"In a standard Lightning channel, a Lightning network node would broadcast a UTXO announcing that they will be locking up these funds, creating a corresponding HTLC on Lightning tied to a peer in a 2 of 2 multi-sig on-chain agreement.

A hierarchical channel is a 2-party channel with two main outputs, one per party, plus zero or more HTLC outputs. Each output from a hierarchical channel that pays to a multi-user party fund another potentially hierarchical channel.

As a result, each output in a hierarchical channel (including an HTLC output once it has been resolved) can be viewed as the root of an off-chain tree of outputs where the leaves are owned by single users.

In order to update a hierarchical channel, funds are offered by one party to the other party in an HTLC. One user within the party offering the HTLC is designated as the payer, and one user within the party offering the HTLC is designated as the payee."