Stablecoins, pegged to fiat currencies such as the US dollar, represent a critical component of the cryptocurrency ecosystem, with a total market capitalization of approximately $288 billion as of September 10, 2025 [1], accounting for about 7.04% of the overall crypto market [2]. Tether’s USDT, the leading stablecoin at $170 billion [3], has historically operated on platforms like Ethereum, Tron, Solana, and Avalanche due to their efficiency in smart contracts, low fees, and high throughput. However, recent developments, including Tether’s announcements in January [4] and August 2025 [5] to integrate USDT on Bitcoin via Taproot Assets and RGB protocols, indicate a strategic expansion to Bitcoin’s network.
This article examines the implications, mechanisms, and rationales for issuing stablecoins natively on Bitcoin, despite its base-layer limitations in speed and cost. It details the functionalities of RGB and Taproot Assets as Layer 2 solutions, compares them for USDT issuance, and contrasts them with emerging initiatives like Lightspark’s Spark protocol [6] and USDB stablecoin [7].
Key drivers include Bitcoin’s superior security (e.g., hash rate 1.115 ZH/s) [8], institutional trust (70% of institutional holdings in BTC per Fidelity 2024) [9], censorship resistance, payment efficiencies via Lightning Network, and potential applications in the AI economy. While Bitcoin’s DeFi ecosystem remains nascent, this integration complements existing chains, potentially shifting 10–20% of stablecoin volume to Bitcoin and enhancing its role in global finance amid regulatory changes like the US GENIUS Act [10].
Stablecoins are digital assets engineered to maintain a consistent value, often linked to fiat currencies such as the US dollar. As of September 10, 2025, the aggregate stablecoin market capitalization is approximately $288 billion [1], comprising about 7.04% of the total cryptocurrency market [2]. Tether’s USDT, the dominant stablecoin, holds a market capitalization of around $170 billion [3], significantly outperforming competitors like Circle’s USDC at $72 billion [11].
Stablecoins initially emerged on Ethereum in 2014 with USDT and have since extended to networks including Tron, Solana, Avalanche, and Ethereum’s Layer 2 solutions such as Polygon and Optimism. Ethereum and its Layer 2 networks maintain prominence owing to their advanced smart contract features, high levels of decentralization, and established ecosystems. For example, Ethereum handles over 1.7 million transactions per day [12], with average fees below $0.10 on Layer 2 platforms like Arbitrum or Base [13], providing near-instant finality through sub-second confirmations and robust security supported by Ethereum’s $548 billion market capitalization [14]. Tron, characterized by minimal fees (frequently under $0.01) [15] and 3-second block times [16], manages roughly 51% of USDT’s transaction volume [17], supporting cost-effective remittances and trading in developing regions. Solana achieves over 65,000 transactions per second with fees around $0.00025 [18], whereas Avalanche’s subnets facilitate tailored, high-speed environments with sub-second finality for decentralized finance (DeFi) and payment applications.
In light of this competitive environment, the initiative to deploy stablecoins natively on Bitcoin — through protocols such as RGB and Taproot Assets — appears unconventional. Bitcoin’s base layer processes only about 7 transactions per second [19], incurs high fees during peak periods (up to $50 in bull markets) [20], and does not support native smart contracts. Nevertheless, Tether disclosed USDT integration on Taproot Assets in January 2025 [4] and on RGB in August 2025 [5], indicating a purposeful strategy. This analysis explores the significance, relevance, and underlying motivations for this development, incorporating market data, expert perspectives, and strategic considerations to elucidate why entities like Tether perceive value in Bitcoin despite alternative options.
Deploying stablecoins on Bitcoin involves evolving its role from a primary “digital gold” asset — emphasizing long-term storage and scarcity — into a multifaceted financial settlement layer. In contrast to Ethereum, which is designed for programmability through languages like Solidity, Bitcoin prioritizes security and immutability via its Proof-of-Work consensus and unspent transaction output (UTXO) model.
Protocols like RGB, which employ off-chain directed acyclic graph (DAG) structures for smart contracts, and Taproot Assets, which utilize the 2021 Taproot upgrade for privacy-enhanced scripting, facilitate native asset issuance without modifying Bitcoin’s core protocol.
Practically, this enables USDT to function as a “Bitcoin-native” token, allowing users to hold, transfer, and redeem it directly within Bitcoin wallets, secured by Bitcoin’s blockchain while leveraging the Lightning Network for efficiency. This differs from Ethereum’s ERC-20 tokens, which depend on the Ethereum Virtual Machine, or Solana’s SPL tokens, optimized for high throughput. The significance arises from connecting Bitcoin’s $2.22 trillion market capitalization [21] with stablecoin liquidity, which could enable new applications such as Bitcoin-backed DeFi, remittances, and payments without the vulnerabilities associated with bridges (e.g., the $615 million Ronin Bridge exploit in 2022) [22]. Recent actions by major entities, including Tether, demonstrate initial efforts to incorporate stablecoins onto Bitcoin. The following sections detail these integrations.
