Key facts:
One of the goals of the project is “the bitcoinization of the dollar”.
The development is in the experimental stage and the collaboration of Bitcoin developers will be sought.
A new protocol known as Taro, developed by Lightning Labs, will allow the issuance of Bitcoin tokens. These can be exchanged through the Lightning network, which allows instant micropayments and low commissions.
The official announcement was published by Ryan Gentry, Lightning Labs Business Development Lead. In the post, Gentry stated that this project will allow the issuance of stablecoins (and any other type of token), which could be used for the “bitcoinization of the dollar”.
The protocol makes use of Taproot, the most recent update to Bitcoin, which was released last November, improving privacy and network performance.
By using Taproot, according to Gentry, Taro will not require any type of protocol change, nor will it imply any type of overload on the nodes. This is so because Taro will make use of the metadata that Taproot allows to embed within each Bitcoin transaction.
In this case, Gentry shows an example of what it would be like to send L-USD (hypothetical token of the Lighting network created by Taro). On the path that the funds must travel, only the nodes at the beginning and at the end of the path need to hold stablecoins, those that are connected to each other would use BTC.
Specifically, the nodes would use a transaction called OP_RETURN with the Taro protocol to create the tokens or stablecoins. The Lightning Network would be used to send or route assets to the other end of each channel, using Taproot to embed stablecoin metadata into transactions. The sent tokens would be claimed at the end, through one of the nodes that Taro uses.
Thanks to the lightning network protocol, direct exchange L-USD/BTC would be allowed almost immediately, as in the example of the image.
For now, as the announcement ends, the protocol is awaiting final implementation. To do this, the Lightning Labs company would launch a series of improvement proposals (BIP) in order to obtain comments and the necessary feedback from the bitcoiner community. The arrival of Taro will not require any type of fork in the network.
For the development of Taro there is $70 million in series B financing. Investors such as Baillie Gifford, Goldcrest, Kingsway, Stillmark, Brevan Howard, NYDIG, among others, contributed.
USDT is traded on the Bitcoin Lightning Network
This would not be the first time that the Lightning network has been used in some way to send stablecoins. An important milestone that occurred at the end of March was achieved by the company Synonym, who managed to send Tether (USDT) through this micropayment network, as reported by CriptoNoticias.
While this is a notable milestone, Taro can take this further as the issued tokens would work natively, considering that Taproot is already part of the Bitcoin mainnet.
This allows Bitcoin and the Lightning network to develop backup systems for stablecoins natively without an overload of work within the network itself thanks to the use of Taproot.