The Lightning Network, a second-layer payment network, provides cheaper and faster bitcoin transactions and allows users to acquire liquidity via payment channels. Indeed, the process is complex, and ensuring optimal yield for service providers is a multifaceted task. However, Amboss, an analytics firm, claims that its new Lightning Network Rate (Liner) can simplify the process by offering key insights into yield opportunities on the network.
The concept of Liner is both enticing and daunting. On one hand, service provider nodes can maximize their yield by matching with the right partners – those that handle high transaction volume, maintain round-the-clock availability, and provide liquidity for the desired time period. On the other hand, avoiding intermediary parties and assuring self-custody raises concerns about security and transparency.
There’s no denying the appeal of generating yield without giving up custody of one’s digital assets. Amboss CEO and co-founder Jesse Shrader highlights the importance of not trusting other platforms with asset custody. Indeed, many users of platforms like Celsius and BlockFi have ended up with nothing to show for their investments.
Although Amboss didn’t pioneer the liquidity marketplace or benchmark rate concepts, it has still managed to carve out a niche in the competitive cryptocurrency landscape. The company’s Liner platform serves as a benchmark rate to measure bitcoin returns on committed capital, allowing liquidity providers to determine whether committing their capital is worth it, while liquidity purchasers can determine the cost of leasing channel capacity.
Before the introduction of Amboss’s Liner, Lightning Labs launched Lightning Pool in 2020. This platform also facilitated the demand and supply of liquidity by using a sealed-bid auction and generating a “current lease rate,” similar to Liner. As of November 2022, Lightning Pool reportedly had double the volume of Amboss’s Magma, according to Jonathan Bier’s book Reckless: The Story Of Cryptocurrency Interest Rates.
Amboss’s Liner, coupled with its Magma liquidity marketplace, seeks to create a healthier ecosystem for liquidity providers and purchasers. Magma currently showcases yields ranging approximately between 2% and 3%. Shrader emphasizes the importance of these “self-custodial yields,” as they generate returns purely from the provisioning of liquidity, without the need for bitcoin transactions.
The ongoing development of platforms like Amboss’s Liner and Lightning Labs’ Lightning Pool highlights the growing desire for self-custodial options in the cryptocurrency world. The question remains whether these platforms can effectively address security concerns while providing attractive yields for service providers and purchasers. Ultimately, as the blockchain technology market evolves, only time will tell which solutions rise to prominence and garner the trust of the ever-expanding crypto community.
Source: Coindesk
