Lightning Lab: Taproot Assets is now available on the Lightning Network

Author: Ryan Gentry  Source: Lightning Lab Translation: Shan Ouba, Golden Finance

Today, we are excited to announce the release of Taproot Assets on Lightning, the first multi-asset Lightning Network protocol, on mainnet. With this version, assets can be minted on Bitcoin and sent instantly over the Lightning Network with low fees. As a result, we are now able to build Bitcoin and Lightning multi-asset networks in a scalable way, building on the security and decentralization of Bitcoin. This advancement will enable users to access the world's currencies on an open, interoperable payment network while being routed through Bitcoin liquidity, making Bitcoin the global routing network for the Internet of Money. Together, we are Bitcoinizing the dollar and the world's financial assets.

We are very grateful for the support of the Bitcoin and Lightning developer communities who provide feedback on the protocol, test early versions of the software, and build initial products for end users. These early adopters have been iterating with our team over the past few months of development, minting over 170,000 assets on-chain, building wallets, exchanges, the Universe Explorer (a repository that holds all the information needed to initialize a wallet and download the state of a specific Taproot asset), and more. Builders can now move from on-chain development to giving their users access to assets on a global, low-fee payments network via Lightning, which will greatly improve the user experience and the diversity of applications that developers can build. We are excited to see all the new possibilities this release brings.

By designing the Taproot Assets protocol, each asset issuer does not need to bootstrap their own subnetwork of liquidity and routing nodes, and all issuers can leverage the existing network effects of the 5,400 Bitcoin allocated to the Lightning Network. With Taproot Assets on the Lightning Network, assets can be routed through Bitcoin, acting as a global routing currency. We believe the ability to re-use existing Bitcoin liquidity and leverage existing routing nodes will enable rapid adoption of Taproot Assets. From a practical perspective, with the launch of multi-asset Lightning capabilities, developers can open Lightning channels denominated in the unit of account of their choice that interoperate natively with the rest of the Lightning Network today. In particular, we are excited to start seeing stablecoins issued and integrated across the many wallets, exchanges, and payment providers on the network today. The global demand for stablecoins is undeniable, especially in emerging markets. With Taproot Assets, these users will have access to the Lightning ecosystem for improved speed, security, and user experience.

Leveraging the Geopolitical Relevance of Stablecoins to Drive Bitcoin into the Billions

The Lightning Network is already an interoperability layer for exchanges, wallets, and merchants around the world. Bitcoin developers are also using it to unify new ideas like the Chaumian e-cash mint, sidechains, and other off-chain projects. The Multi-Asset Lightning Network greatly expands the number of developers and companies that will take advantage of this interoperability layer by allowing stablecoin users to leverage the instant settlement, low fees, and global reach of the Lightning Network to transact.

Stablecoins have exploded in popularity over the past five years, and according to Castle Island’s Nic Carter, stablecoins now account for more than half of the global on-chain transaction value in U.S. dollars. According to K33 Research,  annual stablecoin transaction volume in 2023 is $11 trillion, and they expect it to exceed $30 trillion by 2024, more than double Visa’s annual transaction volume. This growth has given stablecoins geopolitical importance, as evidenced by the fact that the former US House Speaker has promoted stablecoins as a solution to the US debt crisis, that stablecoin issuers hold more US Treasuries than Germany and South Korea, that Tether says they are one of the top three holders of short-term US debt in the world, and that an estimated 4% of Turkey’s GDP is spent on stablecoins. When we last published a major stablecoin in October 2023, total fiat-backed stablecoins in circulation were $115 billion. Currently, the total amount of fiat stablecoins in circulation is $148 billion, an annualized growth rate of 46% (with USDT growing the most). At the current rate of growth, total stablecoin issuance will exceed $1 trillion by around 2030, and the pace of growth is likely to accelerate.

Tether CEO Paolo Ardoino said this demand is primarily coming from users in Asia, the Middle East, Africa, South and Central America, “all parts of the world that have difficult access to the banking system.” Financial institutions around the world are connecting to the networks these users leverage to meet their needs. Onboarding these users and their financial institutions to the Bitcoin infrastructure through Taproot Assets is critical to both securing their operations and expanding the use of Bitcoin assets and the Bitcoin network around the world.

In a world with $1 trillion in total stablecoin issuance, the multi-asset Lightning Network will connect exchanges, wallets, and merchants with forward-thinking new banks, mobile money providers, institutional market makers, and every other financial institution on the planet. It will soon become the world’s default value transfer network, disrupting decades-old legacy networks like VISA, Mastercard, SWIFT, and more. Thanks to the design of Taproot Assets, every transaction on the network will use Bitcoin as the global routing currency.

Building for the Future with the New Taproot Assets v0.4

For developers building today, with this release they can access the full suite of Lightning features of Taproot Assets: open/close channels, make instant, low-fee payments, atomically swap assets for Bitcoin, forward Taproot Assets Lightning payments, and more. It also provides an enhanced set of features for on-chain operations.

This Lightning-enabled version of Taproot Assets is available in the latest Polar release, a popular rapid prototyping tool among app developers. To get started with the Taproot Assets daemon: read the installation section, download the daemon release, check out the API documentation, and read the Getting Started guide. Please note that while this version supports mainnet, the alpha tag indicates that we encourage the community to measure it in their deployments. These cutting-edge features and integrations are relatively new for real-world testing and may not be ready for production deployments on mainnet at scale. We encourage developers to experiment with these new features with caution.

