[Lightning-dev] An Argument For Single-Asset Lightning Network
ZmnSCPxj at protonmail.com
Fri Dec 28 03:53:22 UTC 2018
Good morning James,
> It seems like the router in this case is essentially short a straddle on the BTC vs. WJT exchange rate with almost 0 premium. One way for the router to hedge this is to be long an equivalent straddle by constructing their own cross-chain payment to themselves with some other node, for the same amount.
Suppose there are two nodes on the LN who provide a BTC/WJT exchange.
Now suppose one of those nodes is selected as an intermediate hop node for somebody paying using BTC somebody who wants WJT.
That node uses the other node to construct an American Call Option to construct a straddle.
The other node, in response, uses the first node to construct a straddle.
The first node, now being short a straddle, uses the other node to construct an American Call Option to construct a straddle.
This goes on until both nodes now have all their liquidity locked up in hedges.
If the payment that originally started this whole monstrosity turns out to be an American Call Option in the first place, then neither exchange node will be willing to "disarm" any of their hedges.
The liquidity of the exchange nodes is tied up and nobody can make any BTC->WJT and WJT->BTC exchanges on Lightning.
In short, this simply attempts to make it a problem of somebody else, not solve the problem.
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