In late August 2025, Tether, the leading stablecoin issuer globally, announced intentions to launch USDT on RGB [5], a protocol for issuing digital assets on Bitcoin, to broaden native stablecoin capabilities on the network. This integration permits USDT transactions directly on Bitcoin in an efficient and scalable manner. Users can hold and transfer USDT alongside Bitcoin in the same wallet, benefit from private and self-sovereign transactions, and even conduct value transfers offline. It is noteworthy that, as of the current date, this integration is not yet operational.
RGB, an acronym for “Really Good Bitcoin,” is an advanced protocol developed to support smart contracts and digital asset issuance directly on the Bitcoin blockchain. RGB utilizes Bitcoin’s existing infrastructure without necessitating alterations to its core protocol. It incorporates the Lightning Network and adopts a client-side validation model, serving as an effective mechanism for extending Bitcoin’s utility beyond mere value storage.
Client-Side Validation: In contrast to traditional smart contract platforms where execution occurs on-chain (e.g., Ethereum), RGB executes smart contracts off-chain. Each user’s wallet validates only the pertinent transactions and contracts using cryptographic proofs. This approach minimizes blockchain congestion and improves privacy, as transaction specifics are not entirely disclosed on the Bitcoin ledger.
Integration with Bitcoin and Lightning: RGB employs Bitcoin transactions as cryptographic “anchors” to avert double-spending, while the Lightning Network manages off-chain scaling. This synergy facilitates faster, more cost-effective, and private transactions relative to on-chain Bitcoin activities.
Anchoring refers to RGB’s method of linking off-chain transactions to Bitcoin’s blockchain for security. It is analogous to securing a lock on a safe (the Bitcoin blockchain) to safeguard transactions without storing all details within the safe.
What transactions are anchored? Not all RGB transactions are directly anchored to the Bitcoin blockchain. Instead, RGB anchors specific, critical data elements, such as the state of a smart contract or a pivotal transaction, to Bitcoin. These anchors function as checkpoints that validate transactions and prevent fraud, such as double-spending.
Individual or batch? RGB generally anchors the state of a smart contract or groups of related transactions, rather than each individual transaction. For instance, in a series of digital asset trades like a stablecoin, RGB may anchor the final trade state or a key juncture, not every incremental step. This efficiency reduces strain on Bitcoin’s blockchain.
How does anchoring work? RGB generates a cryptographic commitment — a compact data summary resembling a unique fingerprint — of the off-chain transaction or contract state. This commitment is incorporated into a Bitcoin transaction, which is then recorded on the Bitcoin blockchain. In cases of attempted fraud, the blockchain’s record of this commitment serves to verify validity.
Why it matters: Anchoring guarantees that RGB transactions inherit Bitcoin’s security, supported by its Proof-of-Work mechanism that renders Bitcoin tamper-resistant, without overburdening the blockchain with comprehensive details.
RGB utilizes the LN to facilitate the off-chain movement of transactions. The LN can be viewed as a rapid, private conduit for payments, upon which RGB operates to transfer assets or execute smart contracts efficiently.
Does RGB do transactions itself? No, RGB does not independently process transactions. It depends on the LN for the transfer of data or value, such as sending a payment or relocating a digital asset. RGB concentrates on establishing transaction rules (e.g., smart contract logic) and validating them within wallets.
How does LN come into it? The LN is a distinct layer atop Bitcoin that enables direct, off-chain exchanges between users in a swift and economical manner. RGB employs LN’s infrastructure, including payment channels, to convey its transactions or smart contract data among users. This maintains speed and circumvents Bitcoin’s slower, costlier blockchain for most operations.
What’s the role of LN? The LN serves as the conveyance system for RGB’s transactions. For example, transferring a stablecoin via RGB involves the actual movement occurring over LN channels, with RGB’s client-side validation ensuring adherence to appropriate rules.
Why it matters: Through LN utilization, RGB achieves transactions that are quicker and less expensive than on-chain Bitcoin operations, while preserving security via anchors to Bitcoin’s blockchain.
RGB functions as a Directed Acyclic Graph (DAG), wherein each new transaction necessitates confirmation from at least two preceding transactions. This framework accommodates complex asset management while upholding security linked to Bitcoin’s Proof-of-Work consensus. It is essential to recognize that RGB employs a DAG structure within its operational framework, but it does not constitute a DAG-based ledger akin to certain alternative cryptocurrencies (e.g., IOTA or Hedera).
