Introducing Dual Funded Channel Agreements

Posted almost 2 years ago by LN+

Dual Funded Channels (DFC) are a special and efficient way to open Bitcoin Lightning Network channels. They are now available on LN+. We call them Dual Funded Channel Agreements (DFCA) or "Dual Swaps". These are special "swaps" that are created between two parties and involves only a single channel. Let me explain (to the best of my ability) what dual funded channels are and how they can benefit you, and what are its downsides compared to swaps.

Benefits

The three benefits of dual funded channels:

You can create a channel that is twice the capacity of the funds you have available. For example if you have 1M SAT available, you can open a 2M channel.
Your newly opened channel is instantly balanced. So, following the above example, you will be able to send 1M and receive 1M on your new 2M channel.
You split the channel opening costs.

How to open dual funded channels?

In order to open a dual funded channel, you need to use special tools at this time. It's not available by default in LN wallets. For the popular lightning implementation LND there is an additional tool available called BOS (Balance of Satoshi) by LND developer Alex Bosworth, which helps you open dual funded channels. This is the tool we require you to use on LN+ in order to participate in the new Dual Funded Channel Agreements (DFCA).

Other lightning implementations like CLN also have experimental support for dual funded channels, but we're not yet supporting them. We will wait until the code is more mature, and we can potentially open dual funded channels cross implmentations. Until then, please only open or apply to DFCAs if you run LND and you're able to use the BOS tool.

Downsides

The three downsides of DFCAs compared to regular swaps:

You only get connected to one node, thus you have less direct and indirect connections.
You need to use a specialized tool like BOS, which could be potentially difficult for users, and thus there are less node operators you can work with.
You need to cooperate closely with the other party, because when you initiate a DFC a Terminal session needs to be kept open until the other party accepts the request.

How does it work on LN+?

On LN+ the user who starts the DFCA (participant A) will set the conditions for this special kind of "swap", including the capacity. For dual funded "swaps", A should only specify their your side of the capacity (half of total channel capacity). The total capacity will be the double of the capacity A specifies. For example, if the DFCA is for 1M SAT, the channel will be 2M SAT.

The cards showing the capacity show only the funding capacity (half the total) in order to be consistent with the triangle, square and pentagon swaps. When you search for swaps you want to find swaps that match the amount of SATs you have available to open a channel.

On LN+ as soon as participant B joins, A will be notified to get ready to accept the invitiation.

B initiates the channel open invitation in BOS. Once the invitation is sent out, participant A is notified again to go ahead an accept the invitation in BOS.

Once the invitation is accepted the channel opening transaction is sent out and the DFCA is complete.

If you are familiar with BOS, open or join some DFCAs!