On April 5th, 2022 Business Development Lead for Lightning Labs Ryan Gentry announced that Bitcoin and the Lightning Network will soon have the ability to handle multiple assets. Taro is a protocol powered by Taproot and enables Bitcoin to have app developers integrate assets that may be settled alongside on-chain Bitcoin and Lightning transactions. Lightning will allow for instant, high volume, and near zero fee transactions while on-chain transactions will be utilized as the settlement layer. 

The deployment of Taro aims to expand Lightning adoption throughout the world. By bringing in more users who wish to transact with other assets like fiat, adding Taro will potentially increase volume and liquidity for Bitcoin. 

More volume on Lightning will also increase the number of routing fees to be dispersed to Lightning node operators. For many operators, running a Lightning node is not the most profitable endeavor at this stage. However, many hobbyists trust that the skills required to run a Lightning node will be in high demand in the future. Taro is a step in the direction of making that possible.

Gentry mentions in the post that Lightning Labs has received a high number of requests to integrate stablecoins for countries in Latin America (El Salvador, Guatemala, Argentina, and Brazil) and West Africa (Nigeria and Ghana). In countries where intermediaries require high fees for payments, Lightning Labs sees this as an opportunity to integrate stablecoins and other assets for instant and cheap settlements with Lightning.

Taro Transfer Over Lightning

A Taro transfer will require multiple participants but essentially there will be BTC channels and Lightning U.S.D. (L-USD) channels between the sender and receiver. Alice wants to send $10 in L-USD to Dave but will need to pay a small BTC fee to Bob. Bob will then route $10 worth of BTC to Carol who also requires a fee but in L-USD. Carol will then route the $10 of L-USD to Dave, the final destination.

The reason for this many “hops” between node operators is that this structure allows for users to take advantage of the network and liquidity that is already available. There is no need to create an entirely new network for new assets and this structure will further incentivize already established participants (Lightning node operators).

Major Benefits of Taro

  • Scalability: One Taproot output has the ability to contain a large number of Taro assets.
  • Programmability: Developers have the ability to set transfer conditions into these Taro assets.
  • Auditability: All transactions are auditable within local wallets as well as globally for any Taro asset.
  • Usability: Taro allows for asset-specific addresses to help users avoid sending the wrong asset to addresses. 

Next Steps

The draft protocol will be released in a series of BIPs (Bitcoin Improvement Proposals) in order to receive feedback from the community. Once that is done, the tooling must be built to allow developers to transfer assets on-chain. Then the functionality will be built into Lightning in order to allow developers to open channels for Taro assets.

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