Stablecoin Track: The Next Trillion Market Capitalization Rise Point

Blockchain technology is essentially an extension of payment scenarios. In the payment field, stablecoins not only play an important role in the cryptocurrency market but also increasingly contribute to global payments and cross-border settlements. Currently, centralized stablecoins still occupy over 90% of the market share, with USDT holding an absolute dominant position among stablecoins. Although stablecoins have issued over $150 billion, compared to the $20 trillion M1 money supply reported by the Federal Reserve in 2024, the market capitalization of stablecoins only accounts for 0.75%. The application prospects of stablecoins in the payment field are broad. The launch of the Taproot Assets protocol indicates that stablecoins are expected to be widely used in high-frequency small payment scenarios, becoming a conventional payment method.

1. Stablecoins: The Trillion Dollar Market of the Future

The booming development of the stablecoin market shows its potential to become a trillion-dollar market in the future financial sector. Currently, the market capitalization of stablecoins has exceeded $160 billion, with a daily trading volume of over $100 billion. Countries are introducing relevant policies and regulations; various institutions predict that stablecoins will bring about a new trillion-dollar market, with the main growth coming from the widespread application of global payments.

Stablecoins can be divided into two categories: centralized and decentralized. Currently, centralized stablecoins dominate the market, with USDT and USDC issuing stablecoins worth $114.46 billion and $34.15 billion respectively. Tether has achieved an annual gross profit of $4.5 billion with a team of only 125 people. This enticing opportunity has attracted numerous large institutions to make investments:

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

Centralized stablecoins have been widely adopted in the crypto ecosystem, while decentralized stablecoins are mainly used for lending.

In the long term, the most promising application scenario for stablecoins is in the payment field, especially cross-border payments. Currently, cross-border payments involve multiple intermediaries, resulting in high costs and long settlement times. Stablecoins are not only a better choice but also an important economic participation channel. As regulations become more compliant, the role of stablecoins in global payments will become increasingly important. In the future, they may also integrate with DeFi, giving rise to PayFi and creating a new financial paradigm and product experience that traditional finance cannot achieve.

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

Currently, stablecoins are mainly circulating on the ETH and TRON networks, but transaction fees usually exceed 1U, and on-chain transfer times exceed 1 minute. In contrast, the Lightning Network offers advantages of faster speeds, lower costs, and high scalability.

2.1 Introduction to Lightning Network

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

The Lightning Network is achieved by establishing a bidirectional payment channel. Both parties on-chain create a multi-signature address, allowing them to transfer Bitcoin in and out within a limit. Settlement only occurs after multiple transactions between the two parties, and only the latest version is valid. Either party can broadcast the latest version to the blockchain at any time, without the need for trust or custody.

2.2 The Lightning Network Becomes the Best Infrastructure for Global Stablecoin Payments

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

The Lightning Network has been operating for 9 years, built on the Bitcoin network, with over 57,000 nodes and a PoW mechanism, ensuring maximum security.

As of now, the Lightning Network capacity exceeds 5000 bitcoins, with over 18,000 nodes and more than 50,000 channels worldwide. By establishing bidirectional payment channels to achieve instant low-cost transactions, it is being adopted by a large number of payment processors and merchants globally, gradually becoming a widely accepted consensus solution for global payments.

The Lightning Network, as the first layer two scaling solution for Bitcoin, truly realizes Satoshi Nakamoto's vision of peer-to-peer global payments. It has become the most widely accepted consensus within the Bitcoin community and is the best solution for ideal global payments.

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

Previously, the Lightning Network only supported Bitcoin payments, and the application scenarios were limited. Although there are already some Bitcoin layer one issuance protocols, such as Atomical and BRC20, they do not support direct entry into the Lightning Network. The introduction of the Taproot Assets protocol addresses this issue.

Taproot Assets is an asset issuance protocol based on the Bitcoin network, led by Lightning Labs. Anyone or any organization can use it to issue 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 issued on the Bitcoin network, especially stablecoins (, will circulate on the Lightning Network, further enhancing the influence of the Lightning Network in the global payment field.

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

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3. Detailed Explanation of Taproot Assets Protocol

The operating principle of Taproot Assets), abbreviated as TA(, is based on the UTXO model of Bitcoin and relies on the Taproot upgrade for implementation. These two core elements drive the effective functioning of the protocol.

) 3.1 Comparison of UTXO Model and Account Model

The unspent transaction output UTXO### is the foundation implemented by Bitcoin Layer 2 and the Ordi, Runes protocols. Most public chains like Ethereum and Solana adopt the Account( account) model. The main difference between the two:

• The Account model is similar to an Alipay account, where each transaction directly reflects changes in the account balance.
• The UTXO model can be understood as a wallet that contains redeemable checks authorized to the user by others and checks authorized by the user to others. The wallet balance equals the value of received checks minus the value of issued checks.

