The Lightning Network: Solving the Liquidity Problem
The Lightning Network offers a faster and cheaper way to use Bitcoin, but businesses accepting Lightning payments often struggle with obtaining the necessary liquidity. To address this pain point, Lightning Network data provider Amboss has launched a subscription service called “Hydro.” Hydro automates the process of obtaining liquidity on the Lightning Network, abstracting away the complex details and making it easier for businesses to accept payments.
Without liquidity, payments cannot be made on the Lightning Network. Amboss CEO Jesse Shrader explains that troubleshooting liquidity is a significant challenge for users and requires ongoing maintenance. While developers have already made progress in abstracting away liquidity sourcing from other sources, Hydro takes it a step further by automatically purchasing liquidity when needed.
Compared to credit card payment processing fees that average 2.24 percent per transaction, the Lightning Network offers a potentially cheaper option. By automating liquidity management through Hydro, businesses can minimize the downsides of using the Lightning Network for payments.
Prepaid Liquidity with Hydro
With Hydro, merchants can purchase prepaid Ambucks credits in advance, which can be used to automatically buy liquidity when required. Users have the flexibility to specify their preferred Lightning channel leases, such as the desired inbound liquidity or node size. Hydro utilizes Amboss’s marketplace called Magma to find channels that meet the merchant’s needs at the best price.
Amboss sources liquidity from various providers who offer to open channels for a fee. Merchants pay in advance for pre-paid credits, and once the channels are opened, Amboss compensates providers accordingly. One key advantage of Hydro is that businesses retain control over their funds instead of relying on a custodian to accept Lightning payments on their behalf.
Hot Take: Simplifying Liquidity Management for Lightning Network Payments
The launch of Amboss’s Hydro subscription service marks a significant step towards simplifying liquidity management for businesses accepting payments on the Lightning Network. By automating the process of obtaining liquidity, Hydro eliminates the need for businesses to have in-depth knowledge of Lightning “liquidity” and reduces the ongoing maintenance required. Additionally, Hydro allows businesses to maintain control over their funds, aligning with the principles of decentralization. With the potential cost savings compared to traditional payment processing fees, using the Lightning Network becomes a more attractive option for merchants.
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