Introducing the Revolutionary LN+ Liquidity Pool

Posted 7 months ago by LN+

Hello dear passionate LN+ users and Bitcoin lightning community!

Some time ago, together with a few LN users we imagined a system reminiscent of a massive and extended liquidity swap (that many of you know well and use frequently), where every channel you open and every transaction you make is reciprocated over the long term. This isn't just a vision; it's the foundation behind the LN+ Liquidity Pool. Just as liquidity swaps allow for short-term reciprocity, our new system promotes long-term cooperation across the entire network. It's like the traditional concept of liquidity swaps, but on a grander and more prolonged scale.

At LN+, we're always looking for ways to up our game. We know the hurdles Bitcoin Lightning Network node operators face, and while we've got great solutions already, we're all about finding even better ones. So, get ready because today I'm unveiling a shiny new tool to help node operators.

Opening the LN+ Liquidity Pool

If you have a Bitcoin Lightning Node and you want to get incoming capacity, you can join our liquidity pool. In order to join you have to buy or earn liquidity credits. Once you're in the pool, nodes will open channels to you in return for your credits. You have full control over to whom you open and who opens to you. We will give you instructions all throughout the process to make it easy. You can monitor the status of the liquidity credit flow in your private section on your profile page.

How To Dive Into the LN+ Liquidity Pool

In order to get started you don't need to learn the process of how to participate in the pool, because we will guide you step by step all the way. However, if you're interested to get a quick overview, you can read about the process below:

Login with your lightning node to LN+ using a signed signature.
Optionally purchase liquidity credits and fast-forward to step 7, otherwise proceed to step 3.
Or, to get involved without spending, select a node in the pool to open a channel.
Patiently await acceptance of your channel opening offer (also called credit transaction) from the other node.
Upon acceptance, initiate the channel opening.
Watch as you automatically and gradually accrue credits over a span of 50 days – a fixed timeframe, during which the channel needs to stay open.
Once you've gathered some credits, other nodes will approach you with their channel own opening offers.
It's your call - accept or decline as you deem fit.
After accepting an offer, wait for a channel to be opened towards you by another node.
The cost of the new channels will be covered by your liquidity credits over the subsequent 50 days.

Why Should You Jump In

Fluidity: No strict time frame constraints for opening and receiving channels.
Flexibility: Tailored channel sizes, depending on your preferences.
Inclusivity: Beginners and merchants can easily integrate with the community by buying liquidity credits.
Control: You decide your channel partners – both for opening and receiving.
Cost-effectiveness: Earn liquidity credits just by opening channels. Stay active within the pool, and you could maintain a profitable node without added costs of needing to ever loop out to establish incoming liquidity.

Credit Transactions between nodes in the Liquidity Pool

Liquidity Credits Explained

Central to the Liquidity Pool are the Liquidity Credits, ensuring that everyone gets their fair amount of incoming channel liquidity that is equal to the amount of liquidity they opened to other nodes. Liquidity Credits aren't a token or (shit)coin. Instead, they're an internal measure of owed incoming liquidity that can only be exchanged for incoming liquidity on LN+.

Node operators and merchants in need of significant incoming liquidity, you have the option to purchase liquidity pool credits directly from LN+, so that node operators would open channels towards you in return for your credits. The price of purchased liquidity credits is determined by LN+ based on market conditions with the intention to ensure there is always enough liquidity credits available in the pool to keep the pool functional. The price is subject to change.

Comparing the Pool with Swaps

I can't thank you enough for being passionate users of liquidity swaps in the last years. It is a huge success thanks to you. The pool is a direct competitor to swaps, so the question would naturally arise. How do the two services, the liquidity swaps and the liquidity pool compare?

Benefits of the Pool over Swaps:

You have full control over who you connect to. In swaps you partially rely on luck for some of your connections.
As a merchant, you can join the pool and start receiving channels even if you don't have capacity to open more channels of your own. This requires you to buy liquidity credits from LN+. In swaps, you're required to open channels as well.
Pool channel opens is a continuous process without a specific end. Swaps happen within a specific time frame.
In the pool the channels you open and the channels you receive can be of a different size and quantity. In swaps the opened and received channels are of equal size.

Benefits of Swaps over the Pool:

Channel opens happen potentially faster, sometimes within 24h. Pool is a continuous process without a specific end.
Some of the connections are partially accidental which is good for LN's decentralization and equity. The pool connections are fully under your control.
Easier to understand and explain how a triangle works with 3 node operators opening to each other. The pool has the concept of liquidity credits that ensures fairness in the system, but adds some complexity.

