The Next Trillion-Dollar Opportunity for Stablecoins: Taproot Assets Protocol and Lighting Network

The core of blockchain technology lies in expanding payment scenarios. In the cryptocurrency market, stablecoins not only occupy an important position but also play an increasingly significant role in global payments and cross-border settlements. Currently, centralized stablecoins still account for over 90% of the market share, with USDT holding an absolute dominant position among stablecoins. Although the issuance of stablecoins has exceeded $150 billion, compared to the $20 trillion M1 money supply reported by the Federal Reserve in 2024, which includes circulating cash, traveler's checks, demand deposits, etc., the market value of stablecoins only accounts for 0.75% of M1. There is still great potential for stablecoins in the payment field. The launch of the Taproot Assets protocol brings broad prospects for the application of stablecoins in high-frequency small payment scenarios, and also creates the possibility for the large-scale adoption of stablecoins as a conventional payment method.

1. Stablecoin: The Trillion-Dollar Track in the Future of Finance

The booming development of the stablecoin market demonstrates its potential to become a trillion-dollar market in the future financial sector. Currently, the market capitalization of stablecoins has exceeded 160 billion dollars, with a daily trading volume exceeding 100 billion dollars. Major countries are introducing policies and regulations related to stablecoins. Various institutions predict that stablecoins will bring about a new trillion-dollar market, with the main growth coming from the widespread application of stablecoins in global payments.

Stablecoins can be divided into two main categories: centralized and decentralized. Among them, decentralized stablecoins can be further subdivided into algorithmic stablecoins and collateral-backed crypto asset issued stablecoins, as well as types that combine both. Currently, centralized stablecoins dominate the market, with USDT and USDC issuing $114.46 billion and $34.15 billion of dollar-pegged stablecoins, respectively. Tether, with a team of only 125 people, has an annual gross profit of $4.5 billion. This attractive opportunity has also attracted many large institutions to enter the market.

• BlackRock issued the tokenized fund BUIDL on Ethereum, aiming to provide stable value and generate returns, becoming a large tokenized fund with a market value of $384 million.
• JD Coin Chain Technology ( plans to issue a cryptocurrency stablecoin pegged to the Hong Kong dollar at a 1:1 ratio in Hong Kong.

Centralized stablecoins have been widely used in the crypto ecosystem, with users commonly utilizing centralized stablecoins for trading and settlement on DEX or CEX. The collateral assets of decentralized stablecoins are mostly crypto assets, typically used for lending.

Although stablecoins play an important role in cryptocurrency trading and DeFi, the exploration of their integration with physical commerce is still in the early stages. In the long run, the most promising application scenario for stablecoins is in the payment sector, especially in cross-border payments. Currently, cross-border payments involve multiple intermediaries, including issuing banks, payment gateways, payment processors, and complex processes, resulting in not only high costs but also long settlement times. Stablecoins are not only a better choice but also an important channel for economic participation. As the regulation of stablecoins gradually becomes standardized, their position in global payment scenarios will become increasingly important. In the future, with the large-scale adoption of stablecoins in payment scenarios, they may also integrate with DeFi to give rise to PayFi, achieving interoperability, programmability, and composability in payment scenarios, forming a new financial paradigm and product experience that traditional finance cannot achieve.

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2. Taproot Assets protocol + Lighting Network: The infrastructure for a global payment network

Currently, stablecoins are mainly circulating on the ETH and TRON blockchain networks, but the transaction fees on these networks usually exceed 1U, and the on-chain transfer time exceeds 1 minute. In contrast, the Lighting Network offers advantages of faster speed, lower cost, and higher scalability.

) 2.1 Introduction to the Lighting Network

The Lightning Network is the first relatively mature layer two scaling solution for the Bitcoin network. Since the release of the Lightning Network white paper, several teams have started independent development, including Lightning Labs, Blockstream, and ACINQ, among others. Taproot Assets is the asset issuance protocol developed by Lightning Labs.

The operating principle of the Lighting Network is: both parties to the transaction establish a bi-directional state channel, create a 2-of-2 multi-signature address on-chain, and both parties can transfer Bitcoin in or out within a limit. Before transferring out, both parties send locking data and account for it, forming a transaction payment, allowing for multiple payments back and forth. After the transaction is completed, both parties settle, and the Bitcoin in the new address is allocated to both parties according to the settlement amount. Only the latest version of the transaction is valid, which is enforced by the Hash Time Lock Contract (HTLC). Either party can broadcast the latest version to the blockchain at any time to close the channel, without the need for trust or escrow.

Therefore, both parties can conduct off-chain transactions without restrictions, using the Bitcoin chain as an arbitrator, but only when the transaction is completed or an error occurs ###, such as one party having insufficient balance (, will the smart contract intervene and execute on the blockchain. This is similar to both parties signing multiple legal contracts, but only resorting to court when there is a final confirmation or a dispute arises.

) 2.2 Lighting Network: Ideal Infrastructure for Global Stablecoin Payments

The Lightning Network allows users to conduct an unlimited number of transactions off-chain without causing congestion on the Bitcoin network, while relying on the security of the Bitcoin network. Theoretically, the scalability of the Lightning Network is limitless.

The Lightning Network has been operating for 9 years, built on the currently most secure Bitcoin network ( with over 57,000 nodes and a PoW consensus mechanism ), maximizing the security of the Lightning Network.

Currently, the Lightning Network has a capacity of over 5,000 Bitcoins, with more than 18,000 nodes and over 50,000 channels worldwide. By establishing bidirectional payment channels to achieve instant and low-cost transactions, the Lightning Network is being widely integrated and used by numerous payment providers and merchants globally, gradually becoming the most widely accepted decentralized solution for global payments.

