Lightning Network's New Liquidity Marketplace Attracts a ‘Surprising’ Mix of Individuals, Enterprises

Lightning Labs’ new liquidity marketplace, Lightning Pool, has seen more early-stage growth than its creators expected.

AccessTimeIconNov 19, 2020 at 8:22 p.m. UTC
Updated Aug 19, 2021 at 5:44 a.m. UTC

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Lightning Labs’ new liquidity marketplace, Lightning Pool, has seen more early-stage growth than its creators expected. And what’s more, a fair share of its volume is coming from individual Lightning users – not businesses.

“It’s a big surprise! Very exciting,” Lightning Labs Business Development head Ryan Gentry told CoinDesk. “The primary users thus far have been a mix of power users and startups/businesses who are already running Lightning nodes.”

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  • Since launch, Lightning Pool has facilitated over 11.5 BTC in orders (worth just over $208,000). According to data from a community-built Lightning Pool tweet bot, the service has several dozen active users (Lightning Labs declined to give an exact figure).

    Lightning Pool provides a market where Lightning Network users can lease liquidity for payment channels, the transaction avenues Lightning uses to send faster and cheaper payments than Bitcoin’s main network. 

    Complex cryptography makes this possible, in addition to financial requirements that mandate payment channels must have enough bitcoin in reserve to “route” payments between network participants. 

    No more 'begging' for liquidity

    If a Lightning user’s payment channel doesn’t have enough “inbound capacity” (the minimum bitcoin needed to receive a routed transaction), then he or she won’t be able to receive payments. Likewise, if a payment channel lacks enough “outbound capacity,” then it cannot send payments.

    Lightning Pool was built to address such obstacles in Lightning’s financial plumbing. Through the service, Lightning Network users can lease liquidity from other Lightning users to access the liquidity necessary to route payments through the network.

    A visualization of the Lightning Network’s topology of payment channel connections between nodes.
    A visualization of the Lightning Network’s topology of payment channel connections between nodes.

    Innovations like Bitrefill’s Thor channels, which allow customers to instant-purchase payment channels, have also taken aim at this problem. Before solutions like these, Lightning Network node operators had to do grassroots networking across messaging platforms and social media if they needed bitcoin in a pinch.

    As one pseudonymous Lightning Network user, Openoms, expressed to CoinDesk, Pool is a breakthrough for the very purpose it serves in speeding up the liquidity-matching process.

    “My relief is that begging on social media for incoming channels is over,” Openoms told CoinDesk over direct message.

    Openoms has been testing Pool since before its public launch and is“very impressed,” adding the service is “an efficiency gain for allocating capital.” Lightning Labs also batches the transactions to fund the payment channels that are being leased, meaning Pool users can save money on fees by splitting them among multiple participants.

    On the other side of the trade, the liquidity providers are earning passive yield on their bitcoin without having to relinquish their private keys. Gentry said the service has engendered a lot of excitement among community members as a new way to earn yield on their holdings (this adds to other non-custodial yielding options like earning fees from coin mixers).

    Lightning Lab’s financial stack

    Pool has been crowded mainly with individual users since shortly after launch, but Gentry thinks businesses will correct this balance over time as the service matures.

    “We anticipate increased demand from businesses and enterprise users as Pool matures because they will likely have more consistent liquidity needs when using Lightning, or may want to enable their end users to earn returns on their funds,” he told CoinDesk.

    Lightning Labs also uses the service because it does more than just generate fees for the company. Gentry said the service was “partly built … in order to solve an internal business problem,” namely, providing inbound channel liquidity for its Lightning Loop service. Loop allows its users to top off or withdraw from their Lightning balances without closing their payment channels. 

    As if illustrated by the fact that the two are anagrams, Pool and Loop are complementary services that address the same problem: Lightning’s need for constant, fresh liquidity.

    “The idea of Pool evolved, in part, to solve an internal business need – sourcing good inbound liquidity for Loop,” Gentry said. “But after speaking with customers and other Lightning services, we heard they were looking for a solution to the same problem, which was an encouraging sign in terms of the need for Pool.”

    A Lightning optimist, Openoms is “bullish” on Pool and said it’s effective at “incentivizing people to place more capital on LN” and allocating it “strategically where it is needed.” 

    Right now, everything is run from the computer’s command line, so Openoms said that a GUI (or the visual interface that you use to interact with computer/web applications) will improve the user experience.

    Gentry told CoinDesk a GUI for Pool is “in the works.” 

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