Stablecoin: The Next Trillion Dollar Rise in the Payment Sector

Introduction

The essence of blockchain is an extension of payment scenarios. Stablecoins occupy an important position in the cryptocurrency market and play an increasingly significant role in global payments, cross-border settlements, and more. Currently, centralized stablecoins still account for over 90% of the market share, with USDT holding an absolute dominant position. Although the market capitalization of stablecoins has exceeded $150 billion, it only represents 0.75% compared to the $20 trillion M1 scale reported by the Federal Reserve. There is still a lot of room for development in the application of stablecoins in the payment field. The launch of the Taproot Assets protocol indicates that stablecoins have broad prospects in high-frequency small payment scenarios and creates the possibility for large-scale adoption of stablecoins as a conventional payment method.

1. Stablecoin: The Trillion Dollar Race of the Future

The stablecoin market is booming and is expected to become a trillion-dollar market in the future financial sector. Currently, the market capitalization of stablecoins has exceeded $160 billion, with daily trading volume surpassing $100 billion. Major countries are issuing relevant policies and regulations, and 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 main categories: centralized and decentralized. Currently, centralized stablecoins dominate the market, with USDT and USDC issuing $114.46 billion and $34.15 billion respectively. Tether's annual gross profit reaches up to $4.5 billion, attracting numerous large institutions to invest.

Although stablecoins play an important role in crypto trading and DeFi, the exploration of their integration with physical businesses is still in its early stages. In the long run, the most promising application scenario for stablecoins is in the payment sector, especially cross-border payments. As regulation gradually becomes standardized, the importance of stablecoins in global payments will become increasingly significant. In the future, they are 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.

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

Currently, stablecoins mainly circulate on the ETH and TRON networks, but the transaction fees and confirmation times are relatively high. In contrast, the Lightning Network offers advantages of faster speeds, lower costs, and higher scalability.

2.1 Introduction to the Lightning Network

The Lightning Network is the first mature layer two scaling solution for Bitcoin, developed independently by multiple teams. Its core is to establish a bidirectional payment channel, allowing both parties to conduct unlimited transactions off-chain, with on-chain execution only occurring for final settlement or in case of exceptions. This greatly enhances transaction efficiency and scalability.

2.2 Advantages of the Lightning Network

The Lightning Network has been running for 9 years, built on the Bitcoin network, and has a high level of security. Currently, its capacity exceeds 5,000 bitcoins, with over 18,000 nodes and more than 50,000 channels globally. It enables instant low-cost transactions through bidirectional payment channels and is being widely adopted worldwide, gradually becoming the mainstream decentralized solution for global payments.

2.3 The Importance of Taproot Assets Protocol

Previously, the Lightning Network only supported Bitcoin payments, with limited application scenarios. The launch of the Taproot Assets protocol addresses this issue, allowing for the issuance of various assets on the Bitcoin network, including stablecoins. These assets can directly enter the Lightning Network, greatly expanding its application scope and providing strong support for the Lightning Network's layout in the global payment field.

3. Detailed Explanation of Taproot Assets Protocol

The Taproot Assets protocol (, referred to as TA), is deeply rooted in Bitcoin's UTXO model and relies on the Taproot upgrade. These two core elements drive the effective operation of the protocol.

3.1 UTXO Model vs Account Model

The UTXO model is similar to a wallet that holds various authorized checks, while the Bitcoin network acts like a bank that can cash these checks. The UTXO model inherently eliminates the double-spending problem, providing higher security assurances. The TA protocol adopts a one-time seal concept to ensure that assets move with UTXO, enhancing transaction security.

3.2 The Significance of the Taproot Upgrade

The Taproot upgrade in 2021 introduced simple smart contract capabilities to the Bitcoin network, enabling complex transaction types such as multi-signature. This provided a solid foundation for institutional users and B2B transactions, driving broader commercial applications.

3.3 TA technical principles

The TA protocol utilizes the Taproot upgrade to record asset state transition logs in the Taproot Merkle tree. It uses a sparse Merkle summation tree to manage asset states, writing only the root hash to the Bitcoin chain, thus avoiding the problem of on-chain data bloat.

The relationship between the TA protocol and the Lightning Network

The TA protocol allows the issued asset (, such as stablecoin ), to seamlessly enter the Lightning Network through the TA channel. This enables the Lightning Network to support the circulation of assets other than Bitcoin for the first time, greatly expanding its application scenarios.

3.5 Current Challenges

The TA protocol requires asset data to be stored in an off-chain client, which increases user costs. At the same time, it heavily relies on the wallet services of lightning nodes and lacks an account management mechanism, leading to the current reliance on custodial wallet solutions. These factors may limit its widespread adoption.

4. Self-custody Solutions

Decentralized solutions for the circulation of TA assets on the Lightning Network have emerged in the market. For example, LnFi offers cloud-hosted solutions that lower the participation threshold for users. The BitTap team has developed a decentralized browser extension wallet for TA, allowing users to have full control of their private keys, providing a decentralized experience and security guarantees similar to Metamask.

5. Summary

Stablecoins are expanding from cryptocurrency trading to the field of global payments. The Lightning Network, with its low fees and fast transactions, has become an ideal global payment infrastructure. 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.

The emergence of decentralized wallet solutions like BitTap provides users with a safer and more decentralized way to manage assets, completing the final piece of the puzzle for Taproot Assets + Lightning Network to become a global payment facility.

Compared to traditional payment infrastructure, the payment infrastructure composed of the TA protocol and the Lightning Network is not lagging in terms of immediacy, while achieving decentralization of payments through clever design. The self-custody solutions in the ecosystem guarantee users' autonomy over their assets, supporting unrestricted conditions for free transfers, elevating the freedom of payment to unprecedented heights.