Exchanges on the Lightning Network \ stacker news ~bitcoin

1109 sats \ 7 comments \ @kr 10 Apr 2022 bitcoin

Exchanges on the Lightning Network have grown their public capacity by 22% this month, almost 4x the rate of capacity growth of the Lightning Network overall.

Some of this growth was due to Kraken's release, but many exchanges have been outpacing LN capacity growth for some time now. 32% of all LN public capacity is now held on exchange nodes.

I'm curious to hear the community's thoughts on the following:

How important are exchanges to the overall health of the Lightning Network?
How much do exchanges, wallets, or LSPs on Lightning (professional node operators) help to improve payment success across the network?
What % of public LN capacity will be held by professional node operators in 2030?
Are there any centralization risks of having too few exchanges managing too much of the overall liquidity on Lightning? If so, how much liquidity in how few hands is too much?
Does the presence of professional node operators make it easier or harder for hobbyist node operators to earn routing fees?

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70 sats \ 1 reply \ @cointastical 10 Apr 2022

Are you also referring to custodial wallet and swap services that do fall under the category of "fiat exchanges"?

e.g., BlueWallet's LN wallets are by default custodial LNDhub. Then there's "wallet + swap" services: Wallet of Satoshi, CoinOS.io, and more! Then there's Paxful, a P2P exchange that is custodial and has deposit and withdraw via LN. And then there's BitPay, which just added LN support, and BitGo, which announced upcoming LN support.

I expect these, in the aggregate, to gain as a percent of LN public capacity, and share of LN activity.

20 sats \ 0 replies \ @kr OP 10 Apr 2022

Yeah wallet + swap services should probably be included in all the exchange related questions too. If we bundle all of these exchange/wallet/LSP services together, they might be pretty close to 50% of all public LN capacity today.

Could they get to 90% over time? Or will Lightning apps start to eat into their market share over time? What other companies or categories of companies (Bitcoin or not) could add meaningful capacity to the Lightning Network over time?

69 sats \ 1 reply \ @pseudozach 10 Apr 2022

I don't see any risks, if anything it makes sense that exchanges manage most of the liquidity because they're probably either source/destination of large txns. I've never understood how/why hobby node operators would earn fees routing payments. At least not yet anyway.

1 sat \ 0 replies \ @kr OP 10 Apr 2022

True, many people start or end their Lightning journey by using an exchange.

That makes me wonder whether or not apps will take over as the largest nodes on the network once a circular economy of earning and spending really takes hold.

I guess exchanges also offer node operators the ability to re-balance channels without incurring Bitcoin network fees, but maybe apps can do that too.

I know of one well-capitalized individual earning $3-5k per month in routing revenue on Lightning, but I don't think there are many examples of other individuals replicating that level of success yet.

If individual node operators don't end up earning much on the Lightning Network, what role will they play? How important is it to have a flourishing network of individuals operating nodes?

6 sats \ 2 replies \ @TheBTCManual 10 Apr 2022

I think there are over 24 exchanges that offer LN but very few are as large as Kraken I think only Bitfinex would be close, the rest are either regional or bitcoin only and since it encourages withdrawing liqudity and you making less fees shitcoin casinos don't seem keen to use it

Personally, I think wallets are still lacking, I've used Muun, Breez and they were a bit clunky and crashed a few times, yet to try out the others. I think that wallets are fundamental for adoption but also things like P2P markets, where wallets can connect to so you can find liquidity easier and reduce centralisation and improve privacy

I think professional node operators are going to grow in importance as more people are onboarded and the base chain can't take more load and we have to run things like channel factories, as for % I can't image what the split will be like

0 sats \ 0 replies \ @cointastical 10 Apr 2022

I think there are over 24 exchanges that offer LN but very few are as large as Kraken I think only Bitfinex would be clos

Yup, that's about the current state:

Exchanges with support for bitcoin Lightning network ⚡ payments https://cointastical.github.io/Exchanges-With-LN https://cointastical.medium.com/exchanges-with-support-for-bitcoin-lightning-network-payments-739829bcb7bc

0 sats \ 0 replies \ @kr OP 10 Apr 2022

Yeah there are many exchanges, I was only able to find nodes matching up with 13 of them so far. If you know of other nodes connected to exchanges, let me know!

Bitfinex is definitely the largest exchange on Lightning by public capacity, with almost 700 BTC. River is second with 100 BTC, but Kraken is quickly approaching with 90 BTC amassed in just the last 25 days.

https://twitter.com/kerooke/status/1513247270292049922