Bitcoin assets account for half of the cryptocurrency market value. With the return of this cycle to the Bitcoin ecosystem craze, the Lighting Network, as the first Bitcoin layer two scaling solution, has truly realized Satoshi Nakamoto's vision of peer-to-peer global payments. The Lighting Network has become the most orthodox and strongly consensus-driven Bitcoin community, representing the best solution for ideal global payments.

2.3 Taproot Assets protocol: improving the last mile of the Lighting Network

Before the emergence of the Taproot Assets protocol, the Lightning Network only supported Bitcoin as a payment currency, and its application scenarios were very limited. Today, when Bitcoin has become digital gold, most people are unwilling to spend their Bitcoin.

Although there have been some layer-one issuance protocols for Bitcoin, such as Atomical and BRC20 based on Ordinals, they do not support direct access to the Lighting Network. The launch of the Taproot Assets protocol perfectly addresses this issue. It is an asset issuance protocol based on the Bitcoin network, led by Lightning Labs. Similar to the Ordinals protocol, anyone or any organization can use the Taproot Assets protocol to issue their own coins, and it also supports the issuance of stablecoins corresponding to fiat currencies, such as USD, AUD, CAD, HKD, and other stablecoins.

Compared to other asset protocols, the advantage of the Taproot Assets protocol is its complete compatibility with the Lighting Network, making it possible to use stablecoins for payments on the Lighting Network. This means that in the future, a large number of new assets (, especially stablecoins ), will flow into the Lighting Network based on the Bitcoin network, thereby enhancing the Lighting Network's layout and influence in the global payment field.

Relying on the security and decentralization of Bitcoin, "Bitcoinizing dollars and global financial assets" proposed by Lightning Labs is becoming a reality. The launch of the Taproot Assets mainnet protocol marks the official start of stablecoin applications in trillion-dollar payment scenarios.

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3. Detailed Explanation of Taproot Assets Protocol

Taproot Assets), referred to as TA(, operates based on Bitcoin's UTXO model and relies on the Taproot upgrade of the Bitcoin network. These two core elements drive the effective operation of the protocol.

) Comparison between UTXO model and Account model 3.1

UTXO( unspent transaction output) is an important concept and serves as the foundation for all Bitcoin layer two solutions as well as the Ordi and Runes protocols. Most public chains like Ethereum and Solana adopt the Account### account( model. The comparison of the two concepts is as follows:

The account model is similar to an Alipay account, where each transaction directly reflects the change in the account balance.

The UTXO model can be likened to a wallet that holds checks authorized for exchange by others, as well as checks authorized by oneself to others. The wallet balance is equal to the value of the received checks minus the value of the issued checks. The Bitcoin network acts like a bank that can cash these checks, calculating the latest balance for each address based on the most recent status of user transactions involving these checks.

The characteristics of the UTXO model inherently eliminate the double-spending problem and provide higher security assurance. The TA protocol completely inherits the security features of the Bitcoin network layer, avoiding the risks of erroneous transfers or missed transfers.

The TA protocol adopts a one-time sealed concept, which means that each UTXO cannot be reused after confirming its expenditure, ensuring that assets move with UTXO. Under this mechanism, the miner who mines the longest chain has the final interpretation and usage rights for that UTXO. Unlike BRC20, which relies on off-chain indexing to identify assets, the TA protocol enhances transaction security, avoids double-spending attacks, and eliminates the risks of errors or malicious behavior that may arise from centralized institutions. These features make the TA protocol + Lighting Network a reliable payment scenario infrastructure.

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) 3.2 Taproot Upgrade: Achieving More Complex Functions

The Taproot protocol upgrade in 2021 brought simple smart contract functionality to the Bitcoin network. Wallet addresses in P2TR format can implement some more complex logic through Bitscript, enabling new and complex types of transactions on the chain.

The most critical improvement is the implementation of multi-signature ( multi-sign ). This feature enhances the security of institutional user transactions, as the multi-signature address on the public key address has the same length as the private wallet address, making it indistinguishable from the outside, thereby enhancing security and privacy protection. This technological advancement provides a solid foundation for institutional and B2B transactions, promoting broader commercial applications.

The most intuitive feeling for users is the change in wallet address format, with wallet addresses starting with "bc1p..." supporting the functionality after the Taproot upgrade.

3.3 TA technical principles

The early Ordinals that ignited the Bitcoin ecosystem and the derived BRC20 protocol are based on an account model, with balances and addresses bound together. Asset issuance is done by "tagging" the smallest unit of Bitcoin, "Satoshi" (Satoshi), with a specific identifier or data to map "Satoshi" to a certain asset. The asset state data is stored in JSON format within the segregated witness part of the block. When assets are transacted, the script that records the asset changes is "inscribed" ###Inscribe( into the block and interpreted through an off-chain indexer )Indexer(.

This method results in each Ordinals or BRC20 asset transaction needing to be recorded in the block, increasing the block size and causing invalid data accumulation to be permanently stored on the Bitcoin chain, ultimately putting pressure on the data storage of full nodes. In contrast, the TA protocol adopts a more efficient method by tagging assets on each UTXO, storing only the root hash of the script tree on-chain, while the scripts are kept off-chain.

TA assets can be deposited into Lighting Network payment channels and transferred through the existing Lighting Network, meaning TA assets can circulate on the Bitcoin mainnet and Lighting Network.

Taproot Assets utilizes the Bitcoin Taproot upgrade )BIP 341( for development. The Taproot upgrade allows for spending UTXOs using either the original private key or scripts on the Merkle tree.

In short, the Taproot Assets protocol expands on the Taproot upgrade, recording asset state transition in the Taproot Merkle.