Nostr Web Client

You seem to be making up your own definition of the Layers 😜

But even within your definition, Cashu tokens are a "coupon" or "currency" - because they are a bearer asset, pre-funded by bitcoin (via minting)... which is redeemable on demand by melting back to bitcoin.

In the generally understood definition of Bitcoin layers, Cashu is a Layer 2, because it is a protocol built on top of L1 core to improve scalability, transaction speed, and functionality without altering the L1 code.

The fact it integrates with Lightning doesn't change that, the same way that Liquid integration with Lightning doesn't make it L3 either.

A Cashu mint COULD conceivably mint and melt directly to the L1 chain. It doesn't currently for speed of settlement, but it could. NUT-04/05 are flexible in that regard.

L3 doesn't really exist for Bitcoin - it is the "application layer" - for DApps like you'd find in ETH or SOL.

JackTheMimic 6mo ago 💬 2

I am not sure where you are pulling the layer definitions from but these are monetary terms not digital asset specific ones. Money scales in layers

Layer 1: The bearer asset with the express purpose of storing value.

Layer 2: The coupon/ currency that is redeemable for the bearer asset on demand from the coupon issuer. (In the case of Lightning the issuer is either the party or counter-party)

Layer 3: The credit token. This historically is where loans and financial stress is added to the lower layers upon calls to redeem. Because the credit tokens by definition create more tokens than assets outstanding. These are based on reputation and trust to create more value than held in the credited currency.

I know that cashu can be minted to layer 1 but it is less secure than lightning so, It is not used that way. Issuing cashu tokens on lighting is creating credit tokens redeemable for lightning/liquid which is then redeemable for bitcoin. There is nothing stopping a mint from issuing more credit that lightning held and redemption is based soley on the reputation and trust in the mint. Cashu is credit.

Reply to this note

Please Login to reply.

Discussion

Rob Woodgate 6mo ago

The Bitcoin "layers" are networking protocols, not financial layers as you define them:

L0 - Internet protocol stack

L1 - Bitcoin protocol

L2 - Bitcoin scaling protocols

L3 - "Applications" (DApps)

Cashu tokens are ecash (digital currency), not credit. They’re bearer assets backed 1:1 by Bitcoin on Lightning, not debt-based tokens.

Over-issuance by a mint is a trust issue, not a protocol feature - like Coinbase mismanaging Bitcoin wouldn’t make Bitcoin credit.

JackTheMimic 6mo ago 💬 2

Lol, okay. Again, I am referring to money not some tech bro 4 layer burrito. These layers (I am referring to) apply to gold (L1), Dollars (L2 [prior to 1971]), and treasuries (L3) as well as Bitcoin.

As far as the trust, if you CAN do something, people WILL do that. I never said it was a feature. I am explicitly saying it's a bug. Because of the previous trust issue, it can't be claimed that they are 1:1 backed precisely because of the ability to over-issue.

Rob Woodgate 6mo ago

Dollars prior to 1971 were bearer assets like Cashu tokens. Directly redeemable for the underlying asset (gold) on demand.

Yet dollars prior to 1971 could also be fractionally created, and were. History is littered with bank runs, even in the gold standard era.

And yet, by your definition, the pre-71 dollar was a L2 "currency".

There is no difference with Cashu. It's L2 by your definition..

Enjoy the rest of your weekend.

JackTheMimic 6mo ago 💬 1

A bearer asset is not redeemable for anything. That's the definition of an asset. An asset IS the thing. So, you keep using that term incorrectly.

As far as fractional printing of dollars to gold reserves, yes currency doesn't preclude over-printing. But cashu tokens are not redeemable for the asset like dollars were. They are redeemable for lightning which is THEN redeemable for Bitcoin.

Cashu is more akin to (pre 1971) somone depositing dollars to a bank in exchange for credit to be spent outside of business hours. You can then redeem the credit for dollars, THEN redeem those dollars for gold.

Again, anything above the first layer is not an asset, it is a liability.

Rob Woodgate 6mo ago

You didn't want to start a "big thing", but keep doubling down. So kudos for that - but your underlying assertion is still wrong. I'll have one last go at explaining, in case it's a semantics issue, but otherwise we're done.

"Bearer" = denotes ownership by possession.

"Asset" - thing of value. Can be cash/cash equivalent or even credit.

Bitcoin private keys are an example of a bearer asset (NYK-NYC). They’re not the Bitcoin itself—they’re the proof of ownership and control over it, held by possession. Not a credit or liability.

Lightning *is* Bitcoin. Not credit. Not "backed" anything. The on-chain Bitcoin is locked in an HTLC in the Lightning channel. Only the accounting is abstracted.

If a mint closed the underlying Lightning channel, they would then unlock and receive the bitcoin on-chain according to the accounting. The abstraction of Lightning is simply a protocol, not a separate asset.

Cashu on Lightning is therefore a 1:1 Bitcoin-backed asset.

So your dollars → credit → gold analogy is just plain wrong.