Stablecoin Track: The Next Growth Point to Exceed One Trillion Market Capitalization

Blockchain is essentially an extension of payment scenarios. In the field of payments, stablecoins not only play an important role in the cryptocurrency market but also increasingly contribute to global payments and cross-border settlements. Currently, centralized stablecoins still occupy more than 90% of the market share, with USDT being the dominant one. Although stablecoins have issued over $150 billion, their market capitalization accounts for only 0.75% compared to the $20 trillion M1 scale reported by the Federal Reserve in 2024. The application of stablecoins in the payment field still has significant room for growth. The introduction of the Taproot Assets protocol brings broad prospects for the application of stablecoins in high-frequency small payment scenarios and creates possibilities for the large-scale adoption of stablecoins as a conventional payment method.

1. Stablecoin: The future trillion-dollar arena

The booming development of the stablecoin market indicates that it is expected to become the next trillion-dollar market in the financial sector. Currently, the market capitalization of stablecoins has surpassed $160 billion, with a daily trading volume exceeding $100 billion. Major countries have introduced relevant policies and regulations, and various institutions predict that stablecoins will bring about a new trillion-dollar market, with the main growth coming from the widespread application in the global payment sector.

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 worth of stablecoins, respectively. Tether has only 125 employees, yet it achieved a gross profit of $4.5 billion in a year. This enticing opportunity has attracted numerous institutions to invest in it:

• BlackRock has launched the tokenized fund BUIDL on Ethereum, aimed at providing stable value and earning returns, with a market capitalization of $384 million.
• According to reports, JD Coin Chain Technology will issue a crypto stablecoin pegged to the Hong Kong dollar at a 1:1 ratio.

Centralized stablecoins have been widely used in the crypto ecosystem, with daily DEX or CEX trading and settlement conducted through them. Decentralized stablecoins are mostly collateralized by crypto assets and are primarily used for lending.

While stablecoins play an important role in cryptocurrency trading and DeFi, their exploration in conjunction with real-world business is still in its early stages. In the long run, the most promising application scenario for stablecoins is in the payment sector, especially in cross-border payments. Currently, cross-border payments involve multiple intermediaries, are complex, costly, and have long settlement times. Stablecoins are not only a better choice but also an important channel for economic participation. As regulations tend toward compliance, the status of stablecoins in global payments will become increasingly important. In the future, after stablecoins are widely adopted in payment scenarios, they can also integrate with DeFi to give rise to PayFi, achieving interoperability, programmability, and composability in payment scenarios, thus creating a new financial paradigm and product experience that traditional finance cannot achieve.

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

Currently, stablecoins mainly circulate on the ETH and TRON networks, but their transaction fees usually exceed 1U, and on-chain transfer times exceed 1 minute. In contrast, the Lightning Network offers advantages of faster speed, lower costs, and higher scalability.

2.1 Introduction to the Lightning Network

The Lightning Network is the first relatively mature layer two scaling solution for the Bitcoin network. Since the release of the white paper, several teams have begun to independently develop the Lightning Network, including Lightning Labs, Blockstream, and ACINQ. Taproot Assets is the asset issuance protocol developed by Lightning Labs.

The Lightning Network achieves this by establishing a bidirectional state channel. The trading parties create a 2-of-2 multisig address on-chain, allowing them to transfer Bitcoin in and out within a limit. Before transferring out, both parties send locking data and keep accounts, forming a transaction payment, which can occur multiple times. Upon settlement, the Bitcoin of the new address is allocated to both parties according to the settlement amount. Only the latest version is valid, enforced by the hash time-locked contract (HTLC). Either party can broadcast the latest version to the blockchain at any time to close the channel, without the need for trust or custody.

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

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, operating for 9 years, is built on the currently most secure Bitcoin network (, with over 57,000 nodes and a PoW mechanism ), ensuring its security to the greatest extent.

Currently, the Lightning Network has a capacity of over 5000 Bitcoins, with more than 18,000 nodes and over 50,000 channels globally. By establishing bi-directional payment channels, it enables instant low-cost transactions and is being integrated and used by a large number of payment providers and merchants worldwide, gradually becoming the most widely accepted decentralized solution for global payments.

Bitcoin assets account for half of the cryptocurrency market capitalization, and this cycle has returned to the Bitcoin ecosystem frenzy. As the first layer-2 scaling solution for Bitcoin, the Lightning Network truly realizes Satoshi Nakamoto's vision of peer-to-peer global payment. It has become the most orthodox and consensus-driven Bitcoin community, representing the best solution for ideal global payments.

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

Previously, the Lightning Network only supported Bitcoin payments, and the application scenarios were limited. Today, as Bitcoin has become digital gold, most people are unwilling to spend their Bitcoin.

