Exploring New Opportunities for Stablecoins in the Global Payment Sector

Blockchain technology is essentially an extension of 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 total issuance of stablecoins has exceeded $150 billion, compared to the $20 trillion M1 money supply reported by the Federal Reserve for 2024, the market value of stablecoins only accounts for 0.75%. This indicates that there is still enormous potential for stablecoins in the payment field. The launch of the Taproot Assets protocol has created vast opportunities for the application of stablecoins in high-frequency small payment scenarios and has also provided the possibility for stablecoins to become a conventional payment method.

1. Stablecoin: The Trillion-Dollar Market of the Future

The booming development of the stablecoin market indicates that it is expected to become the next trillion-dollar market in the financial sector. Currently, the market capitalization of stablecoins has exceeded $160 billion, with daily trading volumes reaching over $100 billion. Various countries are introducing relevant policies and regulations, and multiple institutions predict that stablecoins will create a new trillion-dollar market, primarily driven by the widespread application of global payments.

Stablecoins can be divided into two main categories: centralized and decentralized. Currently, centralized stablecoins dominate the market, with the issuance of USDT and USDC reaching 114.46 billion and 34.15 billion respectively. This enticing opportunity has also attracted many large institutions to get involved:

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

Although stablecoins play an important role in cryptocurrency trading and DeFi, their integration with the real business sector is still in its early stages. In the long run, the most promising application scenario for stablecoins is in the payments field, especially cross-border payments. As the regulation of stablecoins gradually becomes compliant, their position in global payments will become increasingly important. In the future, the large-scale application of stablecoins in payment scenarios is expected to merge with DeFi, giving rise to PayFi, achieving interoperability, programmability, and composability in payment scenarios, and forming a new financial paradigm and product experience that traditional finance cannot achieve.

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2. Taproot Assets Protocol + Lightning Network: Infrastructure for a Global Payment Network

Currently, stablecoins mainly circulate on the ETH and TRON networks, but the transaction fees on these networks usually exceed 1 dollar, and the on-chain transfer time exceeds 1 minute. In contrast, the Lightning Network has advantages of faster speed, lower costs, and high scalability.

) 2.1 Introduction to the Lightning Network

The Lightning Network is the first mature layer-two scaling solution for Bitcoin. Multiple teams have independently developed the Lightning Network, including Lightning Labs, Blockstream, and ACINQ, among others. Taproot Assets is the asset issuance protocol developed by Lightning Labs.

The Lightning Network achieves fast transactions by establishing bi-directional state channels. Both parties create a 2-of-2 multi-signature address on-chain, allowing multiple payments within a limit. Only the latest version of the transaction is valid, enforced by the hash time-locked contract ###HTLC(. Both parties can close the channel at any time and broadcast the latest version to the blockchain without the need for trust or custody.

) 2.2 Lightning Network: The Ideal Infrastructure for Global Payments with Stablecoins

The Lightning Network allows users to conduct an unlimited number of off-chain transactions without causing congestion on the Bitcoin network, while relying on the security of the Bitcoin network. In theory, the scalability of the Lightning Network has no upper limit.

The Lightning Network, which has been running for 9 years, is built on the Bitcoin network and has over 57,000 nodes and a PoW (Proof of Work) mechanism to maximize security. Currently, the Lightning Network's capacity has exceeded 5,000 bitcoins, with more than 18,000 nodes and over 50,000 channels globally. By establishing bidirectional payment channels, the Lightning Network enables instant and low-cost transactions, and is being integrated for use by a large number of payment providers and merchants worldwide, gradually becoming a major decentralized solution for global payments.

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) 2.3 Taproot Assets protocol completes the last mile of the Lightning Network

Previously, the Lightning Network only supported Bitcoin as a payment currency, and its application scenarios were limited. Although there are already some Bitcoin Layer 1 issuance protocols ### such as Atomical and BRC20( based on Ordinals, they do not support direct access to the Lightning Network. The introduction of the Taproot Assets protocol has solved this problem.

As an asset issuance protocol developed primarily by Lightning Labs, Taproot Assets is similar to the Ordinals protocol, allowing anyone or any organization to issue their own tokens, including stablecoins corresponding to fiat currencies. Its advantage lies in its complete compatibility with the Lightning Network, making it possible to use stablecoins for payments on the Lightning Network. This means that in the future, a large number of new assets based on the Bitcoin network will be issued, especially stablecoins ), circulating on the Lightning Network and further enhancing the influence of the Lightning Network in the global payment sector.

Leveraging the security and decentralization of Bitcoin, Lightning Labs' advocacy for "tokenizing the dollar and global financial assets with Bitcoin" is becoming a reality. The launch of the Taproot Assets mainnet protocol marks the official start of stablecoin applications in trillion-scale payment scenarios.

