The stablecoin sector is expected to surpass a market capitalization of one trillion.

Blockchain technology is essentially an extension of payment scenarios. Stablecoins not only occupy an important position in the cryptocurrency market but are also becoming increasingly important in global payments and cross-border settlements. Currently, centralized stablecoins account for over 90% of the market share, with USDT holding an absolute dominant position. Although stablecoins have issued over $150 billion, compared to the $20 trillion M1 figure reported by the Federal Reserve in 2024, the market capitalization of stablecoins is only 0.75% of M1. There is still immense potential for the application of stablecoins in the payment field. The launch of the Taproot Assets protocol indicates that stablecoins have broad prospects in high-frequency, small-amount payment scenarios, and it has also created the possibility for the large-scale adoption of stablecoins as a regular means of payment.

1. Stablecoins Become the Next Trillion-Dollar Track

The stablecoin market is booming and is expected to become a trillion-dollar market in the financial sector. Currently, the market capitalization of stablecoins has exceeded $160 billion, with a daily trading volume of over $100 billion. Various countries are introducing relevant policies and regulations, and multiple institutions predict that stablecoins will bring about a new trillion-dollar market, mainly driven by the widespread application of global payments.

Stablecoins are divided into two main categories: centralized and decentralized. Centralized stablecoins currently dominate the market, with USDT and USDC issuing $114.46 billion and $34.15 billion respectively. Tether has only 125 employees, yet its annual gross profit reaches $4.5 billion. This enticing opportunity has attracted many large institutions to take positions.

• BlackRock issues tokenized fund BUIDL on Ethereum, providing stable value and earning yields, with a market capitalization of $384 million.
• JD Coin Chain Technology ( plans to issue a cryptocurrency stablecoin in Hong Kong pegged 1:1 to the Hong Kong Dollar.

Centralized stablecoins have been widely used in the crypto ecosystem, while decentralized stablecoins are mostly used for lending. In the long run, the most promising application scenario for stablecoins is in the payment field, particularly in cross-border payments. Currently, cross-border payments involve multiple intermediary institutions, incurring high costs and long settlement times. Stablecoins are not only a better choice, but also an important channel for economic participation. As regulation moves towards compliance, the role of stablecoins in global payments will become increasingly important. In the future, after stablecoins are widely adopted in payment scenarios, they can also merge with DeFi to give rise to PayFi, achieving interoperability, programmability, and composability in payment scenarios, thus forming a new financial paradigm and product experience that traditional finance cannot achieve.

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2. Taproot Assets Protocol + Lightning Network May Become Global Payment Infrastructure

Currently, stablecoins are mainly circulating on the ETH and TRON networks, but the transaction fees usually exceed 1U, and the on-chain transfer time exceeds 1 minute. In contrast, the Lightning Network has advantages in terms of faster speeds, lower costs, and higher scalability.

) 2.1 Introduction to the Lightning Network

The Lightning Network is the first mature layer 2 scaling solution for Bitcoin. Multiple teams have independently developed the Lightning Network, including Lightning Labs, Blockstream, and ACINQ. Taproot Assets is the asset issuance protocol developed by Lightning Labs.

The Lightning Network is implemented through the establishment of bidirectional state channels. Both parties create a 2-of-2 multi-signature address on-chain, allowing Bitcoin to be transferred in and out within a limit. Before transferring out, both parties send locking data and account for it, forming transaction payments that can be done multiple times. At settlement, the Bitcoin in the new address is transferred 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.

Therefore, both parties can conduct off-chain transactions without restrictions, using the Bitcoin chain as an arbitrator. 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 going to court when the final confirmation is made or a problem arises.

) 2.2 The Lightning Network Becomes the Best Infrastructure for Global Payments in Stablecoins

The Lightning Network allows users to conduct an unlimited number of transactions off-chain, without causing congestion on the Bitcoin network, while relying on the security of the Bitcoin network. Theoretically, there is no upper limit to the scalability of the Lightning Network.

The Lightning Network, running for 9 years, is built on the Bitcoin network with ###57000+ nodes and the PoW mechanism (, maximizing security. Currently, the Lightning Network capacity exceeds 5000 bitcoins, with over 18000 nodes globally and more than 50000 channels. It enables instant low-cost transactions through bidirectional payment channels and is being integrated and used by a large number of payment providers and merchants worldwide, gradually becoming a widely accepted solution for global payments.

Bitcoin assets account for half of the cryptocurrency market capitalization, and this cycle has seen a resurgence of the Bitcoin ecosystem. The Lightning Network, as the first layer two scaling solution for Bitcoin, has truly realized Satoshi Nakamoto's vision of a peer-to-peer global payment system. It has become the most orthodox and strongly consensus-driven Bitcoin community, serving as the ideal solution for global payments.

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

Previously, the Lightning Network only supported Bitcoin payments, and its application scenarios were limited. Most people were unwilling to use Bitcoin for payments. Although there are some Layer 1 issuance protocols for Bitcoin such as Atomical and BRC20, they do not support direct access to the Lightning Network. The Taproot Assets protocol addresses this issue. It is an asset issuance protocol based on the Bitcoin network, developed primarily by Lightning Labs. Anyone or any institution can use it to issue tokens, including stablecoins corresponding to fiat currencies.

