The Importance of Cooperation and Liquidity Allocation in Off-Chain Payment Systems

• Rene Pickhardt questions the viability of multiparty payment channels on the Lightning Network.
• Channel factories improve payment reliability by allowing off-chain liquidity allocation.
• Multiparty channels enable users to allocate liquidity into large groups and sub-allocate it off-chain.
• Multiparty channels involve stacking conventional two party channels on top of the multiparty one.
• Enforcing multiparty channels on-chain can be more expensive than two party channels.
• The core design goal of off-chain systems is to incentivize participants to stay off-chain and cooperate.

Summary :
Rene Pickhardt, a researcher studying payment reliability on the Lightning Network, recently expressed skepticism about the viability of two-party payment channels compared to multiparty channels. He highlighted the issue of liquidity allocation in two-party channels, where users have to make choices on where to allocate their liquidity, potentially leading to payment failures if liquidity is not allocated where it is needed. In contrast, multiparty channels allow users to allocate liquidity into larger groups and reallocate it off-chain as needed. This flexibility reduces the reliance on on-chain transactions and enables better cooperation among participants. However, Rene also pointed out that enforcing the current state of multiparty channels on-chain can be more expensive in a high fee environment compared to two-party channels. Despite this trade-off, the key focus should be on incentivizing participants to stay off-chain and cooperate, rather than solely considering the on-chain footprint. Properly structuring multiparty channels can create subsections with high reliability and trust, allowing for liquidity reorganization within those subgroups even if participants outside of it are unresponsive or offline temporarily. Therefore, the core design goal of off-chain systems is to encourage cooperation and minimize the need for on-chain enforcement. It is crucial to keep this aspect in mind when envisioning the future of these systems.

Sources :

- Bitcoinmagazine