Taro, Issue & Send Any Asset Through Bitcoin’s Lightning Network. Do We Need It?

The Taro protocol is the first big announcement to come out of the Bitcoin 2022 conference. With “bitcoinizing the dollar” as its target and Lightning Labs behind it, the news blew up in Bitcoin-Twitter after being strategically released the night before the event of the year kicks off. Nevertheless, notice that Taro is just a proposal so far. It has a long way to go before becoming a reality.

If approved, this technology will allow any asset, especially stablecoins, to flow through the Lightning Network. By doing this, those assets will inherit certain characteristics of the bitcoin network. The project leverages Taproot, bitcoin’s most recently approved update, to enable the issuance and distribution of both fungible and non-fungible assets. And yes, that means NFTs are a possibility.

In the latest number of his newsletter, podcaster Marty Bent explains “how Taro is designed”:

“Assets being issued using a taproot script on-chain and then transferred on-chain or via the lightning network. Being able to move assets like stablecoins, stocks, and even NFTs if they tickle your fancy. All can be issued via bitcoin if Taro proves to be a workable issuance and virtual machine protocol that easily plugs into the stack.”

For a technical description, go to Lightning Lab’s Olaoluwa Osuntokun explanatory thread. Among other things, he says:

“Taro supporst normal+collectible assets. Normal assets can be split/merged similar to Bitcoin UTXOs, and re-use the merkle sum property to ensure no assets are inflated during transfers. Taro also supports collectible assets which are indivisible”

Instead, internal nodes will just see normal LN payments as normal, as the assets only exist at the edge of the network. This enables us to re-use the existing liquidity in the Bitcoin backbone of the network, and means a new network doesn't need to be bootstrapped for each asset

— Olaoluwa Osuntokun (@roasbeef) April 5, 2022

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?

 Isn’t bitcoin more than enough? Let’s explore the idea further.

What’s Next For The Taro Protocol?

Today, at the Bitcoin 2022 conference, Olaoluwa Osuntokun will present Taro to the world. The company he works for, Lightning Labs, also announced a $70M Series B fundraise “by investors including Valor, Baillie Gifford, Goldcrest, Kingsway, Stillmark, Brevan Howard, NYDIG, and more.” The money is specifically for developing Taro. The company will release related Bitcoin Improvement Proposals to GitHub to gather feedback from the community.

Lightning Labs’ CEO Elizabeth Stark wrote the announcement in the first person. In it, she says: 

“With the release of Taro and its potential to expand the reach of Lightning globally, we are one step closer to bitcoinizing the world for the better. And as they say, fix money, fix the world.”

The company’s PR team worked overtime and got the Taro news in every outlet, winning the night. For example, Stark also told CNBC:

“With this technology, you could route all the world’s currencies through bitcoin. People will be able to seamlessly go between bitcoin and say, a USD stablecoin, or peso, euro, yen, etc. And they can send those globally, instantly and with extremely low fees.”

Does a hyperbitcoinized world need stablecoins, though?

BTC price chart for 04/06/2022 on Gemini | Source: BTC/USD on TradingView.com

How Does Taro Benefit Bitcoin?

According to proponents, with Taro, the Lightning Network becomes multi-asset. The project allows “the potential for the world’s currencies to route through bitcoin liquidity on the network.” What other benefits could we identify in the “Announcing Taro” post? Well…

• The project guarantees there will be “no additional burden on full nodes.”
• For its part, the Lightning Network guarantees “instant, high volume, low fee transactions.”
• The activation of Taro would allow “app developers to integrate assets alongside BTC in apps both on-chain and over Lightning.”
• Those apps will allow “people to easily transfer fiat for bitcoin.” 
• Ultimately, the biggest positive would be that “this expands the reach of Lightning Network as a whole, bringing more users to the network who will drive more volume and liquidity in bitcoin.”
• It’s as simple as this, “more network volume means more routing fees for node operators.”

In his newsletter, Marty Bent closes the argument by declaring the end of all altcoins:

”If Taro is able to do this, it renders all of the competing altcoin narratives obsolete overnight. Why would anyone risk spinning up these assets on another, significantly more centralized protocol?”

However, not everyone sees it as positively.

Lightning Labs Facing Certain Backlash From The Announcement

The Lightning-focused podcast Lightning Junkies asked: 

“Convince me, why should I care about “assets on the Lightning Network”? Why should I care about Tether on Lightning? Why aren’t we just opening up the door for more useless sh**coinery?”

To that, Elizabeth Stark answered:

“It helps us (1) onboard more people as they can easily go from fiat to bitcoin and (2) route fiat currencies through bitcoin liquidity on LN instead of using legacy financial systems. This is what I mean by “bitcoinizing the dollar.” Eventually it all comes back to bitcoin”

It helps us (1) onboard more people as they can easily go from fiat to bitcoin and (2) route fiat currencies through bitcoin liquidity on LN instead of using legacy financial systems.

This is what I mean by "bitcoinizing the dollar." Eventually it all comes back to bitcoin!

— elizabeth stark (@starkness) April 5, 2022

For his part, The Human Rights Foundation’s Alex Gladstein responded:

“Having some way to peg LN to the dollar in a non-custodial, non-KYC way would be hugely powerful for the billions of people living under emerging markets and authoritarian regimes.”

And this seems to match with the HRF’s general goals. The organization is offering three bounties this year, and Taro seems to address one of the problems they want to solve. As Bitcoinist described it:

“The second challenge seems to be even more difficult, at least on a conceptual level. The HRF and Strike want a wallet that enables “anyone to “peg” an amount of bitcoin to U.S. dollars without needing an exchange or another token.” That’s right, without a centralized entity. And relying only on sats and bitcoin.

The organizers “realize this is an ambitious goal, and that submissions may be prototypes.”

Even though it makes sense on paper, tokenizing bitcoin seems like a slippery slope. Some of those assets will prove to be essential to some people, but, Taro seems to open the door for scams and illegal securities. Is there something we’re missing? Do you agree with Lightning Labs? Or are they gaslighting us? Will the market decide and sort all of this out? Let’s hope so.

Featured Image: Taro, taken from the press release | Charts by TradingView