DAG in RGB: The DAG element is evident in RGB’s organization and validation of off-chain transactions and smart contracts. Each new transaction or state transition references at least two prior transactions, forming a DAG. This ensures traceable history of asset ownership or contract states without cycles, vital for security and validation. However, this DAG is off-chain, with final settlement or anchoring occurring on the Bitcoin blockchain through cryptographic proofs.
Not a Full DAG Ledger: Unlike entirely DAG-based blockchains (where the ledger is a DAG, such as IOTA’s Tangle or Avalanche’s Snowman++ protocol), RGB’s DAG is an element of its smart contract layer. The Bitcoin blockchain retains its linear block chain structure, serving as the definitive source of truth for security and immutability.
Asset Issuance: RGB accommodates both fungible assets (e.g., stablecoins) and non-fungible tokens (NFTs). It does not depend on tokens per se but enables the creation and transfer of programmable assets, rendering it suitable for integrations like Tether’s USDT.
RGB can process numerous transactions without impeding or congesting Bitcoin’s blockchain.
How RGB achieves it: By shifting most operations (e.g., smart contract processing) off-chain to users’ wallets and the Lightning Network, RGB prevents overload of Bitcoin’s limited blockchain capacity. This enables handling far more transactions than Bitcoin alone, ideal for high-activity systems like payments or trading.
Transactions remain private unless shared voluntarily, differing from Bitcoin’s public ledger where all details are visible.
How RGB achieves it: RGB maintains transaction details off the Bitcoin blockchain. Only involved parties and their wallets access full information. It employs cryptographic proofs for verification without public dissemination of sensitive data, confining details to participants.
RGB transactions are difficult to halt or control due to reliance on Bitcoin’s decentralized framework. (However, for assets like Tether’s USDT, issuer control may impose certain restrictions.)
How RGB achieves it: RGB is constructed on Bitcoin’s decentralized network, lacking single-entity dominance. Through Lightning Network and client-side validation, most activity occurs off the main blockchain, diminishing interference risks.
Note: Centralized assets like USDT may still allow Tether some oversight, potentially conflicting with RGB’s censorship resistance.
RGB operates without altering Bitcoin’s fundamental rules, introducing new capabilities while preserving original security.
How RGB achieves it: RGB functions as an extension to Bitcoin, utilizing its blockchain for security (e.g., transaction anchoring) without software modifications. It leverages the Lightning Network and client-side validation to incorporate features like smart contracts and asset issuance, remaining compatible with Bitcoin’s unaltered system.
To illustrate how RGB, the Lightning Network, and anchoring interact, consider a scenario where an individual sends 100 USDT to a friend using Bitcoin’s infrastructure.
You set up the transaction: Both parties possess wallets supporting RGB and the Lightning Network. The sender aims to transfer 100 USDT, an RGB-issued asset. Transfer rules (e.g., “send 100 USDT from sender to recipient”) are outlined in an RGB smart contract.
Client-side validation happens: The sender’s wallet generates transaction data, including a cryptographic proof confirming ownership and authorization for the 100 USDT transfer. This data is transmitted to the recipient’s wallet via the Lightning Network (envisioned as a private communication channel between wallets). The recipient’s wallet verifies the proof to ensure legitimacy (e.g., no prior double-spending). This occurs off-chain, ensuring speed and privacy.
The Lightning Network delivers the transaction: The transfer of 100 USDT proceeds through a Lightning Network payment channel. The LN manages the rapid, low-cost conveyance of transaction data between parties. This resembles secure, direct tunneling rather than public posting on the Bitcoin blockchain.
Anchoring to Bitcoin: To prevent fraud (e.g., attempting to send the same 100 USDT elsewhere), RGB produces a cryptographic commitment summarizing the transaction or contract state. This commitment is embedded in a Bitcoin transaction, recorded on the Bitcoin blockchain, specifically in an OP_RETURN field (a transaction segment for small data storage). This anchor excludes full transfer details, providing just sufficient proof of validity. Not all transfers are anchored singly; RGB may anchor the final smart contract state (e.g., “sender transferred 100 USDT, recipient now owns it”) or batches to optimize space.
Outcome: The recipient receives 100 USDT in their wallet, validated by client-side processes. The transaction is efficient (via LN), private (details visible only to parties), and secure (via Bitcoin anchor). The Bitcoin blockchain records only the minimal anchor data, avoiding congestion.
What if something goes wrong?: If the recipient disputes receipt, the Bitcoin blockchain anchor provides evidence of the transaction state. The sender can reference it to confirm the transfer. The DAG structure links all transactions (forming a trust chain), ensuring verifiability and security at each step.
