Original author | bioniq CEO Bob Bodily

Compiled by | Odaily Planet Daily Jessica

On October 19th, Lightning Labs released the Taproot Assets protocol, allowing stablecoins and other assets to be issued on the Bitcoin network and Lightning Network. bioniq CEO Bob Bodily posted a detailed introduction to the protocol on X platform. The Odaily Planet Daily has compiled it as follows:

Key Points of the Article

• Taproot Assets is a Bitcoin meta-protocol directly integrated with the Lightning Network, supporting FT (fungible tokens) and NFT (non-fungible tokens);

• Taproot Assets does not use Bitcoin as a complete data availability layer (like the Lightning Network). Users default to storing their own data, or can add additional trust assumptions through off-chain data storage (referred to as the "Universe");

• Taproot Assets is an excellent protocol for fungible tokens, but performs averagely (for now) in the non-fungible token protocol.

What are Taproot Assets

1. Taproot Assets is a meta-protocol for Bitcoin, similar to Ordinals, BRC-20, Runes, Atomicals, TAP, PIPE, or RGB. It can handle fungible, semi-fungible, and non-fungible tokens.

2. Taproot Assets is entirely based on UTXO (similar to Runes and PIPE), meaning it integrates well with Bitcoin native technologies (such as RGB, Lightning, and DLCs).

3. Taproot Assets is directly integrated with the Lightning Network. This means that you can use Taproot transactions to open a Lightning channel and can deposit BTC and Taproot Assets into a single Bitcoin transaction into the Lightning channel.

4. Taproot Assets use Taproot transactions to create assets on Bitcoin. Data is stored in the Taproot tree. By default, token metadata is stored on the creator's device, or can be chosen to be stored in an off-chain data repository/indexer called the "Universe."

Fungible Tokens on Taproot Assets

As a fungible token protocol, Taproot Assets has the following characteristics:

• Low UTXO usage (similar to Runes/PIPE), as users can create or transfer multiple tokens in a single transaction;

• Users can store most transaction data off-chain, either on their own or in the Universe, meaning minimal on-chain usage for large transactions;

• It is entirely based on UTXO, thus integrates well with Bitcoin's Lightning, DLCs, and RGB;

• It integrates directly with Lightning, allowing for fast and inexpensive transactions once moved to Lightning (all tokens + BTC in a single transaction).

Taproot Assets have a lot of potential in terms of flexibility. Taproot Assets state, "How individual account holders interact is not specified by Taproot Assets, but can be application-specific. Issuers have flexibility in defining assets or intending to restrict these assets."

Non-Fungible Tokens on Taproot Assets

However, for non-fungible tokens, Taproot Assets are very similar to Ordinals or Stamps, where users can create and transfer assets using Bitcoin UTXO (which can be ERC-721 or ERC-1155 assets). The difference is that the images and metadata of Taproot Assets are not stored on-chain. In theory, they could be stored on-chain, meaning there might be a way to leverage Bitcoin as a data storage layer, but by default, images and image metadata are stored off-chain.

For data validity, Taproot Assets have a dual efficiency advantage. This means that users can create a thousand tokens or airdrop to thousands of addresses with very small transactions (most data is off-chain, with only a small amount of data actually stored on-chain).

This is actually quite good. However, if off-chain data is lost, the user will permanently lose their tokens.

This may seem like a significant limitation, but this is how the Lightning Network currently operates, not using Bitcoin as a complete data validity layer, meaning users have to trust themselves (or other nodes) to index and store data, or they may lose their tokens.

Therefore, Taproot Assets do not utilize Bitcoin as a data validity layer, unlike Ordinals, BRC-20, Runes, PIPE, etc.

This means that Taproot Assets is a very efficient meta-protocol with minimal on-chain space usage, but users need to rely on off-chain Universe (or their own data storage) to protect their tokens.

Trust Assumptions of Taproot Assets

As Taproot Assets is a Bitcoin meta-protocol, it has the same trust assumptions as all other Bitcoin interchangeable token protocols, namely:

• Users rely on off-chain indexers to maintain state (whether users store state themselves or not, this is true for all other Bitcoin meta-protocols);

• Users rely on themselves or the Universe to maintain ownership of their tokens. This is an additional assumption for Taproot Assets, beyond most other Bitcoin interchangeable token protocols, as losing off-chain state means losing their tokens;

• Incorrect Universe (or incorrect local state) will result in the loss of BTC when conducting PSBT exchanges between Taproot Assets and your BTC (similar to BRC-20 or Ordinals);

• Once Taproot Assets are deposited into a Lightning channel, it is uncertain whether these assumptions will change (if at all), at which point users may inherit all the trust assumptions of the Lightning Network.

How Taproot Assets Work on the Lightning Network

For the Lightning Network, it is possible to create a new stablecoin taUSD (pegged 1:1 to USDC assets) on Bitcoin using Taproot Assets, and then deposit BTC and taUSD into a Lightning Network channel with a single Bitcoin transaction, allowing users to use the taUSD stablecoin to pay Lightning invoices or engage in other DeFi operations.

In summary, the native integration of Taproot Assets on Lightning makes stablecoin payments possible, and directly depositing Taproot Assets into a Lightning channel is very convenient, with the potential to play a role in Bitcoin DeFi.

Due to the native integration of Taproot Assets with Lightning, it is referred to as a fast bridge to L2, as it is built into the protocol. Users do not need to bridge tokens to sidechains or sovereign Rollups, they just need to use Taproot transactions to deposit Taproot Assets into a Lightning channel, and they are good to go.

Conclusion

• I like Taproot Assets because it has different trade-offs from existing Bitcoin interchangeable token protocols, giving it advantages and disadvantages, making it more likely to solve different problems, attract different users, and perform well in different scenarios.

• I like the direct integration with the Lightning Network. I know Lightning is not the ultimate scaling solution for Bitcoin, but being able to complete a single Taproot transaction and quickly transact Taproot Assets is definitely very nice.

• As always, it is still in a very early stage. The V0.3.0 alpha version means there will still be some bugs. So, if you are testing it, be careful.

Note: The V0.3.0 alpha version means that assets can be lost if not careful, so if you are trying Taproot Assets, make sure you know what you are doing.

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