Tron’s Layer 2 Plan: Wrapping USDT into Bitcoin

Tron, a layer-1 blockchain, is exploring the possibility of implementing a layer-2 solution for Bitcoin. This solution would involve the creation of a “wrapped” version of Tether (USDT) that could potentially bring billions of dollars of liquidity into the Bitcoin ecosystem. In February, Tron’s founder, Justin Sun, shared a roadmap for Tron’s Bitcoin layer-2 solution, which aims to enable the seamless movement of stablecoins and tokens between Tron and Bitcoin. This integration would not only connect TRON with Bitcoin but also provide access to over $55 billion in value, thereby injecting financial vitality into Bitcoin.

According to a spokesperson from Tron, the plan would likely include the development of a wrapped version of USDT. Currently, Tron hosts more than half of the $104 billion worth of USDT issued across various blockchains. Tron believes that its significant liquidity and stability, brought about by leading stablecoins like USDT, could attract new users to the Bitcoin ecosystem and expand the range of use cases, particularly in decentralized finance.

The implementation of a Bitcoin layer-2 solution would allow TRON-based tokens to seamlessly interact with Bitcoin while maintaining the speed and low fees of proof-of-stake (POS) systems and ensuring the safety of proof-of-work (POW) and unspent transaction outputs (UTXO) in conjunction with Bitcoin’s layer 2 (L2) scalability solutions. Although the plan is still in its conceptual phase, Tron intends to pursue it.

In the meantime, Tron plans to leverage existing cross-chain protocols to bridge USDT and other tokens between Bitcoin and Tron. The company is also exploring collaborations with various Bitcoin layer-2 protocols. The situation may be different for USD Coin (USDC), a rival stablecoin to Tether, as its issuer, Circle, halted the minting of USDC on Tron in February.

Tron’s consideration of building a layer-2 solution for Bitcoin was primarily motivated by the growing interest within the community to enhance Bitcoin’s functionality and scalability. Developing decentralized applications on Bitcoin could potentially improve its price dynamics as fees would be denominated in Bitcoin.

Tron’s decentralized autonomous organization (DAO), TRON DAO, is planning to create a user-friendly wallet and toolset to support Bitcoin-based oracles and BRC-20 tokens.

CoinShares, a cryptocurrency investment firm, predicted in January that a Bitcoin-based stablecoin may emerge in 2024, which could rival the speed and cost of other stablecoins in the industry. Currently, Liquid-based Tether (L-USDT) is one of the few US dollar-denominated stablecoins circulating on a Bitcoin layer-2 network.

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