In January 2025, Tether announced the integration of USDT into Bitcoin’s ecosystem [4], encompassing its base layer and the Lightning Network. Facilitated by the Taproot-powered protocol Taproot Assets, developed by Lightning Labs, this integration aims to merge Bitcoin’s decentralization and security with the Lightning Network’s speed and scalability, potentially transforming stablecoin operations within Bitcoin.
Upon full implementation, USDT will function seamlessly on Bitcoin’s base layer and Layer 2 Lightning Network, supporting high-speed, low-cost transactions alongside Bitcoin’s strong security and scalability. Similar to RGB, this integration is not yet fully operational. However, development and testing are advanced. Infrastructure is available for developers (e.g., via SDKs and v0.6 updates) [23], and bridged USDT is functional in select wallets for Lightning transactions. Users have reported effective swaps and transfers. Bitfinex, Tether’s affiliated exchange, is set to issue USDT via Taproot. Adoption is primarily developer-driven at present.
Taproot Assets is a Layer 2 protocol created by Lightning Labs to support the issuance and transfer of digital assets (e.g., Tether’s USDT) on the Bitcoin blockchain, emphasizing Lightning Network utilization for efficiency and scalability. It builds upon Bitcoin’s Taproot upgrade, activated in November 2021, to improve privacy, efficiency, and capabilities. It can be considered a mechanism that expands Bitcoin from value storage to managing diverse tokenized assets, maintaining security and decentralization.
Built on Taproot: The Taproot upgrade introduced Schnorr signatures and Merkelized Abstract Syntax Trees (MAST), enabling more private and adaptable transactions. Taproot Assets incorporates asset metadata into Bitcoin transactions using these features, allowing asset issuance and tracking without blockchain inflation.
Lightning Network Integration: Taproot Assets primarily functions over the Lightning Network, Bitcoin’s Layer 2 scaling solution. Asset transfers (e.g., USDT) occur off-chain in Lightning channels, which are rapid and economical, with only final states settled on Bitcoin’s main chain. This integrates Bitcoin’s security with Lightning’s performance.
Asset Issuance: It supports fungible assets (e.g., stablecoins like USDT) and non-fungible tokens (NFTs). Developers can generate and transfer these assets across the Lightning Network, with Bitcoin’s blockchain providing security and trust anchors.
Client-Side Validation: Comparable to RGB, Taproot Assets employs client-side validation, where wallets verify relevant assets. This maintains a lightweight, private system, avoiding broadcast of every transaction detail network-wide.
Privacy: Taproot enables complex asset transactions to appear as standard Bitcoin payments on-chain, concealing their specifics from public scrutiny.
Scalability: Lightning utilization allows Taproot Assets to manage high transaction volumes (e.g., microtransactions or remittances) without base-layer congestion.
Decentralization: It upholds Bitcoin’s decentralized principles, depending on its Proof-of-Work security instead of novel consensus methods.
Interoperability: Assets can be exchanged atomically (instantly and securely) with Bitcoin in Lightning channels, improving usability. For a detailed examination of Taproot’s mechanics, refer to this resource.
Both RGB and Taproot Assets serve as Layer 2 protocols on Bitcoin for issuing and managing digital assets like USDT, which has a circulating supply of about $170 billion as of September 2025 [3]. They capitalize on Bitcoin’s security while mitigating its constraints — such as slow speeds and elevated fees during congestion — by conducting most operations off-chain. Their methodologies, advantages, and compromises vary, impacting Tether’s choice to implement both.
Structure: RGB applies a Directed Acyclic Graph (DAG) for off-chain state management, with each transaction referencing at least two prior states to avoid double-spending. This DAG undergoes client-side validation by wallets, limiting on-chain data.
Consensus: Depends on Bitcoin’s Proof-of-Work (PoW) for security, securing off-chain state transitions via cryptographic proofs anchored to Bitcoin’s UTXO model.
Integration: Compatible with the Lightning Network but not limited to it, offering flexibility for alternative off-chain channels or occasional on-chain settlements.
Smart Contracts: Accommodates complex, Turing-complete smart contracts off-chain, supporting advanced logic for asset issuance, transfers, and customized rules.
Structure: Founded on Bitcoin’s Taproot upgrade (activated November 2021), it integrates asset data into Taproot scripts using Schnorr signatures and MAST. Transactions mainly occur over Lightning Network channels.
Consensus: Utilizes Bitcoin’s PoW, tracking asset ownership off-chain in Lightning channels and settling on-chain through Taproot outputs.
Integration: Closely aligned with the Lightning Network, optimized for payment flows and asset swaps within its ecosystem.
Smart Contracts: Restricted to simpler scripts per Taproot’s design, emphasizing asset issuance and transfers over intricate contract logic.
