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On-the-fly channel liquidity

Table of Contents

• Abstract
• Specification
  • Feature bits
  • Extensions for Bolt 12 messages
  • Extensions for interactive-tx messages
• Examples

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Coin selection for liquidity providers

Bitcoin Core's coin selection algorithms optimizes mostly for the following metrics:

• keep a low utxo count by consolidating regularly
• avoid creating a change output
• when a change output is needed, use an amount equivalent to the payment (for privacy)

This doesn't match what liquidity providers need. Liquidity providers need to:

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Continuous on-the-fly liquidity for mobile wallets

Liquidity is always provided by an on-chain transaction (channel open or splice), which can be triggered by:

• On-chain funds added by the wallet user.
• A lightning payment to the wallet user requiring additional liquidity.

Table of Contents

• On-chain swaps using swap-in-potentiam