Author: ZmnSCPxj 2018-12-28 03:34:13
Published on: 2018-12-28T03:34:13+00:00
The Lightning Network cross asset exchange is feasible, however, there is a lower bound on the bid-ask spread, which is the option premium. The option premium cannot be charged in the not-exercised branch, making it a premium-free option. This leads to rational entities creating options for free until the exchange runs out of liquidity. Since all liquidity is tied up in premium-free American Call Options, exchange nodes cannot bridge between a BTC Lightning Network and any other asset, leading to routing attempts usually failing. It would not be possible to create a multi-asset LN. HTLCs can create American Call Options, and on the LN, HTLCs are created "for free" with no payment, which is an advantage to the user of an American Call Option. The opportunity cost is small as fees on the LN are tiny. The weaker asset on the LN will find itself unable to be paid by the stronger asset, leading to a shift in exchange rate, which is what the American Call Options are waiting for. These options drain funds from the exchange until it stops being profitable and stops operating as an exchange.
Updated on: 2023-06-02T16:26:02.275113+00:00