Analysis: RGB’s DAG and client-side validation provide greater adaptability for complex stablecoin functions (e.g., interest-bearing USDT or conditional transfers), whereas Taproot Assets’ design is more efficient for Lightning-optimized payments. RGB’s extensive off-chain capabilities differ from Taproot Assets’ focused payment architecture.
Throughput: Capable of thousands of transactions per second off-chain via its DAG, constrained by client-side validation and network bandwidth. Real-world demonstrations (e.g., RGB tech demos in 2024) indicate over 1,000 TPS in controlled settings.
Latency: Varies with client synchronization, but offline-capable wallets (e.g., Bitfinex’s RGB support) achieve millisecond latency for local transactions.
Scalability: Highly scalable, as state data expands off-chain, evading Bitcoin’s 1 MB block size limit (effectively ~4 MB post-SegWit) [24].
Throughput: The Lightning Network, integral to Taproot Assets, supports 500 transactions per second per channel (under current network conditions) [25], with network-wide throughput influenced by channel capacity and liquidity (estimated at ~1 million TPS globally at current levels).
Latency: Sub-second for Lightning payments, with on-chain settlements requiring 10–60 minutes (1–6 blocks at 10-minute intervals).
Scalability: Limited by Lightning’s hub-and-spoke model, where channel funding and liquidity can create bottlenecks unless node participation increases (e.g., ~12,325 active nodes as of September 2025, per 1ML data) [26].
Analysis: Taproot Assets performs well in high-speed, low-latency payments, suitable for retail USDT transactions (e.g., everyday purchases). RGB’s scalability fits large-scale, batch-oriented stablecoin activities (e.g., institutional settlements), although its adoption is less established.
Privacy: Delivers robust privacy through client-side validation; only anchoring transactions (small UTXOs) are public, concealing asset details unless users reveal them. This complements Bitcoin’s pseudonymous framework.
Security: Draws from Bitcoin’s PoW security, protecting off-chain states with zero-knowledge proofs (e.g., RGB’s client-validated state transitions).
Risks: Depends on wallet software accuracy; vulnerabilities could affect validation, though open-source audits mitigate this.
Privacy: Uses Taproot to consolidate asset data into single-signature transactions, rendering them indistinguishable from Bitcoin payments on-chain. However, Lightning channel metadata may be exposed if not adequately encrypted.
Security: Protected by Bitcoin’s PoW and Lightning’s multi-signature channels, enhanced by Taproot’s script efficiency. Recent audits (e.g., Lightning Labs’ 2025 Taproot Assets v0.6 release) [23] affirm its strength.
Risks: Potential centralization if major Lightning hubs dominate channels, though this is a broader network concern, not unique to Taproot Assets. Analysis: RGB offers enhanced privacy for confidential stablecoin applications (e.g., private corporate transfers), while Taproot Assets provides a balance of privacy and Lightning’s proven security, appropriate for public payments. Both are secure, but RGB’s off-chain emphasis reduces on-chain visibility.
Complex Smart Contracts: Enables Turing-complete logic off-chain, supporting features like conditional USDT payments (e.g., “release funds upon condition X”) or decentralized governance tokens with USDT.
Offline Capability: Wallets can function offline, exchanging USDT proofs between devices, beneficial in areas with limited connectivity (e.g., rural Africa, with 50% mobile penetration but restricted broadband, per 2024 ITU data) [27]. RGB wallets verify offline via client-side validation, converting proofs into text strings shareable verbally or via messages.
Asset Flexibility: Beyond USDT, RGB supports varied assets (fungible and non-fungible) with custom rules, owing to its Turing-complete off-chain smart contracts. As shown in Bitfinex’s 2024 RGB trials, they issued USDN with community voting and BTCN with 6-month lock-ups for interest, illustrating diverse applications. In contrast, Taproot Assets is more constrained, better for simple tokens (e.g., payments or collectibles) than complex programmable ones.
Lightning Optimization: Facilitates atomic swaps (e.g., USDT for BTC) in Lightning channels, allowing instant conversions (e.g., 0.1-second swaps in v0.6 tests) [23].
Grouped Assets: v0.6 (June 2025) [23] added “group_key” identifiers, streamlining multi-tranche USDT issuance (e.g., 1 million units as one group), easing developer tasks (per Lightning Labs’ documentation).
Merchant Readiness: Tailored for point-of-sale systems (e.g., Voltage’s 2025 POS trials), enabling real-time retail USDT use.
Taproot Assets: A coffee shop processes USDT and gold tokens via Lightning with basic rules (fixed supply). It is fast but lacks complex logic.
RGB: A farmers’ cooperative issues USDN with voting rights for fund allocation, operable offline in remote areas. It is flexible but adoption is gradual.
