Is Lightning Network Bitcoin a Killer App? It may be so, but it still has a long way to go. One of the stopping points on this path is the possibility of including stablecoins. Do you need bitcoins? Aren’t there inherent risks to the counterparty with these? Controversy rages over these questions. In their latest post, Bitcoin layer makes the case In order for this development to be decisive in the path of Lightning Networks.
According to The Bitcoin Layer, “the global capital market running on top of the bitcoin-denominated financial bars is getting closer with each new onramp.” And the Taro protocol and all the assets it will bring to the Lightning Network is the mother of all onramps. However, the risks it brings are as great as the opportunities it presents.
Let’s explore what the Bitcoin layer has to say before jumping to conclusions. They may surprise us.
Make Lightning Interoperable with Everything
The first part of the article is about Magma, “Lightning’s liquidity marketplace that allows nodes to buy and sell liquidity by leasing channels to other network participants for a specified minimum period of time.” According to the article, the presence of Magma demonstrates “a structural demand for secondary markets for liquidity.” In those markets, “participants can buy and sell collateral as needed — and ultimately thrive in a deep and liquid capital market.”
Not only that, the Bitcoin layer is also theorizing about:
“Over time, Lightning Banks will emerge. As market participants lack the technical means to operate Lightning Channels efficiently, most of the Lightning Network’s channel management will be included by these specialized entities.”
This is where the Taro protocol comes in. when it was announced, Our sister site Bitcoinist Ask the following questions:
“So the main idea is to create stablecoins and transact them over the Lightning Network, but the technology allows users to create any asset including NFTs. The Bitcoin network supports everything. However, is this a positive development for Bitcoin? How will this benefit the Lightning Network? Does a hyperbitcoinized world require coins?”
The Bitcoin layer provides sufficient convincing answers to these questions. But first…
“Taro makes Bitcoin and Lightning interoperable with everything. For the Lightning Network, this means more network size, more network fluidity, and more routing fees for node operators, leading to more innovation and capital in the space. The increased demand for transaction capacity that will come from these new assets (think stablecoins) will go hand in hand with the increased liquidity on the Bitcoin network to facilitate these transactions.”
BTC price chart for 08/09/2022 on Kraken | Source: BTC/USD on TradingView.com
Global capital market denominated in Bitcoin
“Using Sats as transfer bars for transactions across each currency opens the door to a global bitcoin-denominated capital market.” No one will argue with that. Nor does “the Taro protocol open the floodgates for this traditional financing liquidity to be absorbed by a faster, counterparty-free settlement network.” The network is counterparty-free, but what about the counterparty risks inherent in the assets?
Conceptual Future Bitcoin-Lightning Risk Curve | Source: The Bitcoin Layer
According to The Bitcoin Layer, it’s all about risk and barrier to entry:
“Higher levels in the risk curve require less maintenance but have more risks, while lower levels in the risk curve have less risk but have a higher barrier to entry for the average person who lacks the technical means of best maintenance and security practices.”
They assert that the introduction of the Taro is a critical step in the process of Bitcoin fulfilling its destiny to become the global reserve currency.
“For bitcoin to become a global reserve currency, a highly liquid capital market is a core 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 are arguably the They maintain the lowest collective risk profile of any existing capital market, as they are both underwritten by an asset that is not exposed to counterparty risk.
Zero counterparty risk.
Does the Lightning Network need stablecoins, though?
The answer to this question is still up in the air. The Bitcoin layer acknowledges the inherent counterparty risks that exist. Rather, it puts them almost at the very top of the risk curve. However, they consider them essential and welcome every other asset in the world into the Lightning Network. According to their theory, this is how the “bitcoin-denominated capital market” appears.
Of course, this is all speculation. The Taro Protocol has not been approved. Bitcoin’s liquidity is a far cry from what it needs to be to become a global reserve currency. Although stable coins on the Lightning Network You may be closer than we thinkThe whole scenario takes place in the distant future.
Featured Image by WikimediaImages from Pixabay | Charts by TradingView and The Bitcoin Layer