The advantages of Taproot Assets lie in its full compatibility with the Lightning Network, making it possible to use stablecoins for payments on the Lightning Network. This means that a large number of new assets based on the Bitcoin network ###, especially stablecoins (, will flow into the Lightning Network in the future, in turn enhancing the influence of the Lightning Network in the global payments arena.

Leveraging the security and decentralization of Bitcoin, Lightning Labs' advocacy for "tokenizing the dollar and world financial assets with Bitcoin" is becoming a reality. The launch of the Taproot Assets mainnet protocol marks the official beginning of stablecoins in trillion-dollar payment scenarios.

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3. Taproot Assets Protocol ) TA ( Explanation

The TA protocol is deeply rooted in Bitcoin's UTXO model and relies on the Taproot upgrade to be implemented. These two core elements drive 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 account balance. The UTXO model can be understood as a wallet that stores checks authorized by others for redemption and checks authorized by oneself to others. The wallet balance equals the total value of received checks minus the total value of issued checks. The Bitcoin network is equivalent to a bank that cashes checks, calculating the latest balance through transactions.

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

The TA protocol adopts a one-time sealing concept, where each UTXO cannot be reused after the confirmation of spending, ensuring that assets move with the UTXO. The miner who mines the longest chain has the final interpretation rights of the UTXO. This enhances the security of transactions, avoiding double-spending attacks and 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 implements complex functions

The 2021 Taproot upgrade brought simple smart contract functionality to the Bitcoin network. P2TR format wallet addresses implement complex logic through Bitscript, making new complex transaction types possible on-chain.

The most critical improvement is the implementation of multi-signature ### multi-signing (. This enhances transaction security for institutional users, as multi-signature addresses have the same length as private wallet addresses, increasing 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 TA technical principles

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

The TA protocol expands on the Taproot upgrade by recording asset state transition in the Taproot Merkle tree. Utilizing the "one-time seal" characteristic of Bitcoin UTXOs, it achieves consensus on asset state transitions on the Bitcoin chain without the need to run off-chain indexers of other protocols.

The TA protocol uses a Sparse Merkle Sum Tree ) MS-SMT ( to manage asset states and defines the standards for asset state transitions. Only the Merkle tree root hash is written to the Bitcoin chain; regardless of the size of the asset data, the transaction length on the Bitcoin chain remains unchanged, ensuring that the Bitcoin chain is not polluted.

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) 3.4 The relationship between TA Protocol and Lightning Network

TA protocol assets can seamlessly enter the Bitcoin Layer 2 Lightning Network through TA channels. Previously, the Lightning Network only supported Bitcoin payments, but the TA protocol allows assets, especially stablecoins, issued on the Bitcoin main chain to circulate in the Lightning Network after entering ###.

The TA channel implementation principle is the same as that of the state channel, based on the hash time lock contract. The TA assets themselves are within the UTXO, and the TA channel implementation mechanism remains unchanged; it is just that the channel now supports the circulation of TA assets.

The TA protocol enables assets outside of Bitcoin to circulate through the Lightning Network, allowing for seamless transfer of stablecoins and other assets on the Lightning Network.

( 3.5 User usage costs are high, and the issues with centralized custody need to be resolved.

Although the TA protocol only records the transaction root hash on the chain, the asset data needs to be stored off-chain on each client. Users must possess the UTXO private key corresponding to the asset and the related data on the Merkle tree.

The official implementation of the TA protocol ) Tapd ### deeply relies on the Lightning node ( LND ) wallet service, which has no account management mechanism. The architecture of the Lightning Network determines that its decentralized method is for users to build their own nodes, making it difficult for ordinary users to participate and hindering large-scale adoption.

Currently, most Lightning Network wallet services are custodial wallets, and the new assets issued by TA will also be stored in custodial wallets. In the future, when TA assets circulate a large amount of stablecoins, large assets will be prioritized to be stored on the Bitcoin mainnet, while small assets will be charged to the Lightning Network to meet payment needs. For the storage and security management of large assets, it is very important to allow users to fully own the stablecoin ownership in a more decentralized manner.

4. Self-Custody Solutions Complete the Final Piece of the Lightning Payment Network

Various decentralized solutions for TA assets circulating on the Lightning Network have emerged in the market. For example, LnFi proposed a cloud hosting solution that allows users to easily deploy Lightning Network nodes and lower participation barriers.

The BitTap team, focused on the TA protocol ecosystem's decentralized infrastructure, developed the TA decentralized browser extension wallet, providing users with self-custody wallet rights.

BitTap proposes an innovative wallet protocol ( Bittapd ), where users have complete control over their private keys. When signing transactions, Bittapd interacts with Tapd on behalf of the user, allowing users to enjoy a decentralized experience and security similar to Metamask. When stablecoins are issued and circulated on TA, users can use the BitTap wallet to store and transfer stablecoin assets on the Bitcoin mainnet, and freely transfer small amounts to the Lightning Network.

The Bittapd protocol is a decentralized proxy for the TA protocol, transforming the Tapd's native centralized custody account system into a decentralized solution, serving as the network communication and forwarding role when plugin wallet users make transaction requests.

![Taproot Assets: Stablecoin sector surpasses trillion market capitalization