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

The UTXO) unspent transaction output ### is the foundation implemented by Bitcoin Layer 2 and protocols like Ordi and Runes. Unlike the Account( account) model adopted by most public chains, the UTXO model can be likened to a wallet that holds checks authorized for exchange by various parties. The Bitcoin network is equivalent to a bank that can cash these checks, calculating the balance of each address based on the latest status of user transactions.

The UTXO model inherently eliminates the double-spending problem and provides higher security guarantees. The TA protocol fully inherits the security features of the Bitcoin network layer, avoiding the risks of erroneous transfers or missed transfers. In addition, the TA protocol employs a one-time sealing concept, ensuring that assets move with UTXO, enhancing transaction security and avoiding the risks of double-spending attacks and errors or malicious actions that could be caused by centralized institutions.

( 3.2 Taproot upgrade enables complex functionality

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

The most critical improvement is the implementation of multi-signature ) multi-sign ###. This enhances the security of institutional user transactions, as the multi-sign address has the same length as private wallet addresses, making it indistinguishable from the outside, thus improving security and privacy protection. This 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 addresses starting with "bc1p..." indicating support for the Taproot upgrade.

( 3.3 TA Technical Principles

Unlike the Ordinal and BRC20 protocols that are based on account models, the TA protocol adopts a more efficient method. Assets are marked on each UTXO, with only the root hash of the script tree stored on-chain, while the scripts are kept off-chain. TA assets can be deposited into lightning network payment channels and transferred through existing lightning networks, enabling circulation between the Bitcoin mainnet and the lightning network.

The TA protocol utilizes the Taproot upgrade to record asset state transformations in the Taproot Merkle tree, achieving consensus on asset state transitions on the Bitcoin chain by leveraging the "one-time sealing" characteristic of UTXO. The TA protocol manages asset states using a sparse Merkle summation tree )MS-SMT### and defines the standards for asset state transitions.

It is worth noting that only the root hash of the Merkle tree is written into the Bitcoin chain, ensuring that the transaction length remains unchanged and avoiding the pollution of the Bitcoin chain.

( The relationship between the 3.4 TA protocol and the Lightning Network

Taproot Assets protocol assets can seamlessly enter the Lightning Network through TA channels. This allows other cryptocurrencies besides Bitcoin, especially stablecoins, to circulate in the Lightning Network. The implementation principle of TA channels is similar to that of state channels, based on hash time-locked contracts.

![Taproot Assets: The next growth point for stablecoins to surpass a trillion market value])https://img-cdn.gateio.im/webp-social/moments-b9d07000d5d0dd072443416fcbaf1d8c.webp###

( 3.5 User Usage Costs and Centralized Custody Issues

Although the TA protocol only records the transaction root hash on-chain, asset data needs to be stored off-chain on each client. Users require the private key corresponding to the asset's UTXO and the relevant data of that asset on the Merkle tree.

The official implementation of the TA protocol ) Tapd ( deeply relies on the wallet service of lightning nodes ) LND ###, and there is no account management mechanism. Ordinary users find it difficult to participate in node construction, leading to the current situation where wallet services on the lightning network are mostly custodial wallet solutions. In the future, when a large amount of stablecoin circulates on TA assets, large assets may be prioritized for storage on the Bitcoin mainnet, while small assets are used to meet payment needs. Therefore, the decentralized storage and security management of large assets become particularly important.

4. Self-custody Solutions: Perfecting the Lightning Payment Network

Various decentralized solutions for the circulation of TA assets on the Lightning Network have emerged in the market. For example, LnFi has proposed a cloud hosting solution that lowers the participation threshold for users.

The BitTap team focuses on the decentralized infrastructure of the TA protocol ecosystem and has developed a decentralized browser plugin wallet for TA, providing users with self-custody rights. The innovative wallet protocol proposed by BitTap, (Bittapd), allows users to have complete control over their private keys, and when transaction signing is required, Bittapd interacts with Tapd on behalf of the users, offering a decentralized experience and security similar to the Metamask wallet.

The Bittapd protocol, as a decentralized agent of the TA protocol, transforms the centralized custodial account system of Tapd into a decentralized solution, while also undertaking the network communication and forwarding tasks for transaction requests from plugin wallet users.

5. Summary

Stablecoins are expanding from cryptocurrency trading to global payments. The Lightning Network, with its low fees and fast transactions, has become the ideal infrastructure for achieving global payments. The launch of the Taproot Assets protocol further enhances the functionality of the Lightning Network, making it possible to issue and circulate stablecoins on the Bitcoin network, thereby improving Bitcoin's applicability in the payment sector.

In response to the centralization issues of the Lightning Network and its wallet services, decentralized wallet solutions developed by teams such as BitTap provide users with a safer and more decentralized way of asset management, completing the integration of Taproot Assets + the Lightning Network as the final piece of the global payment infrastructure.

Compared to traditional payment infrastructure, the TA protocol + Lightning Network is not only comparable in terms of immediacy, but also achieves the decentralization of payments through sophisticated code design. The self-custodial solutions in the ecosystem ensure users' autonomy over their assets, supporting TA protocol tokens anytime and anywhere, without