Bitcoin Lightning Alliance To Accelerate Adoption Using New Asset Protocol

A new collaborative effort spearheaded by Lightning infrastructure company LNFi intends to accelerate the adoption of the Lightning Network. Leveraging the progress of novel protocols such as Taproot Assets and Nostr, the LN Alliance hopes to mobilize industry partners and contribute to standards around the growing Bitcoin ecosystem. A recent community discussion highlighted the group’s ambition to promote the emergence of this new Lightning-based, interoperable, financial market.

Behind this initiative, Darius from Lightning infrastructure company LNFi explained his motivation: "Today, the entire Lightning ecosystem is rather fragmented. There are all sorts of standards, protocols out there. The LN Alliance is just there to feature everyone and create enough exposure and awareness of existing Bitcoin, Lightning and Nostr projects on top of these standards so hopefully we can advance forward as a joint community."

Additionally, by raising awareness around existing tools and protocols, members of the group seek to reduce duplicated efforts, allowing developers to build on what already exists rather than reinventing the wheel.

LN Link is one such standard being developed and promoted by LNFi and its partners. Built as an extension of Nostr Wallet Connect (NWC), it allows Bitcoin applications to easily interface with Taproot Assets, a protocol at the center of the LN alliance’s mission

Preparing for Taproot Asset

One of the driving forces behind this union is the emergence of Lightning Labs’ Taproot Assets. Ryan Gentry from Lightning Labs shared exciting updates on the protocol, revealing that over 150,000 mints have occurred on the protocol since its launch last October. The upcoming release promises to integrate these assets with the Lightning Network, enhancing their usability.

Taproot assets take inspiration from older concepts like Omni and Counterparty's colored coins but are upgraded for the Taproot era. They allow for advanced scripting and off-chain data commitment within UTXOs, making them highly scalable without adding blockchain bloat. This architecture enables native composability with existing Lightning infrastructure.

“You can use all of the existing LND APIs that you're familiar with. And all of a sudden you just have an asset ID parameter to tell the software that instead of sending Bitcoin, I want to send this Taproot asset,” said Gentry.

The goal is to make asset issuance and management on Bitcoin more efficient and user-friendly, leveraging the Lightning Network's capabilities.

Shifting the focus to the maturing Lightning Network infrastructure, Voltage CEO Graham Krizek insisted on the importance of an accessible and reliable network, particularly with the potential integration of stablecoins. "Stablecoins on Lightning is a powerful thing that applies to a lot more people around the world than the network does today." He emphasized that making the technology user-friendly is crucial for broader adoption.

Joltz co-founder Linden Stark shared practical steps being taken to simplify user interaction with Lightning. Joltz is implementing zero-confirmation channels and submarine swaps to facilitate instant transactions between assets and layers without the need for extensive channel management. "We think zero-conf channels will be best for the majority of users."

Praising the ability of new Taproot assets to be seamlessly integrated and used for payments, Jordi, founder at FewSats the potential for the Lightning Network to become “a network of networks."

Banking on Lightning interoperability

Increasingly looked at as a crucial interoperability layer, Lightning has recently established itself as the connective tissue between the supporting pieces of the broader Bitcoin ecosystem.

“I think we're going to see a big trend over the next couple of years of Lightning swap services that are interfacing, similar to how Boltz is powering Aqua wallet. Users have funds on Liquid, and don't have a Lightning channel at all, but can pass in and receive over the Lightning Network via a Boltz swap service.,” said Ryan Gentry from Lightning Labs.

Other participants in the discussion corroborated the expectation for Lightning to become the interoperability layer connecting users and services of other supported networks. The network effects of Lightning are expected to grow as these new environments utilize it for interoperability. For instance, a swap service could manage stablecoin transfers across various platforms, simplifying the user experience.

Combining Nostr Wallet Connect and Taproot assets can improve user experiences so that users are able to transact across different asset types without worrying about the underlying complexities. "You can pay an invoice seamlessly, even if the recipient wants a different asset," said Jordi from Fewsats. This functionality hints at an important evolution of how asset exchange might operate, reducing the reliance on centralized intermediaries.

Joltz is one company that is actively building the necessary infrastructure to support this interoperability. By developing an SDK that allows wallets to integrate with swap providers easily, Joltz aims to streamline the process of connecting various sidechains with the Lightning Network. Highlighting the efficiency gains from using Lightning as a central hub. Joltz co-founder Linden Stark remarked: "It really doesn't make sense to integrate each sidechain individually."

Incentivizing financial opportunities

To further the success of its initiative, LN Alliance members discussed ways to incentivize the development of this infrastructure. One of the most common ways to benefit from the Lightning Network’s economic activity is through the yield opportunities created by routing fees or channel leasing.

Jesse Shrader, founder of Amboss explained that while yields from routing payments have historically been modest, Taproot assets are expected to drive significant volume, thereby increasing the usage of scarce liquidity on the network. "We're focused on opportunities for routing payments and leasing liquidity." Amboss’s efforts with their Magma marketplace and Hydro liquidity management tool aim to simplify liquidity management for merchants and enhance yield returns by driving more payment volume through the network.

Noting the uneven distribution of yield from routing fees, Ryan from Lightning Labs emphasized the goal of providing equal access for all participants to earn yields by forwarding payments on the Lightning Network. "Taproot assets will introduce new services and opportunities for entrepreneurs," Ryan noted, predicting that the increased activity from Taproot assets will benefit even those who do not directly engage with these assets.

Other speakers rallied behind the idea that the new protocol would attract many entrepreneurs to build dynamic ecosystems, particularly around stablecoins, which could eventually drive up economic activity. Supported by new markets around Taproot assets, new businesses such as swap providers or market-making activities might open new revenue streams for Lightning node operators.

The LN Alliance is yet another sign of the growth of the Lightning Network industry. After early headwinds caused by a nascent infrastructure, the introduction of Taproot Assets potentially marks the beginning of a new era of financialization using Bitcoin’s most native protocol. With increased focus on interoperability and new financial opportunities, the LN Alliance hopes to grow the economic pie and pave the way for more vibrant and efficient Bitcoin financial markets.

LNFi is a portfolio company of UTXO Management, a regulated capital allocator focused on the digital assets industry. Bitcoin Magazine is owned by BTC Inc., which operates UTXO Management. UTXO invests in a variety of Bitcoin businesses, and maintains significant holdings in digital assets.