Lightning Labs Raises $70M to Bring Stablecoins to Bitcoin

The Taproot-powered “Taro” protocol aims to bring low-fee stablecoin and asset transfers to the Bitcoin Lightning Network.

AccessTimeIconApr 5, 2022 at 3:00 p.m. UTC
Updated Apr 6, 2022 at 4:18 p.m. UTC

George Kaloudis is a research analyst for CoinDesk Research.

Bitcoin is getting a boost by way of a new Taproot-enabled protocol known as Taproot Asset Representation Overlay, or Taro (like the root vegetable, not the playing cards). Taro is an open-source protocol powered by the Lightning Network (LN).

On Tuesday, Elizabeth Stark, co-founder and CEO of Lightning Labs, announced Taro and its bid to bring assets, like stablecoins, to the Bitcoin blockchain.

In addition to Taro, Lightning Labs also announced that it raised $70 million in Series B funding, led by Valor Equity Partners and joined by global asset manager Baillie Gifford.

Stark said Taro improves Bitcoin’s functionality and is possible because of Taproot, an upgrade that was activated last year. Taproot featured three upgrades: Schnorr signatures, Tapscript and Merkelized Abstract Syntax Trees (MAST). Taproot provides efficiency, privacy and flexibility gains to Bitcoin, but only if it is built into tools for users by developers. Taro represents what might become possible when Taproot is put to work.

In an interview with CoinDesk, Lightning Labs Director of Business Development Ryan Gentry said the protocol is “uniquely enabled by Taproot to embed spending conditions into MASTs without disclosing all details to the blockchain. Using MASTs, Taro embeds data for new assets such that these assets can all be treated as bitcoins.”

How it works

Lightning Labs describes Taro as an asset overlay network on Bitcoin. The security of Taro is based on embedded consensus, which means that transactions on Taro include Bitcoin data that needs to be verified on the Bitcoin blockchain.

There are additional rules to govern that data as defined by the Taro protocol, similar to how LN is an overlay network that uses Bitcoin smart contracts but has its own set of rules to enable the instantaneous transfer of bitcoin (BTC).

These are rules the Bitcoin blockchain doesn't necessarily care about. On that point specifically, Stark mentioned in the same CoinDesk interview that “you issue [the asset] on-chain and then you bring complexity to the end points,” the end point being the Taro protocol.

Most importantly, Lightning Labs released the technical specifications for Taro as a Bitcoin Improvement Proposal (BIP) so that the protocol can be built with feedback from the broader developer community.

While Taro might become available first on lnd, Lightning Labs’ implementation of LN, its status as an open-source protocol will allow other popular LN implementations, like ACINQ’s eclair or Blockstream’s Core Lightning, to use Taro. During the interview, Stark pointed to this as a critical aspect of Taro. When Lightning Labs announced its Series A in 2020, she wrote that we were "entering the decade of Lightning." Two years into that decade, she said Lightning Labs remains committed to being open source.

A critical distinction between Taro and other stablecoins, like UST on Terra, is that Taro is only the infrastructure to enable the movement of assets over Lightning, be they stablecoins or some other asset. Taro is not a stablecoin, collateralized, algorithmic or otherwise, it is simply infrastructure to enable the movement of assets. Developers still need to build projects using Taro.

Major funding

When asked about the $70 million Series B announced in conjunction with Taro, Stark said the combined approach was intentional.

“The goal of the announcement was to focus on the technology [Taro], raising money is solely the means, not the end,” Stark said.

The funds will be used to bolster Lightning Lab’s runway flexibility and act as fuel to grow the company, she said. Lightning Labs is still a small company with only 24 employees on its team page.

In addition to Valor Equity and Baillie Gifford, Goldcrest Capital, Kingsway, Moore Strategic Ventures, Brevan Howard, Robinhood CEO Vlad Tenev, NYDIG and Silvergate CEO Alan Lane participated in the funding round.

Baillie Gifford, a traditional finance company with a long operating history, being in the investor group marks another entry into investing in crypto infrastructure after it invested in Blockstream and Blockchain.com. Stark mentioned that the asset manager is a “long-term-oriented investor, so they’re really a perfect fit for what we are trying to accomplish.”

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George Kaloudis is a research analyst for CoinDesk Research.

CoinDesk - Unknown

George Kaloudis is a research analyst for CoinDesk Research.

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