Analysis: RGB’s distinct advantages include versatility and offline durability, attractive for specialized or emerging markets. Taproot Assets’ strengths lie in payment efficiency and merchant integration, aligning with Tether’s retail emphasis.
Status: Achieved mainnet with v0.11.1 in August 2025 [28], adopted early by Bitfinex and Tether. Community-oriented, with ~50 active developers (per GitHub metrics).
Ecosystem: Modest, with expanding wallet support (e.g., LND Hub, Bison Wallet), but without Lightning’s extensive reach.
Status: Mainnet operational since 2022, with v0.6 in June 2025 [23], backed by Lightning Labs’ 30+ engineers and collaborators like Tether and Voltage.
Ecosystem: Supported by ~12,325 Lightning nodes and wallets (e.g., Phoenix, Muun) [26], providing mature infrastructure for USDT.
Analysis: Taproot Assets gains from Lightning’s established network, accelerating USDT deployment. RGB’s emerging ecosystem needs maturation, but its community orientation may foster innovation.
Tether’s simultaneous adoption reflects a hedging strategy for market coverage, supported by data:
Market Diversification: With $170 billion in USDT and 350 million users (per January 2025 announcement) [29], Tether addresses varied applications. Taproot Assets targets retail and payment sectors (e.g., 60% of crypto transactions are payments, per Chainalysis 2024) [30], while RGB serves institutional or privacy-focused areas (e.g., 20% of stablecoin volume is institutional, per BIS 2024) [31].
Technical Synergy: Taproot Assets’ Lightning emphasis complements RGB’s smart contract breadth. For instance, USDT payments can utilize Taproot Assets, while intricate settlements (e.g., escrow) employ RGB, optimizing Bitcoin’s potential.
Adoption Pace: Taproot Assets’ maturity (3 years vs. RGB’s 1 year on mainnet) enables prompt rollout, whereas RGB’s capabilities appeal to future-oriented developers, balancing immediate and long-term objectives.
Retail Payments: Its Lightning support yields 500 TPS per channel [25], fitting Tether’s 350 million users’ routine transactions (e.g., remittances totaling $685 billion yearly, per World Bank 2024) [32].
Speed: Sub-second latency surpasses RGB’s synchronization delays, essential for point-of-sale (e.g., Voltage’s 2025 trials with 99% success).
Evidence: Lightning’s 12,325 nodes and $454 million channel capacity (1ML 2025) [26] exceed RGB’s developing network.
Institutional Use: Its privacy and complex contracts fit large settlements (e.g., $10 billion corporate transfers, per BIS 2024 stablecoin data) [31].
Offline Resilience: Offline wallets serve 3 billion with limited internet access (ITU 2024) [33], a growth area for Tether.
Evidence: RGB’s DAG managed 1,000 TPS in 2024 tests, and Bitfinex’s adoption indicates institutional appeal.
Neither protocol is superior universally — Taproot Assets prevails for prompt, payment-scaled operations, while RGB stands out in versatile, long-term asset management. Tether’s selection embodies this balance. Tether employs both RGB and Taproot Assets to address retail efficiency (Taproot Assets) and institutional adaptability (RGB), building on Bitcoin’s $2.22 trillion market cap [21]. Distinct attributes — RGB’s smart contracts and offline functionality vs. Taproot Assets’ Lightning enhancements and grouped assets — meet specific requirements. The approach avoids selecting one over the other, instead maximizing USDT’s $170 billion ecosystem, a prudent strategy amid Tether’s 2024 issues and competition from USDC ($72 billion market cap) [11].
Lightspark, a firm specializing in Bitcoin infrastructure, has developed Spark, an open-source Layer 2 protocol [6], and USDB, a U.S. dollar-backed stablecoin native to Bitcoin. This section reviews Lightspark, Spark, and USDB, and contrasts them with Tether’s intended USDT integration on Bitcoin, outlining their contributions to Bitcoin’s expanded capabilities.
Established in 2022 by David Marcus, formerly of PayPal and Meta, Lightspark creates tools to embed Bitcoin and its Lightning Network into business activities, including those of banks, exchanges, and wallet providers. Its offerings promote faster, more economical Bitcoin transactions with regulatory compliance. A primary innovation is the Spark protocol, which underpins Bitcoin-based applications.
Spark is an open-source Layer 2 protocol on Bitcoin designed for quicker and cheaper transactions than the base layer. It merges with the Lightning Network (LN), Bitcoin’s Layer 2 scaling framework, which executes off-chain transactions anchored to Bitcoin’s blockchain for security. Spark draws on LN’s structure for immediate, low-fee transfers of Bitcoin and assets like USDB, while adding protocol elements for native stablecoin issuance and DeFi integrations. Spark enables self-custodial transfers without bridges to other chains, retaining assets in Bitcoin’s ecosystem. It is compatible with RGB, permitting assets issued on Bitcoin’s base via RGB (or Taproot Assets and LRC-20) to shift to Spark for Layer 2 handling, though its core integration is with LN. Introduced in late 2024 [6], Spark is in mainnet beta, allowing developers to construct applications and wallets on Bitcoin.
