Author: David A. Harding 2022-04-08 23:54:20
Published on: 2022-04-08T23:54:20+00:00
In an email to Laolu, Dave asked whether the implementation of support for transferring fungible assets via asset-aware LN endpoints through Taro would address the "free call option" problem. This problem arises when one party in a previously agreed exchange of two different assets chooses to opt out of the exchange by failing to route on purpose because it is no longer advantageous to them. Market makers could still be profitable as long as the option is worth less than the bid-ask spread; however, there is a lower bound on the bid-ask spread, that of the option premium. Various attempts at mitigation have been discussed on the Linux Foundation mailing list, such as barrier escrows. Dave wondered whether Taro would use an existing mitigation or suggest a new one, or if the problem would not be addressed at all.Dave also asked what would be different about using Taro versus other attempts to get LN channels to cross assets, such as allowing payments to be routed from a BTC-based channel to a Liquid-BTC-based channel through an LN bridge node. While a fair amount of early design and implementation work on Lightning Network (LN) was aimed at allowing cross-chain transfers, this work was largely abandoned due to the complexity or the free call option problem. The context included links to several posts on the Linux Foundation mailing list discussing the issue and potential mitigations.
Updated on: 2023-06-03T08:14:37.713527+00:00