Ark as a Channel Factory: Compressed Liquidity Management for Improved Payment FeasibilityArk as a Channel Factory: Compressed Liquidity Management for Improved Payment Feasibility
Published by @renepickhardt at https://delvingbitcoin.org/t/ark-as-a-channel-factory-compressed-liquidity-management-for-improved-payment-feasibility/2179
The Lightning Network enables fast, non-custodial Bitcoin payments when sufficient liquidity exists along a payment flow (often just a single path). However, payment feasibility (the existence of such a flow) is a structural constraint that cannot be resolved by routing heuristics or off-chain rebalancing alone. When liquidity is insufficient, on-chain transactions are required to modify the channel graph, which fundamentally limits the Lightning Network’s ability to scale bitcoin payments.
Multi-party channels are known to improve capital efficiency but are difficult to coordinate in practice. Ark proposes a mechanism for coordinating multi-party state updates in rounds with a relatively low coordination overhead for the members to agree on a new state. This post challenges the emerging narrative that Ark should primarily serve as a last-mile payment system interconnected via Lightning channels. Instead, it argues that Ark might be better understood as infrastructure for Lightning, specifically as a channel factory enabling efficient reconfiguration of liquidity. The focus is on trade-offs, feasibility constraints, and open research questions.
Important: This document explicitly does not advocate against Ark as Payments it just asks whether there may be a better usecase.
More interesting are the open questions he left at the end:
- Incentives and ASP behavior: How should incentives be aligned such that an ASP’s liquidity management decisions improve Lightning-wide feasibility rather than only local profitability? How does competition between multiple ASPs affect liquidity allocation and pricing?
- Centralization pressure: Does pooling liquidity in multi-party constructions introduce economies of scale that favor a small number of large factories? How does this compare to existing hub and LSP dynamics in Lightning?
- Failure modes and exits: Following Peter Todd’s article on layer 2 review: What are the on-chain and operational consequences of ASP failure or mass exits? How gracefully does the system degrade under stress, and what are the worst-case on-chain costs?
- Latency versus feasibility: Ark enables structural reconfiguration, but only at round boundaries. How should round frequency and expiry windows be chosen to balance payment feasibility, capital efficiency, and user experience?
- Privacy considerations: Does round-based coordination leak information about demand patterns or user activity over time? How do anonymity sets compare to those of bilateral Lightning channels?
- Interoperability and routing abstractions: How should vTXO-funded channels be represented to routers given the lack of on-chain funding transactions? Are new gossip or factory-level abstractions required?
Thank you so much for posting this. When I read the Ark proposal, the very first thing I thought of was using it to open many lightning channels. I'm very happy to see an actual write-up about this that goes beyond a "nice thought"