Despite the recent collapse of the cryptocurrency, the first stablecoin based on Bitcoin is in the works

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The CEO of Lightning Labs says that the new Taro upgrade will enable smart contracts and stablecoins to be boosted on the Bitcoin (BTC) blockchain.


the main points

  • The recent double-digit drop covering the crypto sector is a stark reminder of how volatile this asset class can be.
  • The massive price fluctuations in the past have created stable currencies, which have been pegged to another asset such as gold or the US dollar to greatly reduce erratic moves.
  • Most stablecoins run on either the Ethereum or Binance blockchain – none on Bitcoin – but the Lightning Network’s Taro protocol potentially enables the first BTC-based stablecoin.

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

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

How stablecoins help cryptocurrency investors

Major price fluctuations in the past created stable currencies, whose value was tied to another asset such as gold, the US dollar, or a commodity. Since stablecoins are tied 1:1 to another asset, the risk of erratic price movements is greatly reduced.

Normally, when someone sells a crypto asset, they park the proceeds from that sale in a stablecoin to protect those gains from losses. Most of the stablecoins run on the Binance or Ethereum blockchain. However, none of the top 10 stablecoins currently live on the Bitcoin blockchain but this is likely to change soon.

Stablecoin could soon come to the Lightning Network

Lightning Labs has created the Lightning Network, a global payment platform for individuals and businesses who want to use Bitcoin as a medium to exchange goods and services. When the Bitcoin blockchain was originally created using computer programming – most cryptocurrency projects and blockchains are software – it had basic functions to ensure maximum security and stability of transactions across the network.

But the Bitcoin blockchain has been slow and has struggled to scale to meet volume demand because its network takes several minutes to scan each transaction. However, a recent software update published by Bitcoin developers called Taproot, along with the Lightning Network, turned Bitcoin into a fast and viable global payment system.

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These improvements paved the way for Lightning developers to roll out another software layer that enables smart contracts — small software projects that execute automatically when certain preprogrammed conditions are met — representing a huge technological leap for the legacy bitcoin.

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

“One of our core principles at Lightning Labs is solving real problems for real people, and we spoke to countless community members in emerging markets who told us about the huge difference that Bitcoin and Lightning stablecoins will make to their economies. It makes sending such assets possible using a network of Bitcoin with Lightning’s immediate nature, high volume, and low fees,” Stark said in the statement.

Individuals living in hyperinflationary emerging markets, such as Turkey or Venezuela, can save the value of their inflation-eroded fiat currencies, by converting them into a stable currency — such as those on the Bitcoin blockchain. Stark also noted that since the Bitcoin network has the most value, users, and security of any single cryptocurrency, this recent development leading to a BTC-based stablecoin could be a game-changer within the crypto space.

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