From Block Expansion to Asset Settlement

Bitcoin’s history is a political economy of “scaling.”

Since the end of the 2017 Blocksize War and SegWit activation, Bitcoin chose its destiny: Not a coffee-payment network… but the global settlement layer.

But entering 2024–2025, the narrative mutated: Scaling Bitcoin is no longer just about TPS of BTC. It’s now about turning Bitcoin into infrastructure for dollars (USDT) and real-world assets (RWA).

I analyze the four dominant forces shaping this transition:

  • Blockstream — Institutional sidechain empire (Liquid Network)
  • Lightning Labs — Protocol-native scaling (Lightning + Taproot Assets)
  • Lightspark — Silicon Valley corporate execution (Statechains + UMA)
  • RGB Protocol — Sovereign client-side validation (Bitfinex + Tether)

It’s the hidden war surrounding “Bitcoin asset issuance rights”.

At the center of all power lies stablecoin liquidity (especially Tether USDT) — the real territory everyone is fighting for.

Blockstream (Liquid): Institutional Infrastructure Empire

Blockstream — founded by Adam Back (@adam3us), inventor of Hashcash — has long acted as Bitcoin’s infrastructure gatekeeper.

Its strategy centers on building a closed-loop institutional financial stack around Bitcoin, with the Liquid Network as its most important moat.

Capital Structure: The Bitfinex / Tether Axis

Aug 2021 — $210M Series B, $3.2B valuation. Led by Baillie Gifford and iFinex (Bitfinex/Tether parent)

This funding configuration reflects three key strategic bets:

Bitfinex → liquidity integration The investment secures Liquid Network as Bitfinex’s inter-exchange settlement rail, anchoring fiat on/off-ramps and arbitrage flows directly into Blockstream’s ecosystem.

Baillie Gifford → capital-markets thesis A bet that Bitcoin sidechains will evolve into rails for tokenized securities, similar to how they backed early monopolies like Tesla/Amazon.

2023–2024 debt financing → infra expansion New capital from Kingsway Capital and Fulgur Ventures funds mining and Lightning infrastructure — with Fulgur simultaneously backing RGB, suggesting future synergy rather than inevitable rivalry.

Liquid Architecture: Federated Efficiency With Trade-offs

Liquid adopts a Federated Sidechain design — Blockstream’s institutional-grade answer to Bitcoin scaling.

  • Transactions are validated by Functionaries (major exchanges/market makers)
  • Advantages: 1-min blocks, Confidential Transactions (dark-pool liquidity)
  • Trade-offs: Permissioned → weak retail adoption

Liquid trades censorship resistance for speed + privacy + institutional comfort.

Liquid in 2025: The L-USDT Liquidity Island

Liquid’s primary success: USDT issuance with deep liquidity on Bitfinex. But outside of a few exchanges, users can’t easily touch L-BTC or L-USDT.

To counter stagnation, Blockstream expanded vertically:

  • Blockstream Jade hardware wallet
  • Greenlight Lightning-node cloud hosting (custody-lite response to Lightspark)

Blockstream wants to own every on-ramp into Bitcoin finance.

Lightning Labs (Taproot Assets): Protocol Fundamentalism

If Blockstream embodies the institutional sidechain path, Lightning Labs represents the “protocol-native” camp.

Lightning Labs wants to bring stablecoin liquidity onto Lightning without compromising decentralization through Taproot Assets.

Funding: A Dual Bet by Silicon Valley & Wall Street

Apr 2022 — $70M Series B (Total raised: ~$82.5M)

Key signals from the investor roster:

  • Valor Equity Partners — early Tesla/SpaceX backer
  • Baillie Gifford — also invests in Blockstream (a “hedge the entire track” strategy)
  • Jack Dorsey (seed) — anchors Lightning Labs’ open-source, decentralization-first culture

Together, this signals capital’s conviction that Lightning will be core financial infrastructure, not a niche scaling hack.

Taproot Assets: Stablecoins Riding Lightning Liquidity

Taproot Assets (originally Taro) is Lightning Labs’ key gambit: turning Lightning into a multi-asset settlement network.

  • On-chain Merkle commitments + off-chain metadata (“Universes”) → avoids block bloat
  • Atomic Combination: Assets like USDT can be directly deposited into Lightning channels
  • Edge Liquidity: Users pay USDT → routers only handle BTC → recipient receives USDT

Taproot Assets lets stablecoins reuse Lightning’s existing massive BTC liquidity, eliminating the need to build a separate payment rail.

2025 Breakthrough: USDT Finally Comes to Lightning

Jan 2025: Tether confirms official USDT issuance via Taproot Assets

This targets Tron’s dominance in cheap global dollar payments. Lightning Labs is capturing retail remittances back into Bitcoin. This marks the first credible challenge to Visa/Mastercard from Bitcoin rails — real-world payments, not hypothetical demos.

Lightspark (Spark): Silicon Valley Pragmatism

In contrast to Lightning Labs’ open-source idealism, Lightspark is pure Silicon Valley execution.

Founded by David Marcus (@davidmarcus) — ex-PayPal president and former Meta crypto lead — the company aims to rebuild Bitcoin payments with Web2-grade UX and enterprise compliance.

