Despite the Recent Crypto Meltdown, the First Bitcoin-Based Stablecoin Is in the Works

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Lightning Labs CEO says its new Taro upgrade will enable enhanced smart contracts and stablecoins on Bitcoin’s (BTC) blockchain.

Key points

• The recent double-digit drop spanning the cryptocurrency sector is a stark reminder of how volatile this asset class can be.
• Massive price swings in the past resulted in the creation of stablecoins, which are pegged to another asset such as gold or the U.S. dollar to greatly reduce erratic moves. 
• Most stablecoins run on either the Ethereum or Binance blockchains — none on Bitcoin’s — but Lightning Network’s Taro protocol will likely enable the first BTC-based stablecoin.

The broad crypto sell-off that’s occurred over the past days and weeks has driven the total value of the cryptocurrency market to $1.51 trillion — the lowest capitalization level for that asset class since Aug. 2021, according to crypto tracking website CoinGecko.com. As the leading individual crypto by market cap, Bitcoin (BTC) is down more than 55% from its peak price of $69,000 set in Nov. 2021, according to CoinMarketCap. 

This wild price action of late is a clear signal the volatility across cryptocurrency exchanges is real, and serves as a reminder regarding the important role that stablecoins can play to protect gains of crypto investors. 

How stablecoins help crypto investors

Major price swings in the past resulted in the creation of stablecoins, which have their respective value pegged to another asset such as gold, the U.S. dollar, or a commodity. Because stablecoins are linked 1:1 to another asset, the risk of erratic pricing moves is greatly reduced. 

Typically, when someone sells a crypto asset they park the proceeds from that sale into a stablecoin to protect those gains from losses. Most stablecoins operate on either the Binance or Ethereum blockchains. However, none of the top 10 stablecoins currently run on Bitcoin’s blockchain but that’s likely to change soon.

A stablecoin could soon be coming to the Lightning Network 

Lightning Labs created the Lightning Network, which is the global payment platform for individuals and companies that want to use Bitcoin as a method of exchange for goods and services. When the Bitcoin blockchain was originally created using computer programming — most cryptocurrency projects and blockchains are software — it had basic functionality to ensure maximum security and immutability of transactions across the network.

But Bitcoin’s blockchain was slow and has had difficulty scaling to meet volume demand because its network takes several minutes to clear each transaction. However, a recent software update deployed by Bitcoin developers called Taproot, coupled with the Lightning Network, have transformed Bitcoin into a speedy, viable global payment system.    

Those enhancements paved the way for Lightning developers to roll out another software layer that enables smart contracts — mini software projects that automatically execute when certain pre-programmed conditions are met — marking a huge technological leap for stodgy old Bitcoin.

In the official announcement, the CEO of Lightning Labs — Elizabeth Stark — stated that its new Taro upgrade will enable smart contracts and stablecoins on Bitcoin’s blockchain. 

“One of our core tenets at Lightning Labs is solving real problems for real people, and we’ve talked to myriad community members in emerging markets who’ve told us what a big difference stablecoins on Bitcoin and Lightning would make in their economies. Taro makes sending assets like these possible using the Bitcoin network with the instant, high volume, low fee nature of Lightning,” said Stark in the statement.

Individuals living in emerging markets with runaway inflation, such as Turkey or Venezuela, can save the value of their inflation-eroded fiat currencies, by converting them into a stablecoin — such as one on the Bitcoin blockchain. Stark further noted that since the Bitcoin network has the most value, users, and security of any individual crypto, this latest development driving toward a BTC-based stablecoin could be a game changer within the crypto space.