Stablecoin Sector: The Growth Point of the Next Trillion-Dollar Market

Blockchain is essentially an extension of payment scenarios. Stablecoins play an important role in the cryptocurrency market and are increasingly significant in global payments, cross-border settlements, and more. Currently, centralized stablecoins still occupy over 90% of the market share, with USDT holding absolute dominance. Although the market value of stablecoins has exceeded $150 billion, it only accounts for 0.75% compared to the $20 trillion M1 figure reported by the Federal Reserve. The potential for the application of stablecoins in the payment field remains enormous. The launch of the Taproot Assets protocol has brought vast imagination space for the application of stablecoins in high-frequency small payment scenarios, signaling that large-scale adoption of stablecoins as a conventional payment method is becoming possible.

1. Stablecoin: The Trillion Dollar Race of the Future

The stablecoin market is flourishing 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 volumes reaching over $100 billion. Major countries are introducing relevant policies and regulations, and many institutions predict that stablecoins will usher in 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 USDT and USDC issuing $114.46 billion and $34.15 billion in dollar stablecoins, respectively. Tether, with only 125 employees, achieves an annual gross profit of $4.5 billion. This immense opportunity has attracted numerous large institutions to get involved:

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

Centralized stablecoins have been widely adopted in the crypto ecosystem for trading and settlement on DEX or CEX. Decentralized stablecoins are primarily used for lending.

In the long run, the most promising application scenario for stablecoins lies in the payment field, especially cross-border payments. Currently, cross-border payments involve multiple intermediaries, resulting in complex processes, high costs, and long settlement times. Stablecoins are not only a better choice but also an important channel for economic participation. As regulations move towards compliance, the role of stablecoins in global payments will become increasingly important. The future large-scale adoption of stablecoins in payment scenarios will merge with DeFi to give rise to PayFi, achieving interoperability, programmability, and composability in payment scenarios, creating a new financial paradigm and product experience that traditional finance cannot achieve.

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

Currently, stablecoins mainly circulate on the ETH and TRON networks, but the transaction fees generally exceed 1U, and the on-chain transfer time exceeds 1 minute. In contrast, the Lightning Network has advantages of faster speed, lower cost, and higher scalability.

) 2.1 Overview of the 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, among others. Taproot Assets is the asset issuance protocol developed by Lightning Labs.

The Lightning Network is implemented by establishing bidirectional state channels. Both parties create a 2-of-2 multisignature address on-chain, allowing Bitcoin to be transferred in and out within a limit. During the transaction process, both parties send locking data and keep records, forming transaction payments. Upon settlement, the Bitcoin in the new address is transferred to both parties according to the settlement amount. Only the latest version is valid and is enforced by the hash time-locked contract ###HTLC(. Either party can broadcast the latest version to the blockchain at any time to close this entry.

Therefore, both parties can conduct off-chain transactions without restrictions, using the Bitcoin chain as an arbitrator. Only when the final transaction is completed or an error occurs will the smart contract intervene and be executed on the blockchain. This is similar to signing multiple legal contracts, but only going to court when there is a final confirmation or lack of cooperation.

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

The Lightning Network allows users to conduct unlimited transactions off-chain 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 running for 9 years, built on the Bitcoin network with ###57000+ nodes and the PoW consensus mechanism (, maximizing security. Currently, the Lightning Network's capacity exceeds 5000 bitcoins, with over 18000 nodes and more than 50000 channels worldwide. By establishing bidirectional payment channels, it enables instant low-cost transactions, which are widely integrated and used by payment providers and merchants globally, gradually becoming the most widely accepted decentralized solution for global payments.

Bitcoin assets occupy half of the cryptocurrency market value. The Lightning Network, as the first layer two scaling solution for Bitcoin, truly realizes the vision of peer-to-peer global payments, becoming the most orthodox and consensual Bitcoin community, and is the best solution for ideal global payments.

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

Before the emergence of the Taproot Assets protocol, the Lightning Network only supported Bitcoin payments, and its application scenarios were limited. Although there were some layer one issuance protocols for Bitcoin such as Atomical and BRC20 based on Ordinals, they did not support direct entry into the Lightning Network. The Taproot Assets protocol addresses this issue. It is an asset issuance protocol based on the Bitcoin network, led by Lightning Labs, which supports the issuance of custom tokens and stablecoins corresponding to fiat currency.

