How Much LN Public Capacity Should Exchanges Have?
295 sats \ 6 comments \ @kr 23 Nov 2022 bitcoin
Bitcoin exchanges now have a combined 2,337 BTC of public capacity, or roughly 46% of all LN public capacity.
This is up from roughly 32% in April.
https://pbs.twimg.com/media/FiQMw9FWAAEUcwB?format=jpg&name=large
A few questions for people here…
  • Does it matter that exchanges are growing their share of LN public capacity?
  • Is there a limit at which their market share becomes “too much”?
  • What are the risks of centralizing most of the public capacity between a few dozen large nodes?
write
preview
related posts
36 sats \ 0 replies \ @pillar 23 Nov 2022
As a single node, you are incentivized to grow because it generates a positive spiral (other people open to you since you are well connected, which in turns makes you more attractive to prospective nodes, yadayada) and then you can charge more fees because of your privileged position.
But eventually, you will get too greedy, which will incentivize prospective nodes to turn to smaller but cheaper nodes. The old Bezos': "your margin is my opportunity".
And so the topology will keep on changing as these and many other factors balance each other out to equilibrium.
reply
45 sats \ 1 reply \ @Wumbo 23 Nov 2022
Q: Does it matter that exchanges are growing their share of LN public capacity? A: Has channel count increased also? Capacity is just one side of the coin.
Q: Is there a limit at which their market share becomes “too much”? A: My guess is the larger public nodes might end getting pressured to do KYC/AML. If so the smaller LN nodes would have a market advantage in attracting LN Payments.
Q: What are the risks of centralizing most of the public capacity between a few dozen large nodes? A: Privacy, might be easier for a few large nodes to coordinate sharing information to triangulate the sender and receiver.
Good Topic.
reply
0 sats \ 0 replies \ @kr OP 23 Nov 2022
good points. do you think it’s plausible that regulatory pressure eventually forces merchants to kyc their direct node connections?
reply
26 sats \ 1 reply \ @rijndael 23 Nov 2022
it makes sense. Lightning is a payments network. There is going to be more liquidity where people spend their bitcoin. Exchanges are where most people who spend their bitcoin spend their bitcoin. So that's where liquidity is. If a lot of people started wanting to spend their bitcoin over lightning at mcdonalds, I bet we'd see mcdonalds running a top node (or outsourcing it)
reply
0 sats \ 0 replies \ @kr OP 23 Nov 2022
yeah that’s fair, lightning adoption is still in its earliest stages, so will be interesting to watch how the distribution of public capacity evolves over time
reply
19 sats \ 0 replies \ @muteness11 23 Nov 2022
Introduction: Exchanges make a lot of fiat on shitcoins and they are not incentivised at this stage for LN nodes as it cost them a lot more than they can earn (maintenance/management), they do it for to have more BTC LN users and but mainly LN potential long term
Exchanges can make money by building infrastructure, here is an example of the 3rd largest (river) https://twitter.com/muteness11/status/1587782925709619202
so its perfectly reasonable for exchanges to grow capacity in line with LN adoption , but I think specialised infrastructure companies and specialised Node Runners will be victorious
I cant think of a risk especially having arbitrageurs in the space and game-theoretic incentive for all participants
reply