In September 2025, Spark launched USDB [7], a U.S. dollar-backed stablecoin from Brale, a U.S.-licensed fintech focused on stablecoin issuance. Pegged 1:1 to the U.S. dollar and supported by short-term U.S. Treasury bills, USDB undergoes Brale’s audits for transparency. On Spark, USDB uses the Lightning Network for swift, low-cost wallet transfers, especially payments, and Spark’s protocol for issuance and DeFi (e.g., Magic Eden integrations for NFTs and DeFi). This combined method supports efficient peer-to-peer exchanges and sophisticated financial applications in Bitcoin’s network.
As the inaugural regulated stablecoin natively on Bitcoin, USDB adheres to a framework ensuring stability and U.S. financial compliance. Issued by Brale, a licensed entity [34], USDB is 1:1 backed by U.S. Treasury bills, aligned with the GENIUS Act of 2025 [10], requiring payment stablecoins to use low-risk assets like cash or short-duration government securities. Brale, registered as a Money Services Business with FinCEN and holding state money transmitter licenses [35], manages issuance and redemption, complying with AML and KYC rules. It provides monthly attestations and independent audits for reserve verification, consistent with GENIUS Act transparency, though custodial and insurance details are not fully public. This setup establishes USDB as a compliant tool in the U.S. stablecoin framework, subject to future legislative adjustments.
Stablecoins are cryptocurrencies tied to assets like the U.S. dollar to mitigate volatility, facilitating payments and trading. USDB runs on Spark, while Tether plans USDT on Bitcoin via Taproot Assets and RGB. A comparison follows:
USDB: Released in summer 2025 on Spark [7], USDB is Bitcoin-native, offering self-custodial LN transfers and Spark protocol support. Backed by U.S. Treasury bills and regulated by Brale, it connects with platforms like Magic Eden for DeFi and NFTs. As a recent entrant, its liquidity and adoption are developing.
USDT: Active on chains like Ethereum and Tron, USDT adapts to Bitcoin through Taproot Assets and RGB, with 2025 implementation in progress. Backed by cash, Treasuries, and other assets with regular reporting, USDT uses Taproot for efficient issuance and RGB for privacy and scaling. Its market dominance ensures liquidity, though Bitcoin integration remains pending.
Key Differences: USDB on Spark prioritizes Bitcoin-native operations without external dependencies, using LN for transfers and Spark for issuance and DeFi. USDT, drawing on Tether’s scale, seeks wider application via Taproot and RGB but is developmental. Both enhance Bitcoin for payments and finance, with USDB active and USDT set to broaden the ecosystem on launch.
Lightspark’s Spark and USDB, along with Tether’s USDT plans, signify initiatives to broaden Bitcoin beyond value storage. By supporting stablecoin transactions, they enable cross-border payments, DeFi, and trading in Bitcoin’s network. Spark and USDB emphasize native LN integration and RGB compatibility, while Tether uses its scale via Taproot and RGB. These advancements could boost Bitcoin’s practical adoption, though success hinges on user uptake, technical stability, and regulations.
Despite Ethereum’s prominence — hosting about 21% of USDT supply [36] — and the efficiencies of Tron, Solana, and Avalanche, several empirical and strategic factors motivate this transition. These are grounded in market trends, regulatory developments, and Bitcoin’s distinct properties.
Bitcoin features the highest hash rate (1.115 ZH/s in 2025) [8], establishing it as the most secure blockchain with no significant hacks since launch, unlike Ethereum’s over $1 billion in DeFi losses (e.g., Euler Finance in 2023) [37]. Institutions regard Bitcoin as “pristine collateral,” with 70% of their crypto allocations in BTC according to Fidelity’s 2024 survey [9]. Issuing USDT on Bitcoin leverages this confidence: Tether CEO Paolo Ardoino highlighted combining Bitcoin’s security with USDT’s stability to draw institutions cautious of Ethereum’s smart contract risks or Solana’s disruptions (e.g., 5-hour outage in February 2024) [38]. Although Ethereum’s Layer 2s (e.g., Base) enable fast, inexpensive scalable payments, they involve bridging from mainnet, introducing risks (e.g., $615 million Ronin Bridge hack) [22]. Native Bitcoin integration for stablecoins eliminates these bridge vulnerabilities.