In case you are wondering, how the Liquidity Pool and Swaps compare to other solutions in the market? The most important benefit of LN+'s services is that you can use them entirely free to achieve incoming liquidity and to grow your node twice as fast without additional cost to open those extra channels.

The Pool is Now Open

I'm very excited to have you at LN+, and eager to hear what you think of the new liquidity pool. If you have any ideas, find any errors, need any help getting started, or want to resolve any potential issue, I'm available on email, in DM, or on social media. You can also learn more about the pool on the about page, which contains a glossary of important terms. Please don't think twice to reach out. And now...

Take the plunge!

14 Comments

Shtacks_City wrote 7 months ago

Thank you!

Shtacks_City wrote 7 months ago

Hello, thank you for launching the new tool.

I believe the pricing structure for the new tool is far too cheap (0.05% of sats deployed AKA 500 ppm). The price of hard money is significantly higher and maybe should match the interest rate on a 2 year US treasury bill (around 5.1%)?

Furthermore, when taking into account free market pricing for BTC liquidity via Amboss. You will find the following statistics:
Average APR
3.46%
Latest APR
6.03%

Maybe pricing should reflect the average APR of 3.46%?

........................................................................................................................................
To obtain a 5% yield with the current 50 day minimum term length that you have provided, the PPM fee should be near 6800 ppm. (does not take into account opening and closing costs)

To obtain a 3% yield with the current 50 day minimum term length that you have provided the PPM fee should be near 4100 ppm. (does not take into account opening and closing costs)

I think around 4100 ppm seems reasonable otherwise smaller liquidity providers will be reluctant to open channels due to the opening and closing fees eating into their profits significantly.
.........................................................................................................................................

I would be interested to hear everyone's thoughts on this matter.

LN+ Admin wrote 7 months ago

Shtacks_City: The calculation you provided is great. It will come in play once you can "sell" your liquidity credits for SATs, which is currently not the case. We only offer liquidity credits cheaply at this time to kick start the system and have many nodes to pick from to open to.

EnduraUmb-I wrote 7 months ago

Hi great idea - really like it. Regarding price I think as well bit to cheap but to kickstart the service OK.

But already now struggling to find suitable nodes as it is sorted by amount of credit only? Maybe I missed something but some filter on #of channel, channelcapacity, node rank etc. would be cool.

Shtacks_City wrote 7 months ago

@LN+ sure that makes sense, kick start with very lows fees with people who are interested in bootstrapping the project. Thanks!

LN+ Admin wrote 7 months ago

I will add sorting! Thank you!

EnduraUmb-I wrote 7 months ago

that what be cool thanks!

EnduraUmb-I wrote 7 months ago

@LN+ looks like a bug was introduced - at least I cannot register a channle creation since I always get an error stating " Size is not a number " e.g. just using the default value displayed when openening the window.
2. if I enter a value more than 5 digits the value gets removed automatically :(

LN+ Admin wrote 7 months ago

EnduraUmb-I: I believe this bug is now fixed. Please confirm!

EnduraUmb-I wrote 7 months ago

Confirmed looks good now.

JayhawkPleb wrote 7 months ago

LN+: It is good that you're planning for the sale of cheap liquidity credits to be only a temporary bootstrapping mechanism. But you would do well to be more explicit about your plans: you are essentially playing the role of a central bank with respect to these credits, and there's the danger that you overinflate the supply of credits, diluting the value of the credits we earn. (See also the infamous DC babysitting co-op story.)

That said, I just opened my first channel to the pool, and I'm looking forward to seeing where this goes. :)

LN+ Admin wrote 7 months ago

Yes, you're 100% correct. I gave away many credits on day one to pioneers who were willing to test out the system and have been active in the past in swaps. I gradually increased the price daily. By now (13 days in), the price of credits is barely competive compared to buying liquidity directly from a node, so it's worth earning them through channel opens in the pool rather than buying. The price will go higher over time. We will be earning credits from each other only.

JayhawkPleb wrote 7 months ago

What happens if I open a channel larger than the amount in the pool request? Will LN+ still confirm the channel opening and generate credits appropriately (at the original request size, naturally)? I'm thinking especially of a scenario where the target node wants to add some liquidity of their own in a balanced open.