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The new Taro protocol basically is an infrastructure that enables the movement of assets over Lightning, be it stablecoins or other assets.
On Tuesday, April 4, Lightning Labs announced raising $70 million in a Series B funding round led by Valor Equity Partners and Baillie Gifford. Lightning Labs said that it will use these funds to build an infrastructure that would allow users to send money across the world almost instantaneously at a low cost via the Bitcoin network. Dubbed Taro, the new protocol would allow stablecoin transfers on the Bitcoin Lightning Network. The Bitcoin Lightning Network is a Layer-2 protocol to speed up Bitcoin transactions and reduce network congestion.
Lightning Labs to Offer Stablecoin Transfers for Bitcoin
Elizabeth Stark, co-founder and CEO of Lightning Labs, said Taro improve Bitcoin network functionality which is possible because of Taproot, an upgrade activated last year. Taproot introduces flexibility, privacy, and efficiency gains to Bitcoin.
Taproot features three major upgrades: Schnorr signatures, Tapscript and Merkelized Abstract Syntax Trees (MAST). Taro is an extension that might become possible when Taproot is put to work. Speaking about it, Lightning Labs Director of Business Development Ryan Gentry said:
“Taro enables bitcoin to serve as a protocol of value by allowing app developers to integrate assets alongside BTC in apps both on-chain and over Lightning. This expands the reach of Lightning Network as a whole, bringing more users to the network who will drive more volume and liquidity in bitcoin, and allowing people to easily transfer fiat for bitcoin in their apps. More network volume means more routing fees for node operators, who will see the benefits of a multi-asset Lightning Network without needing to support any additional assets”.
How Does Taro Transfer Over Lightning Network?
Lightning Labs calls Taro an asset overlay network over BTC. Taro security depends on embedded consensus, meaning transactions on Taro will include Bitcoin data which needs to be verified on the Bitcoin blockchain.
Besides, Taro protocol brings additional rules to govern the data. This is similar to Lightning Network which uses Bitcoin smart contracts but has its own set of rules to enable instantaneous BTC transfers.
Lightning Labs refers to Taro’s technical specifications as Bitcoin Improvement Proposal (BIP). This will help to build the protocol with feedback from the developer community.
Note that Taro is not a stablecoin itself, just like UST is for Terra. It is just an infrastructure that enables the movement of assets over Lightning. Ryan writes:
“Taro makes use of the new Taproot scripting behavior (available on bitcoin as of the soft fork last November) to allow developers to embed arbitrary asset metadata within an existing output. That means no additional burden on full nodes, no burning of bitcoin via the OP_Return opcode, and that Taro assets inherit all the same double-spend protection of normal bitcoin transfers, along with additional functionality like transferability over the existing Lightning Network”.
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