol has not been approved. Bitcoin’s liquidity is acold distant from what it needs to beryllium to go the planetary reserve currency. And, adjacent though stablecoins connected The Lightning Network mightiness beryllium person than we think, the full script takes spot successful a distant future.

Featured Image by WikimediaImages from Pixabay | Charts by TradingView and The Bitcoin Layer