Capital Alignment: a16z & Paradigm Place Their Bet

May 2022 — ~$173M Series A, near-$1B valuation

This single round doubles the total capital Lightning Labs has ever raised.

  • Lead: a16z Crypto, Paradigm
  • Others: Coatue, Thrive Capital

Silicon Valley capital values the execution capability of David Marcus’s team in building global-scale payment networks (Libra/Diem).

Lightspark’s mission is to solve this “last mile” UX problem of Bitcoin’s mass adoption, even if it requires sacrificing some decentralization.

Spark: Statechains Reimagined

Lightspark isn’t merely optimizing Lightning. It launched Spark, a UTXO-based scaling protocol built on Statechains.

  • Mechanism: BTC is locked on mainnet, and private-key ownership is transferred between users instead of doing on-chain transactions
  • Trust Model: Operated by a federation (currently Lightspark + Flashnet)
  • Safeguard: Unilateral exits using pre-signed transactions allow users to withdraw to mainnet if operators misbehave
  • Trade-off: Gains seamless UX and eliminates inbound-liquidity limitations, but introduces non-trivial trust assumptions

Enterprise Strategy: UMA as the Gateway Standard

Lightspark’s second strategic pillar is UMA (Universal Money Address) — a Lightning-based addressing standard, designed to make payments as simple as sending email (e.g., [email protected]).

Supports real-time FX and routing, ideal for cross-border payments.

Adoption so far includes:

  • Banks & wallets including SoFi, Xapo Bank, and a wide range of platforms across emerging markets in Africa and LATAM
  • Infrastructure partners: Zero Hash, Bakkt

UMA Standard is how Lightspark plans to own the user interface, while Spark attempts to own the underlying flow.

RGB Protocol: Radical Sovereignty & BiFi

RGB sits at the most sovereign, privacy-maximalist edge of Bitcoin scaling.

Key Figures & Capital Alignment

RGB development is led by Dr. Maxim Orlovsky (@dr_orlovsky), co-founder of the LNP/BP Standards Association.

Although the Association is structured as a non-profit focusing on core protocol research development, RGB’s ecosystem is backed at the highest sponsorship tier by Fulgur Ventures, Bitfinex, and Tether.

A major strategic shift occurred when Bitfinex increased its backing in 2023, and later spearheaded the formation of the RGB Association in 2025 with ecosystem builders — signaling how crucial RGB has become to their long-term roadmap.

Bitfinex’s Double Play Liquid solves today’s institutional exchange settlement; RGB is the future hedge for censorship-resistant issuance.

Tether’s Homecoming August 2025 — Tether confirms official USDT issuance on RGB. Paolo Ardoino: “the rightful successor to Omni.” → RGB graduates from lab experiment to global financial infrastructure

RGB is Bitfinex’s Plan B for the era of regulatory pressure.

Technical Philosophy: Client-Side Validation

RGB is rooted in Peter Todd’s client-side validation model:

  • Smart-contract data stays off-chain → Bitcoin only stores commitments, preventing double-spends
  • Bitcoin UTXOs as “single-use seals” → Confirm spend events, but not what is being transferred
  • Physical-cash privacy → Asset type, amount, recipient known only by transactors

Since miners and third parties cannot see the content of asset transfers, RGB offers physical cash-level privacy.

In an increasingly strict regulatory environment (e.g., EU MiCA regulations), this becomes a powerful anti-fragile tool.

“BiFi” Ecosystem Emerges

The RGB ecosystem is building around the concept of BiFi (Bitcoin Finance).

  • Wallets — BitMask supports RGB20 assets on mainnet
  • DEX — Kaleidoswap, LnFi Network building Lightning-settled DEXs
  • Programmable assets — AluVM enables Turing-complete contract logic for stablecoins, NFTs, and structured products

RGB = Bitcoin-native DeFi, with Lightning-speed settlement and cash-grade privacy.

The Real War: USDT Liquidity Capture

USDT supply: $182B, > 500M users. Tether is effectively crypto’s central bank.

Tether’s Trinity Strategy

Protocol Use Case Target Market
Liquid Large exchange transfers Bitfinex’s core business
Taproot Assets Retail payments Lightning Labs’ global node network
RGB Censorship resistance & privacy Strategic reserve for extreme regulatory environments

Great coverage, but liquidity fragmentation grows. Cross-protocol atomic swaps will become the holy grail.

On the other side of the map, Lightspark is targeting cross-border and AI-agent payments with strong Silicon Valley and Coinbase/USDC ties. But Tether’s integration of Spark into its new WDK shows it is quietly backing multiple rails at once.

2026 Outlook

Player Projected Dominance
Lightspark Breakout in compliant cross-border remittance
RGB Explodes in Bitcoin-native DeFi + privacy finance
Lightning Labs Dominates retail dollar payments

The Bitcoin Layer-2 war is a philosophy war:

  • Efficiency vs. Decentralization
  • Silicon Valley vs. Cypherpunks

And Tether is the “God of Liquidity.”

Follow the stablecoins. They reveal the real balance of power in the Bitcoin Layer-2 war.

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