Is the Lightning Network bitcoin’s killer app? It may be, however there’s a long roadway ahead. One of the stops on that roadway is the possible addition of stablecoins. Does bitcoin require them? Aren’t there fundamental counterparty dangers with those? The argument over those concerns raves on. And in their most current post, The Bitcoin Layer makes the case for this advancement to be essential.
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 procedure and all of the possessions it would give The Lightning Network is the mom of all onramps. However, the dangers it comes up with are as huge as the chances it provides. Let’s explore what The Bitcoin Layer needs to state prior to leaping to conclusions. They may shock us.
Making Lightning Interoperable With Everything
The very first part of the short article has to do with 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 short articles, Magma’s presence shows “a structural demand for secondary markets of liquidity, where participants can buy and sell collateral as needed—eventually blossoming into a deep and liquid capital market.”
Not just that, The Bitcoin Layer likewise thinks 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 this is where the Taro procedure is available in. When it was revealed, our sis website Bitcoinist positioned the following concerns:
“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 supplies convincing adequate responses to those concerns. But initially…
“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 cost 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 object to 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 network is counterparty-free, however, what about the possessions’ fundamental counterparty threat?
Conceptual Future Bitcoin-Lightning Risk Curve | Source: The Bitcoin Layer
According to The Bitcoin Layer, it’s everything 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 intro of Taro is an essential action in the procedure of bitcoin satisfying its fate of ending up being the world reserve currency.
“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 response to that concern is still up in the air. The Bitcoin Layer acknowledges the fundamental counterparty threat those present. It even puts them practically at the top of the threat curve. However, they consider them essential and even welcome every other asset worldwide to The Lightning Network. According to their theory, that’s how “a bitcoin-denominated capital market” emerges.
Of course, this is all speculation. The Taro procedure has actually not been authorized. Bitcoin’s liquidity is far from what it requires to be to end up being the worldwide reserve currency. And, despite the fact that stablecoins on The Lightning Network may be closer than we believe, the entire situation occurs in a long run.
Featured Image by WikimediaImages from Pixabay | Charts by TradingView and The Bitcoin Layer