Taro: Bitcoin Network Asset Protocol Supporting Taproot

Taro, a new Taproot-enabled protocol for issuing assets on the Bitcoin blockchain, enables instant, high-volume, low-fee transactions over the Lightning Network.

Developed by Lightning Labs, the protocol marks a significant shift in the Lightning Network towards multi-asset status. At its core, Taro leverages the security and stability of the Bitcoin network with the speed, scalability, and low fees of the Lightning Network.

Taro allows application developers to integrate assets into on-chain and Lightning Network applications alongside BTC, which expands the overall coverage of the Lightning Network and brings more users to the network, which will also drive more transaction volume and liquidity for Bitcoin.

Taro relies on Bitcoin's latest upgrade Taproot to build a new tree structure that allows developers to embed arbitrary asset metadata in existing outputs. It uses Schnorr signatures to improve simplicity and scalability, and importantly, it can be used with multi-hop (routed) transactions on the Lightning Network.

As the Lightning Network expands into new markets, developers and startups from emerging markets such as Galoy, Strike, IbexMercado, Paxful and Bitnob have requested that stablecoin assets be added to the Lightning Network to expand financial access.

Taro enables wallet developers to offer users a USD-denominated balance and a BTC-denominated balance (or any number of other assets) in the same wallet, with the ability to easily send value over the Lightning Network just as we do today.

For example, if Bob only has a BTC channel with Carol, Alice can still send $10 of L-USD to Bob, who charges a small routing fee in BTC and forwards the $10 of BTC to Carol, who charges a small routing fee in L-USD and forwards the $10 of L-USD to the final destination.

This structure leverages the network effect and liquidity of today's Lightning Network to transfer any number of assets and ensures that Bitcoin supports all transactions on the network. It can also incentivize the growth of BTC liquidity in the Lightning Network to serve a wider multi-asset Lightning Network.

In terms of technical features, there is no additional burden on full nodes, and Taro assets inherit all the same double-spending protections of normal Bitcoin transfers.

Other relevant features include:

Scalability: A single Taproot output can contain an essentially unlimited amount of Taro assets

Programmability: Taro assets have unlocking scripts, similar to regular Bitcoin UTXOs, enabling developers to program transfer conditions into said assets

Auditability: The special tree structure used by Taro allows for efficient supply auditing of issued assets both locally and globally within a given wallet

Usability: Asset-specific addresses allow wallets to prevent users from accidentally sending the wrong asset

The first step in Taro's future roadmap is to release a draft protocol and its underlying components in a series of BIPs, the second step is to build tools that allow developers to issue and transfer arbitrary assets on the chain. The last step is to build functionality in the Lightning Network, allowing developers to open channels with Taro assets that can be sent through the existing Lightning Network.