An Argument For Single-Asset Lightning Network

Summary:

Lloyd Fournier and ZmnSCPxj discussed the possibility of cross-currency swaps on Lightning Network. They agreed that using collateralized HTLCs is a better protocol than vanilla atomic swaps because the delaying party has less time to realize any gains from the option. However, they also noted that the exchange should be careful for its counter-party delaying in signing the channel update on the final hop to gain value from the option. If they notice this behavior, they should close the channel and avoid doing business with this party.ZmnSCPxj proposed a more generic solution to address these concerns. The most generic solution is to require multiple hashlocks, one for the payee and the other for the exchange. The payer acquires an exchange hash from the exchange, plus specs of the collateral. Then the payer routes to the payee via the exchange using two hashlocks (hashlock for the payment hash, hashlock for the exchange hash) and from the payee to the exchange. The exchange onion hop includes the information that the cross-currency swap is allowed by pointing at the hashlock that the exchange hash is on. The exchange verifies that it is one of the exchange hashes it has issued and it releases the agreed amount to the next hop, plus the collateral agreed upon.The payee onion hop includes the information that it should proceed to give a single hashlock to succeeding hops, as well as the agreed-upon collateral to the exchange.The above protocol is similar to Lloyd's solution, as it effectively means the payee offers collateral to the exchange, which it can only reclaim by properly completing the payment protocol. The advantage is that it can go over multiple hops, and the exchange and payee do not know each other (but the payer does). In addition, ZmnSCPxj suggested that the exchange can insist on getting a short timelock for receiving the collateral to reduce the time horizon in which the payee can pay or not pay the collateral for the exchange. This proposal still allows a short-time duration for American Option shenanigans. The disadvantage is that it requires two hashlocks, which is rather obvious on the protocol and signals "this payment is a cross-currency exchange payment!" to all intermediate nodes.The email also describes a protocol for creating an American Call Option with a premium in the context of a BTC-WJT exchange. The sender suggests that problems may arise when extending this protocol beyond one hop after the exchange node, as communication issues could cause the current hop to become liable for the premium without being able to forward the liability to the final payee. Additionally, if the payee must be the hop after the exchange node, the exchange node would know exactly how much and when that node receives payment, creating possible avenues for attack or selective disruption/censorship of payments. As a solution, the sender proposes an additional transaction spending the HTLC but notes that this is unsafe as it effectively forces fees even in a route failure and does not incentivize intermediate nodes to actually forward payments.

Updated on: 2023-06-02T16:30:02.458112+00:00