Bitcoin’s decentralized philosophy and resistance to external control align with stablecoins’ borderless nature, guided by community-driven development with limited centralized oversight. Ethereum, though decentralized, shows more coordination from entities like the Ethereum Foundation, funding up to 70% of research (community estimates) and directing roadmaps, plus Vitalik Buterin’s influence via blogs shaping discussions, and about 60% of validators held by top 5 entities, mainly staking pools like Lido and Coinbase [39], sparking centralization concerns.
Tron and Solana are more centralized: Tron’s Justin Sun influences decisions, holding over 60 billion TRX (per February 2025 Bloomberg analysis) [40], and Solana’s validators are concentrated [41]. Tether’s RGB/Taproot adoption advances “freedom should move on Bitcoin,” supporting private off-chain transactions resistant to monitoring — vital in areas like Venezuela or Nigeria, where 20% of stablecoin activity bypasses capital controls. Bitcoin’s Hash Rate Pools vs. Ethereum’s Validator Concentration: Discussions on Bitcoin mining pool centralization exist, but Bitcoin’s PoW model is structurally more resilient than Ethereum’s validator setup — despite similar top-heavy distributions.
Ease of Switching and Decentralization Incentives: In Bitcoin PoW, miners can reassign pools quickly by redirecting hardware, without lock-ups or penalties. Misbehaving pools prompt miners to “vote with hash rate,” as in 2021 when F2Pool dropped 10% share during controversy. Pools coordinate but do not own hardware — miners retain control.
Attack Resilience: A 51% Bitcoin attack demands vast physical hardware (distributed: US 37.84%, China ~21.11% despite bans, per Hashrate Index) [42], costing billions and detectable — pools cannot collude undetected. Ethereum PoS permits economic attacks via staking; Lido’s 30% share could enable censorship if breached, as noted in Vitalik Buterin’s August 2025 posts.
Historical Behavior: Bitcoin pools self-regulate — e.g., GHash.io reduced from 51% in 2014 voluntarily. Ethereum’s post-Merge (2022) concentration increased, with Lido from 20% to 30%, leading to EF proposals like EIP-7251 for caps.
Stablecoins are effective for cross-border payments. Bitcoin has over 560 million users, half starting with BTC (Chainalysis 2024) [30], and its Lightning Network provides sub-second, sub-cent fees comparable to Solana or Ethereum Layer 2s. Native stablecoin issuance via Taproot Assets integrates seamlessly into this network, targeting remittances ($685 billion annually, per World Bank 2024) [32] in high-Bitcoin-adoption regions. Initial trials, such as Bitfinex’s RGB with 10,000 users, demonstrate feasibility in emerging markets. While Ethereum’s Layer 2s also facilitate fast payments, they require mainnet bridging, adding complexity and fees ($1-$5 during peaks). Bitcoin’s native approach avoids this, attracting existing BTC ecosystem users.
The “AI economy” involves automated machine-to-machine payments (e.g., AI agents acquiring computing resources), where stability and resistance to censorship are essential. Bitcoin’s mainnet has 99.98% uptime over 16 years [43], with no chain hacks or reversals, its Proof-of-Work backed by ~1.115 ZH/s hash rate making attacks infeasible (estimated $10–20 billion cost, per Messari 2025) [44]. This serves as a “trust anchor” for Layer 2s like RGB and Taproot Assets, ensuring base-layer integrity even if Layer 2 issues arise. For AI applications, uptime and censorship resistance are key — interruptions could stop processes, and Bitcoin’s base security reduces such risks.
Bitcoin’s base layer constraints endure: without Layer 2s, fees and speeds trail Solana’s 65,000 TPS or Ethereum Layer 2 rollups. DeFi on Bitcoin is emerging (e.g., lacking Aave’s $10 billion TVL on Ethereum) [45]. Adoption could lag if users prefer established chains. Yet, Tether’s dual strategy (RGB for complexity, Taproot for payments) addresses this, wagering on Bitcoin’s enduring prominence.
Tether and others deploy stablecoins on Bitcoin to augment, not supplant, Ethereum or Solana, harnessing Bitcoin’s security, trust, and user base for diversified expansion. This is viable as stablecoins advance beyond trading — into payments and tokenized cash — with Bitcoin supplying a durable base amid regulations (e.g., US GENIUS Act fostering innovation) [10].
In a competitive arena, this extension secures USDT’s leadership, possibly redirecting 10–20% of volume to Bitcoin and reinforcing its global finance position. As Grayscale Research observes, stablecoins will transform cross-border payments, and Bitcoin’s integration represents a deliberate advancement toward that outlook.
DISCLAIMER: The information contained in this article is for educational purposes only and does not constitute any form of advice or recommendation by Wheatstones, and is not intended to be relied upon by users in making (or refraining from making) any investment decisions.
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