Compared to other asset protocols, the Taproot Assets protocol's assets are fully compatible 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 will be issued based on the Bitcoin network ###, especially stablecoins (, circulating on the Lightning Network, further enhancing the Lightning Network's layout and influence in the global payment field.

Leveraging the security and decentralization of Bitcoin, Lightning Labs' advocacy for "Bitcoinization of 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.

3. Taproot Assets Protocol ) TA ( Explained

The operational principle of the TA protocol is deeply rooted in 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.

) 3.1 Similarities and Differences between UTXO Model and Account Model, Advantages and Disadvantages

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

The account model is similar to an Alipay account, where each transaction corresponds to a change in the account interface number. The UTXO model can be understood as a wallet that holds checks authorized for redemption by others and checks authorized to others by oneself. The wallet balance equals the total value of received checks minus the total value of issued checks. The Bitcoin network acts like a bank that redeems these checks, calculating the latest balance for each address based on user transaction activity.

The UTXO model inherently eliminates the double-spending problem and provides higher security guarantees. The TA protocol completely inherits the security features of the Bitcoin network layer, avoiding risks of erroneous transfers or missed transfers.

The TA protocol adopts a one-time seal concept, ensuring that each UTXO cannot be reused after confirming the expenditure, thus ensuring that assets move with the UTXO. The miner who mines the longest chain has the final authority to interpret this UTXO. Unlike BRC20, which relies on off-chain indexing to identify assets, the TA protocol enhances transaction security, prevents double-spending attacks, and eliminates the risks of errors or malicious behaviors that may arise from centralized agencies. These features make the TA protocol + Lightning Network a reliable infrastructure for payment scenarios.

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) 3.2 Taproot upgrade enables more complex functionalities

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

The most critical improvement is the implementation of multi-signature ### multi-signature (. This makes transactions for institutional users more secure, as the length of the multi-signature address is the same as that of private wallet addresses, making it indistinguishable from the outside, enhancing 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..." supporting the Taproot upgrade.

) 3.3 TA Technical Principles

The TA protocol employs a more efficient method where assets are marked on each UTXO, storing only the root hash of the script tree 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, meaning TA assets can circulate on the Bitcoin mainnet and the lightning network.

The TA protocol utilizes the Taproot upgrade to record asset state transition information on the Taproot Merkle tree, achieving consensus on asset state transitions on-chain using the "one-time seal" feature of Bitcoin UTXOs, without the need to run off-chain indexers for other protocols.

The TA protocol uses a sparse Merkle summation tree ### MS-SMT ( to manage asset states and defines the standards for asset state transitions. Only the root hash of the Merkle tree is written to the Bitcoin chain, ensuring that the transaction length remains unchanged and does not contaminate the Bitcoin chain.

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) The relationship between 3.4 TA protocol and the Lightning Network

Assets under the TA protocol can seamlessly enter the Lightning Network through the TA channel. Previously, the Lightning Network only supported the circulation of Bitcoin, but the TA protocol has changed this situation, allowing assets to be issued on the Bitcoin main chain, such as stablecoin ###, and then enter the Lightning Network for circulation.

The TA channel implementation principle is the same as that of the state channel, based on hash time-locked contracts. The TA asset itself is within UTXO, and the TA channel implementation mechanism remains unchanged; it is just that the Channel now supports the circulation of TA assets.

The TA protocol enables the circulation of assets other than Bitcoin through the Lightning Network, allowing for the seamless transfer of stablecoins and other assets on the Lightning Network.

( 3.5 User Usage Costs 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. Using TA assets requires the private key of the corresponding UTXO and the relevant data of the asset on the Merkle tree.

The official implementation of the TA protocol ) Tapd ### deeply relies on the Lightning Node ( LND ) wallet service, which has no account management mechanism. The decentralized method of the Lightning Network requires users to build their own nodes, making it difficult for ordinary users to participate, which is one of the important reasons why the Lightning Network has not been widely adopted.

Currently, most lightning network wallet services are custodial wallets, and the new assets issued by TA will also be stored in custodial wallets. In the future, when a large number of stablecoins circulate on TA's assets, large assets will be prioritized to be stored on the Bitcoin mainnet, while small assets will be recharged to the lightning network to meet payment needs. Therefore, for the storage and security management of large assets, it becomes important to allow users to fully own the ownership of stablecoins in a more decentralized manner.

4. Self-Custody Solutions: Completing the Last Piece of 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 proposed a cloud hosting solution that allows users to easily deploy their own Lightning Network nodes, lowering the participation threshold.

The BitTap team focuses on TA cooperation.