Lightning Labs, the developer of the Lightning Network Bitcoin, has conducted successful tests of a protocol aimed at issuing a new stablecoin on the blockchain of the first cryptocurrency. During her speech at the Financial Times’ Cryptocurrency and Digital Assets Summit, Lightning Labs CEO Elizabeth Stark announced that the developer recently executed a test transaction on the Lightning Network using an asset created using the Taproot Assets protocol.
Stark emphasized the goal of having “cryptocurrency dollars and stable coins” on the Bitcoin blockchain, stating that it will solve real problems and bring more users into the digital asset realm. She expressed a strong focus on solving practical issues rather than promoting memecoins or gambling-related businesses.
The Lightning Labs CEO also noted the surge of developer interest in Bitcoin after the latest halving. She cited examples of developers working on decentralized finance projects (DeFi) and initiatives such as bitVM, which allow for the creation of Turing-complete Bitcoin contracts. Stark emphasized the global transactional nature of Lightning Labs’ technology, which aims to eliminate the concept of cross-border payments. She questioned the need to label transactions as “cross-border” when we don’t use such terminology for other online activities such as emails or text messages.
Citing a recent report from the International Monetary Fund (IMF), Stark noted that Bitcoin has become a critical channel for money transfers and circumventing capital controls in emerging markets. This conclusion is consistent with the experiences of developers and communities operating in regions affected by hyperinflation and authoritarian regimes. In such circumstances, Bitcoin serves as an asset and means of transaction when traditional alternatives are limited.
Why creating a new stablecoin on the Bitcoin blockchain is problematic
The Bitcoin blockchain does not directly support stablecoins for several reasons.
Lack of support for smart contracts
The main reason is that the Bitcoin blockchain does not have built-in support for smart contracts, which are necessary to create and manage stablecoins. Smart contracts allow for automatic fulfillment of contract terms without intermediaries, which is critical for the new stablecoin to be stable.
Decentralization philosophy
Bitcoin was created as a fully decentralized currency, not tied to any central authority or stable asset. The introduction of stablecoins tied to fiat currencies or other assets would contradict this philosophy.
Technical limitations
The Bitcoin blockchain is optimized to ensure the safety and reliability of Bitcoin transactions, not to support additional asset types such as stablecoins.
Regulatory challenges
New stablecoin requires adherence to regulatory standards and is often subject to strict scrutiny by government agencies. Integrating stablecoins into the Bitcoin blockchain would require addressing complex legal issues.
Alternative platforms
Other blockchains, such as Ethereum, have been specifically designed to support smart contracts and stablecoins, making them more suitable for these purposes.
However, there are projects that are exploring ways to integrate stablecoins with the Bitcoin blockchain via sidechains and wrapped tokens, but these solutions require additional layers of infrastructure and are not part of the core Bitcoin protocol. This is an area of active research and development, and the future may bring new innovative solutions.
