Since 2016, Lightning Labs has been attempting to develop the Lightning Network (LN), a so-called layer-2 solution built atop the bitcoin blockchain. Elizabeth Stark, co-founder and CEO of Lightning Labs, recently announced Taro and its bid to help the Lightning Network support assets other than bitcoin, such as stablecoins and fiat currencies.
In addition, the start-up also revealed its success in a Series B fundraising round headed by Valor Equity Partners and global asset management Baillie Gifford. The firm collected $70 million from early investors in Tesla and SpaceX to develop Taro, making it a potential rival to the likes of Visa.
Stark said that Taro enhances Bitcoin’s functionality and is made feasible by Taproot, a last-year upgrade. Three enhancements include Schnorr signatures, Tapscript, and Merkelized Abstract Syntax Trees (MAST). Taproot improves Bitcoin’s efficiency, privacy, and flexibility, but only if developers include it in user-facing tools.
Lightning Labs Director of Business Development Ryan Gentry said in a recent interview that 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.”
The Bitcoin Lightning network. Source: Aurich Lawson / Getty
How it works
Lightning Labs defines Taro as a Bitcoin-based asset overlay network. Taro’s security is built on embedded consensus, which means that Taro transactions include Bitcoin data that must be validated on the Bitcoin blockchain.
Additional rules help control that data, as specified by the Taro protocol, same as how LN as an overlay network utilises Bitcoin smart contracts but has its own set of rules to govern instantaneous bitcoin transfers (BTC).
Most significantly, Lightning Labs published the technical specifications for Taro as a Bitcoin Improvement Proposal (BIP) so that the protocol can be developed with the feedback from the larger developer community.
Taro will initially be accessible on lnd, while the implementation of LN, its open-source nature will enable it to be used by other prominent LN implementations, such as ACINQ’s eclair or Blockstream’s Core Lightning. Stark brought this up throughout as an important part of Taro. When Lightning Labs announced its Series A funding round in 2020, she said that they were “entering the decade of Lightning.” and has remained dedicated to being open source.
A significant contrast between Taro and other stablecoins, such as UST on Terra, is that Taro is only the infrastructure for transferring assets via Lightning, whether they are stablecoins or any different type of asset. Taro is not a stablecoin, collateralised, algorithmic; instead, it is the infrastructure that enables asset movement. Developers must continue to use Taro to start their projects.
Significant funding
When queried about the $70 million Series B launched with Taro, Stark remarked that the combined strategy was deliberate.
“The goal of the announcement was to focus on the technology [Taro], raising money is solely the means, not the end,” said Stark.
The funds will be utilised to increase Lightning Lab’s runway flexibility and to drive the firm’s growth. Lightning Labs is still a small-scale company, as seen on its website, with just 24 employees.
Along with Valor Equity and Baillie Gifford, the fundraising round included Brevan Howard, Goldcrest Capital, Kingsway, Silvergate CEO Alan Lane, Moore Strategic Ventures, Robinhood CEO Vlad Tenev and NYDIG.
For Baillie Gifford, a traditional banking corporation with a long-lasting history, joining the investor group represents its step into crypto infrastructures after investing in Blockchain and Blockstream. Stark noted the asset manager is a “long-term-oriented investor, so they’re really a perfect fit for what we are trying to accomplish.”