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Going to do a deep dive on capital accrual on the lightning network

It seems that adding liquidity, not losing custody, and providing infrastructure, with your Bitcoin, is a incentive-aligned investment for a Bitcoin maxi

Most of the time I am put off by:

- counter party risk

- liquidity risk

- liquidation risk

- the hurdle rate of Bitcoin

- tax risk

But thus far, and I could be wrong, all due diligence is positive

I wonder, the yield of say 10% that is available should you optimise it well

Why won’t that be compressed? As more capital becomes available and sophisticated, I assume it’s less profitable to run a node, channel, and provide liquidity?

Really does seem like a clean play at to create yield on your Bitcoin

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Discussion

Jake Woodhouse 1mo ago 💬 3

Is adding liquidity to the lightning network akin to being a gold miner?

Ie you’re adding critical infrastructure that improves the underlieing asset and creating a yield?

Or perhaps it’s more like a commercial bank, adding liquidity to the base layer money?

I think I prefer the 2nd analogy

nostr:nevent1qqsqrjn90dkm92c6ndeq6zxxp6sprp4pj00ncj74607xwvn87tz9dhqprfmhxue69uhhyetvv9ujuumwdae8gtnnda3kjctv9ukqpkhjut

aljaz 1mo ago

10% is a pipe dream, sure you will see anecdata here or there but you cannot predictably deploy large amounts of capital into LN and expect meaningful returns, specially given the return on risk for putting your bitcoin in a hot wallet that is accessible over the internet

Umberto 1mo ago

What would be your estimation %?

I think you can only get up significantly if you are selling liquidity. But this will be more a one term thing and we have quote some players who are doing this already.

aljaz 1mo ago

yeah you can get decent returns when you sell liquidity to loop or on marketplaces etc, but thats not really a repeatable process unless you have endless bitcoin

amboss is throwing around some numbers between 1-4% but thats all based on anecdata and thats the point, it becomes better with large infrastructure - nostr:nprofile1qyt8wumn8ghj7etyv4hzumn0wd68ytnvv9hxgtcpvemhxue69uhkv6tvw3jhytnwdaehgu3wwa5kuef0dec82c33denh2mtvw9kh2uek0p4hymtkwejk2drevvmhxamg895rgattxam8quf5v3j8gdmpxf48gantvvery7fsv9ehyum9xdc8v0mzwfhkzerrv9ehg0t5wf6k2qpqngumlqmus6xkrmvvee4yc7swh9h4uk7vpq4ddt7a2jtvkc22y0as8a7mmt is sharing his numbers somewhat frequently so thats a good start to dig into this

here's an interesting thread nevent1qqsp8ca2q3axpanssgyh28nl6xvnfw4j8h2fctg5un8wfd4h8xpxvqs4q0nu8

Jake Woodhouse 1mo ago

The more info the better. In particular real world use cases

People actually trying

Will share what I learn as well

Thanks for the reply

Filou 1mo ago

Fwiw my node earns yields well above 10% consistently for over a year now. It took a few years of building up the node, learning, trial and error, to get to that point, but it is certainly possible. Even for a ‘small’ plebnode with few BTC capacity

aljaz 1mo ago

hat of to you sir! that is a very respectable achievement

Jake Woodhouse 1mo ago

Nice data point! Thanks for sharing

And say it was consistently 10%, what are the reasons that yield might compress?

Competition. Entropy. Malfunction. Etc?

Filou 1mo ago

Biggest driver of earnings is routing volume. It’s the one factor out of the hands of the noderunner. But volumes overall on the network have been very steadily increasing for a while now. In the past there would be shorter spurts of heavier volumes; what we are seeing now is very consistent and sustained.

Competition— I don’t think is much of an issue at this point. There are very few ‘professional’ lightning modes outside of the large commercial operators. There’s currently more demand for liquidity than is being met imo.

Jake Woodhouse 1mo ago

It’s a really interesting investment opportunity I think

Clear need

Clear demand

Earn sats (no Bitcoin hurdle rate)

Self-custody possible

Lots to like

Treecjd 1mo ago

Hey perv

So Tachi 1mo ago

The yields are higher the more channel you have and the more liquidity. Small nodes barely make a profit.

Lightning is overlooked though, competition is NOT fierce yet and you can run a big node for 10BTC

Lightning is a very exciting network for maxis and degens alike, if covenant get supported this network will be very interesting for all things DeFi too

Jake Woodhouse 1mo ago

It’s certainly worth investigating

10 BTC without losing custody, if that’s possible, then that’s a big deal

So Tachi 1mo ago

I agree it’s the best yields you can get on your bitcoin. You should be careful running your hot wallet but if you follow the good practices you’ll be fine. All big players are in there running node with hundreds of BTC capacity

satstacker 1mo ago

Been thinking the same thing since talking with nostr:npub1q8gth72n0mcl6rwls905rsvfvuu0dgaq7cq028rc9d7c3ygnp4xq84awvk

Treecjd 1mo ago

Hey perv