Multi-Asset Lightning Network on Mainnet

First, as demonstrated by Lightning Labs CTO Laolu Osuntokun (aka roasbeef), the latest release includes all the functionality needed for multi-hop Taproot Assets payments routed over the Lightning Network via Bitcoin. Specifically, APIs for opening Taproot Assets channels, generating asset invoices, and paying asset invoices have been included. To maximize the ability for applications to adopt Taproot Assets in a fast and secure manner, first-class support for these new APIs has been seamlessly integrated into the existing developer-friendly litd package, which includes lnd, tapd, loopd, and more as a single binary. By running this package, developers are able to use Taproot Assets using the exact same APIs they are familiar with, but including new asset-related parameters.

The Taproot Assets Lightning integration introduces a new feature whereby edge nodes (routing nodes that connect Taproot Assets users to the broader Lightning network) are able to negotiate atomic swap rates between Taproot Assets and Bitcoin while forwarding payments. This release includes a Request for Quote (RFQ) service, which involves a Taproot Assets invoice generator sending a request to its Taproot Assets liquidity providing edge node for a time-limited price quote between the relevant asset and Bitcoin. The edge node can fetch that quote from its own order book if it runs an exchange, or from the exchange API collection if it does not, and the receiver can either accept the quote or reject it and request a new one if it is unfavorable. Once the quote is accepted, the edge node cryptographically signs it and includes it in the invoice, making it indistinguishable from any normal invoice. As a result, the sender will only see the exchange quote as a standard Bolt 11 routing fee, which extends the ability to pay Taproot Assets invoices to any Lightning wallet without having to know anything about Taproot Assets. As shown above, the asset receiver Dave generates a Taproots Assets invoice. To do this, Dave needs to first agree on an exchange rate with the edge nodes that provide liquidity to his node. If Dave rejects the initial quote, he can try to get alternative quotes through other Taproot Assets edge nodes. Similar to routing nodes on the Lightning Network, there will be competition among edge node operators to provide efficient pricing and payment reliability. Once Dave agrees to the quote, he generates an invoice and provides it to Alice, who is sending the payment. Eventually, this process will be automatically handled through node configuration and wallet UX.  

Trustless On-Chain Swaps

In addition to the Lightning capabilities in this release, we are also launching trustless, non-custodial on-chain swaps. With this feature, Taproot Assets users and developers can atomically swap assets for Bitcoin or other Taproot Assets via Partially Signed Bitcoin Transactions (PSBTs), allowing users to conduct non-interactive transactions in a chain-efficient manner without the need to trust counterparties or centralized coordinators. To initiate a trustless on-chain Taproot asset swap, the seller first creates a PSBT to prove their ownership of the asset, while also allowing their counterparty to claim ownership of the completed PSBT (leveraging the SIGHASH_NONE sighash flag on the taproot asset layer). They specify the asset to be swapped as the input of the transaction, and then stipulate the asset to be purchased as the output of the transaction (BTC in the example above). At this point, the transaction will fail validation because the transaction input is not sufficient to satisfy the output. In order for a PSBT to be valid and claim the asset, a potential counterparty needs to add an input with an asset that matches the output the seller is claiming (22 million sats in the attached example). In the case of multiple potential counterparties, only the buyer whose transaction is included in a mined block can claim the asset, and once the winning transaction is confirmed on-chain, other competing bids become invalid.

This non-interactive, atomic, and decentralized way of trading is made possible by the unique design of Taproot Assets, introducing a new design space for application developers. With this capability, peer-to-peer exchanges can now be established using Taproot Assets, and we can’t wait to see what developers will build with it.

First-class multi-signature support for more advanced ownership solutions

Security is at the core of Bitcoin’s foundation. With this in mind, issuers, custodians, and developers have all mentioned the importance of securing Taproot Assets with Bitcoin-grade guarantees. In response to this feedback, this release includes best-in-class multi-signature support, providing advanced custody options at every layer of Taproot Asset ownership. Users can also back up time-locked cold keys if their hot keys are destroyed. Taproot Assets owners can now customize exactly how their assets are protected and incorporate it into the existing Bitcoin multi-signature product. This new addition will allow the developer and issuer community to build with security first using an existing, familiar approach.

Secure Assets Issuance in Batches

Taproot Assets provides native support for assets issued in multiple forms, such as stablecoins, where parts are intended to be fungible. While all assets minted in a single part are identified by an asset_id, all parts of a given asset share a group_key identifier, providing provenance verification and asset fungibility. The latest feature enhancement to assets group_key brings scripting capabilities to the minting process. Issuers can now require multi-signature thresholds before minting, or programmatically limit the number of issued assets, improving their ability to secure the issuance process. For asset issuers and developers running Universe servers, we’ve added new features to improve efficiency and minimize operational burdens.

Integrate Taproot Assets on Lightning Today

Now is the time for developers to start building new applications and use cases with the multi-asset Lightning Network. We’re excited to see new and existing Lightning wallets adding stablecoin support for emerging market users, new Lightning-based exchanges for instant Taproot asset swaps, institutional Taproot asset custody solutions using the new multi-signature capabilities, and solutions for edge node operators to help them manage risk and maximize profitability. No other network offers the speed, payment breadth, and modern user experience of multi-asset Lightning, and the next wave of entrepreneurs will create an entirely new ecosystem to meet these needs.

To start building with Taproot Assets on Lightning, developers should download the latest version of the litd suite and use it in integrated mode. The litd suite combines lnd, tapd, and many liquidity services into a single binary, providing the most direct way to integrate multi-asset Lightning.