Despite Recent Crypto Crash, First Bitcoin-Based Stablecoin Is In The Works

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The Lightning Labs CEO said his new Taro upgrade will enable improved smart contracts and stablecoins on the Bitcoin (BTC) blockchain.


Key points

  • The recent double-digit drop spanning the cryptocurrency sector is a stark reminder of the volatility of this asset class.
  • Massive price swings in the past have led to the creation of stablecoins, which are pegged to another asset such as gold or the US dollar to greatly reduce erratic movements.
  • Most stablecoins run on Ethereum or Binance blockchains — none on Bitcoin — but Lightning Network’s Taro protocol will likely enable the first BTC-based stablecoin.

The vast crypto selloff that has occurred over the past few days and weeks has brought the total value of the cryptocurrency market to $1.51 trillion – the lowest capitalization level for this asset class. since August 2021, according to crypto tracking website CoinGecko.com. As the top individual crypto by market capitalization, Bitcoin (BTC) is down more than 55% from its all-time high price of $69,000 set in November 2021, according to CoinMarketCap.

This wild price action of late is a clear signal that volatility on cryptocurrency exchanges is real and serves as a reminder of the important role stablecoins can play in protecting crypto investors’ gains.

Large price fluctuations in the past have led to the creation of stablecoins, whose respective value is pegged to another asset such as gold, US dollar or a commodity. Since stablecoins are tied 1:1 to another asset, the risk of erratic price movements is greatly reduced.

Typically, when someone sells a crypto asset, they put the proceeds of that sale into a stablecoin to protect those gains from loss. Most stablecoins run on Binance or Ethereum blockchains. However, none of the top 10 stablecoins are currently running on the Bitcoin blockchain, but that should change soon.

A stablecoin could soon arrive on the Lightning Network

Lightning Labs created the Lightning Network, which is the global payment platform for individuals and businesses to use Bitcoin as a method of exchanging goods and services. When the Bitcoin blockchain was originally created using computer programming – most cryptocurrency projects and blockchains are software – it had basic functionality to ensure maximum security and immutability of network transactions.

But Bitcoin’s blockchain was slow and struggled to scale to meet volume demand because its network takes several minutes to clear each transaction. However, a recent software update rolled out by Bitcoin developers called Taproot, combined with the Lightning Network, has transformed Bitcoin into a fast and viable global payment system.

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These improvements have paved the way for Lightning developers to deploy another layer of software that enables smart contracts – mini software projects that run automatically when certain pre-programmed conditions are met – marking a huge technological leap for old heavy Bitcoin.

In the official announcement, Lightning Labs CEO – Elizabeth Stark – said her new Taro upgrade will enable smart contracts and stablecoins on the Bitcoin blockchain..

“One of our core principles at Lightning Labs is to solve real problems for real people, and we’ve spoken to myriad community members in emerging markets who told us what a big difference stablecoins have over Bitcoin and Lightning would do in their savings. Taro makes it possible to send assets like these using the Bitcoin network with the instantaneous, high-volume, low-cost nature of Lightning,” Stark said in the release.

People living in emerging markets with rampant inflation, such as Turkey or Venezuela, can save the value of their inflation-eroded fiat currencies by converting them into a stablecoin, like that of the Bitcoin blockchain. Stark further noted that since the Bitcoin network has the most value, users, and security of any individual crypto, this latest development towards a BTC-based stablecoin could be a game-changer in the crypto space.

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Despite Recent Crypto Crash, First Bitcoin-Based Stablecoin Is In The Works


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