The UTXO model naturally eliminates the double-spending problem, providing higher security. The TA protocol inherits the security features of the Bitcoin network layer, avoiding the risks of erroneous transfers or missed transfers.

The TA protocol uses a one-time seal concept, where each UTXO cannot be reused after confirming the expenditure, ensuring that assets move with the UTXO. This enhances transaction security, prevents double spending attacks, and eliminates the risks of errors or malicious actions that may arise from centralized institutions.

( 3.2 Taproot upgrade implements complex functions

The Taproot protocol upgrade in 2021 brought simple smart contract functionality to the Bitcoin network. P2TR format wallet addresses enable complex logic through Bitscript, making new complex transaction types possible on the chain.

The key improvement is the implementation of multi-signature ) multi-sign ###. This enhances the transaction security for institutional users, as the multi-sign addresses have the same length as private wallet addresses, thereby enhancing privacy protection. This lays the foundation for institutional and B2B transactions, promoting broader commercial applications.

Users can intuitively feel the change in wallet address format, with addresses starting with "bc1p..." supporting the Taproot upgrade.

( 3.3 TA Technical Principles

Unlike Ordinal and BRC20, the TA protocol adopts a more efficient method. Assets are tagged on each UTXO, with only the script tree root hash stored on-chain, while the scripts are kept off-chain. TA assets can be deposited into Lightning Network payment channels and transferred via the existing Lightning Network.

The TA protocol utilizes the Taproot upgrade to record asset state transition on the Taproot Merkle tree. By leveraging the "one-time sealing" characteristic of UTXO, it achieves consensus on asset state transitions on the Bitcoin chain without the need to run off-chain indexers of other protocols.

The TA protocol uses a sparse Merkle sum tree ) MS-SMT ### to manage asset states and define standards for asset state transitions. Only the root hash of the Merkle tree is written to the Bitcoin chain, without contaminating the Bitcoin chain.

( The relationship between 3.4 TA protocol and the Lightning Network

Taproot Assets protocol assets can seamlessly enter the Lightning Network through TA channels. This expands the Lightning Network from a single Bitcoin payment network to a network that supports the circulation of other crypto assets.

The principle of TA channel implementation is the same as that of state channels, based on hash time-locked contracts. TA assets themselves are within UTXO, and the channel now supports the circulation of TA assets.

) 3.5 User cost and centralized custody issues

The TA protocol only records the transaction root hash on the chain, but asset data needs to be stored off-chain on each client. Users need the private keys corresponding to the UTXO of the assets and the relevant data of the assets on the Merkle tree.

Taproot Assets official implementation ###Tapd### relies on lightning nodes (LND) wallet services, with no account management mechanism. Ordinary users find it difficult to participate in node setup, resulting in most lightning network wallet services being custodial solutions.

In the future, when a large number of stablecoins circulate on the TA assets, large assets may be prioritized for storage on the Bitcoin mainnet, while small assets will be recharged to the Lightning Network to meet payment needs. Therefore, decentralized storage and security management of large assets become particularly important.

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

Various decentralized solutions targeting TA assets circulating on the Lightning Network have emerged in the market. For example, LnFi has proposed a cloud hosting solution to lower the participation threshold for users.

The BitTap team focuses on the decentralized infrastructure of the TA protocol ecosystem, developing a TA decentralized browser plugin wallet to provide users with self-custody rights.

BitTap proposes an innovative wallet protocol (Bittapd), allowing users to fully control their private keys. Bittapd interacts with Tapd on behalf of users when transaction signatures are needed, providing users with a decentralized experience and security similar to Metamask. Users can use the BitTap wallet to store and transfer stablecoin assets on the Bitcoin mainnet, freely transferring small amounts to the Lightning Network.

The Bittapd protocol serves as a decentralized agent for the TA protocol, transforming the Tapd native centralized custody account system into a decentralized solution, and acting as the network communication and forwarding role for plugin wallet user transaction requests.

5. Summary

The application scope of stablecoins is continuously expanding, from cryptocurrency trading to global payments. The Lightning Network has become an ideal global payment infrastructure due to its low fees and fast transactions. The launch of the Taproot Assets protocol has enhanced the capabilities of the Lightning Network, making it a reality to issue and circulate stablecoins on the Bitcoin network, thus improving Bitcoin's applicability in the payment field.

To address the centralization issues of the Lightning Network and its wallet services, decentralized wallet solutions developed by teams like BitTap provide users with a safer and more decentralized way of managing assets, completing the final piece of the puzzle for Taproot Assets + Lightning Network to become a global payment facility.

Traditional payment infrastructures like Alipay, PayPal, and Stripe have their advantages, but their custodial features and reliance on complex systems can lead to inefficiencies and security risks. The cross-border payment sector is subject to strict regulations and institutional limitations, affecting the security and flexibility of traditional payment methods.

The payment infrastructure composed of TA protocol + lightning network can match traditional payment institutions in terms of immediacy, achieving support through code design.