Apr 6, 2022 - Economy

Lightning Labs raises $70M to bring DeFi to Bitcoin

Illustration of a lightning bolt icon with a lock secured around it

Illustration: Sarah Grillo/Axios

Bitcoin has always claimed the potential to compete with the existing global financial rails, but the trouble is people don't want to transact in bitcoin — they want to transact in dollars. Lightning Labs has raised $70 million to build Taro, a way for bitcoin to do dollars (and euros, and yen, and so on).

Why it matters? Lightning Labs is a leading developer of the Lightning Network, a layer on top of Bitcoin. It raised the funds to build Taro, a way for all kinds of assets to move more quickly and cheaply using bitcoin than with existing financial rails — at least that's the pitch.

Details: The Series B round was led by led by Valor Equity Partners, with global asset manager Baillie Gifford, alternative investment manager Brevan Howard, bitcoin startup NYDIG, and Robinhood CEO Vlad Tenev, among others.

The big picture: No one will need permission to use Taro, which could be attractive for people in emerging markets who have trouble accessing the present financial system.

  • "I'm a firm believer that we're going to easily see leapfrogging," Elizabeth Stark, CEO of Lightning Labs, told Axios.
  • Leapfrogging refers to moments when emerging markets skip a prior era of technology to go straight to the latest technology. A famous example: building cell phone networks without ever laying down landlines.
  • We're already seeing uptick in emerging markets' citizens holding crypto (not to mention one nation making it legal tender).

How it works: Bitcoin is big and slow, by design. Its ponderousness is what makes it probably the most secure open network in the world. The Lightning Network was built for faster transactions, guaranteed by Bitcoin.

  • The new Taro protocol should enable institutions to make Bitcoinized-versions of the stablecoins that have been popular on other blockchains, such as Ethereum.
  • Those stablecoins could then move over the Lightning Network very fast and for very little cost.

What they're saying: "Today if I want to send a photo on the internet I can send it in any application. But even in the world of crypto I can't easily send money or value," Stark said. "The goal here is to easily embed value"

  • By using Lightning, the transactions will be much cheaper than they would be on the second biggest blockchain, Ethereum, and probably more secure than they would be on the newer, faster blockchains, such as Solana or Tron.

Under the hood: Lightning is a liquidity network which has over 36,000 nodes (real people or companies with little servers) that hold $170 million worth of bitcoin that they send and receive between users for very small fees.

  • Lightning Labs makes its money by keeping liquidity on the network and earning those fees.
  • So, the more people use Lightning, the better the company does. Creating a whole new use case for Lightning is very much in their interest.
  • Taro could open up possibilities for decentralized finance (DeFi) on Bitcoin, but it will need other developers to build that. Lightning Labs builds infrastructure, not apps.
  • Some nodes will be able to hold tokenized assets such as stablecoins and some will still just hold bitcoin, but all the transfer of value will be done in bitcoin, with swaps at each end for stablecoin transactions.
  • Taro should go live this year, if all goes well.

Yes, but: Lots of things in crypto work well enough. The real question is whether or not anyone chooses to use them.

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