Wrapped USDT Lands On Lightning Network To Compete With Tron and Ethereum

Speed, the company behind Speed Wallet, is joining the $165 billion stablecoin sector by launching a wrapped version of USDT on Bitcoin’s Layer 2, Lightning Network.

USDT-L is now available on the Lightning Network thanks to Taproot Assets, a Lightning Labs-enabled developer suite which enables stablecoin transactions on Bitcoin.

“With the introduction of Taproot Assets and specifically stablecoins we’ll see rapid currency competition and a new era of Free Banking that’s built for the digital age,” said Jesse Shrader, co-founder of Lightning Network explorer Amboss.

Shrader told The Defiant that the Speed Wallet team demonstrated laser focus to be the first to deliver stablecoin assets over the Lightning Network.

“Speed Wallet was first, but there is a tsunami of builders delivering different variations that the market will select, now at lightning speed,” he said.

Funnel Capital

The firm aims to funnel stablecoin usage and capital currently locked in networks like Tron, Ethereum, and Solana, by tapping into the cheap and speedy Lightning Network.

According to Ryan Gentry, who leads business development for Lightning Labs, the Taproot Asset USDT is backed by Ethereum USDT, which is backed by Tether’s funds custodied by Cantor Fitzgerald. Speed is using a trusted, custodial bridge to use USDT on the Lightning Network. Gentry called the development, “huge!”

Lagging Activity

The Lightning Network is a Bitcoin Layer 2 that allows for users to send units of bitcoin (also known as satoshis or “sats”) instantly and at a near-zero cost. Although it was originally touted as the solution to Bitcoin’s scaling issues, adoption has remained slow. Users cite usability issues, including failing transactions, and the fact that many continue to view Bitcoin as a store-of-value, and not a currency to make payments with.

According to mempool.space, Bitcoin locked in Lightning channels has remained range-bound since Sept. 2022, with an average of 5,000 BTC deposited. The number of channels has dropped to 48,000 from 81,000 during the same period, which also denotes less usage; and the network shows signs of centralization with more than 30% of liquidity in hands of the top three channel providers (OKX, ACINQ, and Binance).

That said, adding USDT-L on Lightning is an interesting and potentially trend-turning move.

“We’re watching a divergence between bitcoin the asset and Bitcoin the monetary technology that will now help any monetary asset move seamlessly, globally,” Shrader added.

Stablecoins are touted as a killer use-case for crypto, and the sector’s statistics confirms the narrative. These types of tokens, which are pegged 1:1 with a fiat currency, have a collective market capitalization of $165 billion, although the vast majority of that sits in the top two assets–USDT and USDC.

What’s more, the cryptocurrency with the most 24 hour volume is USDT with $46 billion, beating Bitcoin which accounts for $40 billion.

If USDT-L can capture a small portion of the 24-hour volume for USDT on other chains it could serve as an inflection point for the lagging Lightning Network, and give bitcoiners the payments-focused Layer 2 they’ve been touting for years.