A deeper look into Taproot Assets

Taproot Assets

by Bob Bodily

The Lightning Labs team released the v0.3.0 alpha release of Taproot Assets this week. Here’s why it is a big deal:

1. Stores most data off-chain, so it has a lighter on-chain footprint, cheaper transactions, and greater feasibility to do things like airdrops or large token issuances

2. But the downside is because most data is off-chain, it means you have an additional dependency to keep your tokens secure. This is known as client-side validation. This is how the Lightning Network works too and is also very similar to RGB. It means Taproot Assets doesn’t use Bitcoin as a full data availability layer, rather you are responsible for storing your own data. Alternatively, you can upload your data to a Universe, which is like an indexer/data repository for users that want a more trusted setup.

3. Taproot Assets has direct integration with the Lightning Network. In a single Taproot transaction you can commit Taproot Assets into a Lightning channel. And with multi-hop transactions, everyone doesn’t have to hold your asset as long as you start and end with the asset. This simplifies the liquidity issues you might have otherwise.

4. The other major downside to Taproot Assets is while you are bridging to an L2 to get faster and cheaper transactions, you don’t get a fully expressive smart contract platform. This limits the kinds of DeFi that you can do with Taproot Assets. RGB is very similar to Taproot Assets and provides a nice smart contract platform for fungible tokens. The downside to RGB is you can’t leverage Bitcoin on RGB, meaning it is limited to RGB tokens. I think they may be working on a bridge though! I’ll keep you all posted.

Lightning Labs is currently focused on stable coins, which makes sense as you are essentially limited to payments with Taproot Assets + Lightning right now (no smart contract functionality), although I wouldn’t be surprised if they tried to add additional functionality somehow (maybe through RGB?)

If you want more details, check out my deep dive on Taproot Assets on X: https://x.com/BobBodily/status/1714835085424484386

Additional Resources

1. Historical background: https://trustmachines.co/blog/bitcoin-in-2022-taro-protocol-now-known-as-taproot-assets/

2. News coverage: https://bitcoinmagazine.com/technical/lightning-labs-rolls-out-taproot-assets-mainnet-alpha
   https://www.coindesk.com/tech/2023/10/18/lightning-labs-rolls-out-taproot-assets-to-make-bitcoin-multi-asset-network

3. The release blog post: https://lightning.engineering/posts/2023-10-18-taproot-assets-v0.3/

4. The v0.3.0-alpha Github changes: https://github.com/lightninglabs/taproot-assets/releases/tag/v0.3.0

5. How to get started running infra: https://docs.lightning.engineering/lightning-network-tools/taproot-assets/get-tapd

6. The BIP: https://github.com/Roasbeef/bips/blob/bip-tap/bip-tap.mediawiki#user-content-Applications

7. Technical deep dive: https://docs.lightning.engineering/the-lightning-network/taproot-assets/taproot-assets-protocol

8. FAQ: https://docs.lightning.engineering/the-lightning-network/taproot-assets/faq

9. Safety guidelines for degens/devs: https://github.com/lightninglabs/taproot-assets/blob/193c3ad52bc8e3bde3129dce1d99546606c97c81/docs/safety.md