Although there have been some first-layer issuance protocols for Bitcoin, such as Atomical and BRC20 based on Ordinals, they do not support direct access to the Lightning Network. The introduction of the Taproot Assets protocol just solves this problem. It is an asset issuance protocol based on the Bitcoin network, developed under the leadership of Lightning Labs. Similar to the Ordinals protocol, anyone or any organization can use the Taproot Assets protocol to issue their own tokens, and it also supports the issuance of stablecoins corresponding to fiat currency.

Compared to other asset protocols, the advantage of the Taproot Assets protocol lies in its full compatibility 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 ( issued on the Bitcoin network, especially stablecoins ), will circulate on the Lightning Network, which in turn enhances the layout and influence of the Lightning Network in the global payment field.

Relying on the security and decentralization of Bitcoin, Lightning Labs' advocacy of "tokenizing the dollar and global financial assets with Bitcoin" is becoming a reality. The launch of the Taproot Assets mainnet protocol marks the official beginning of stablecoin applications in trillion-scale payment scenarios.

3. Taproot Assets Protocol ( TA ) Explained

The operational principle of the TA protocol is deeply rooted in the UTXO model of Bitcoin and relies on the Taproot upgrade of the Bitcoin network. These two are the core elements of the TA protocol, driving the effective operation of the protocol.

3.1 Comparison of UTXO Model and Account Model

UTXO( unspent transaction output) is the foundation implemented by Bitcoin Layer 2 and the Ordi, Runes protocols. Most public chains, such as 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 numbers.

The UTXO model can be understood as a wallet that holds checks authorized by others for exchange and checks authorized by oneself to others. The wallet balance is equal to the value of the received checks minus the value of the issued checks. The Bitcoin network acts as the bank that redeems these checks, calculating the latest balance for each address based on the most recent transactions of the users' checks.

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

The TA protocol adopts the concept of one-time sealing, where each UTXO confirmation expenditure cannot be reused, ensuring that assets move with the UTXO. Miners who mine the longest chain have the final interpretation and usage rights of UTXOs. Unlike BRC20, which relies on off-chain indexing to identify assets, the TA protocol enhances transaction security, avoids double-spending attacks, and eliminates the risks of errors or malicious actions that may arise from centralized institutions. These features make the TA protocol + Lightning Network a reliable payment infrastructure.

3.2 Taproot upgrade: achieving more complex functions

The Taproot protocol upgrade in 2021 brought simple smart contract functionality to the Bitcoin network, allowing P2TR format wallet addresses to 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-sign ). This enhances the trading security for institutional users, as the length of the multi-signature address is the same as that of private wallet addresses, making it indistinguishable from the outside, thus 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 Technical Principles of TA

The early Ordinal and BRC20 protocols are based on an account model, where balances are bound to addresses. Asset issuance is done by a specific identifier "marking" the smallest unit of Bitcoin, "satoshi", mapping "satoshi" to an asset. Asset state data is stored in JSON format in the segregated witness part of the block. When assets are traded, the scripts recording the changes are "engraved" into the block and interpreted through off-chain indexers.

This method requires every Ordinals and BRC20 asset transaction to be recorded in the block, increasing the block size, accumulating invalid data, and being permanently stored, ultimately putting pressure on the data storage of full nodes. In contrast, the TA protocol is more efficient, with asset tags 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 through the existing Lightning Network, meaning they can circulate on both the Bitcoin mainnet and the Lightning Network.

The TA protocol utilizes the Bitcoin Taproot upgrade (BIP 341) for development. The Taproot upgrade allows spending UTXOs to use either the original private key or scripts on the Merkle tree.

In short, the TA protocol expands on the Taproot upgrade by recording asset state change transactions on the Taproot Merkle tree. By utilizing the "one-time seal" characteristic of Bitcoin UTXOs, it achieves consensus on asset state changes on the Bitcoin chain 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 standards for asset state transitions.

It should be noted that not all data of the Merkle tree is written into the Bitcoin chain, only the root hash is written. Regardless of how large the asset data is, the transaction length on the Bitcoin chain remains unchanged, and the TA protocol does not pollute the Bitcoin chain.

3.4 The relationship between TA Protocol and the Lightning Network

In Lightning Labs' latest product, TA protocol assets can seamlessly enter the Bitcoin Layer 2 Lightning Network through TA channels. Previously, the Lightning Network only supported the circulation of Bitcoin, while the TA protocol allows for the issuance of assets (, especially stablecoins ), on the Bitcoin main chain, which can then enter the circulation of the Lightning Network.

The TA channel implementation principle is the same as that of the state channel, based on hash time-locked contracts. TA assets themselves are within the UTXO, and the implementation mechanism of the TA channel has not changed; it just now supports circulating TA assets.