Channel Liquidity

Liquidity is the ability to send and receive payments. In Lightning, liquidity is directional—you need outbound liquidity to send and inbound liquidity to receive.

Why Liquidity Matters for Agents

Challenge	Impact
No inbound	Can’t receive payments
No outbound	Can’t send payments
Unbalanced	Limited payment sizes
Depleted	Need to rebalance or open new channels

Liquidity Fundamentals

Channel Capacity vs Liquidity

Channel Capacity: 1,000,000 sats (total)
├── Your side (outbound): 600,000 sats
└── Their side (inbound): 400,000 sats

Capacity: Total BTC locked in the channel (fixed at open) Liquidity: How much you can move in each direction (changes with payments)

Outbound Liquidity

Funds on your side of channels = what you can send.

You ──[600,000]──→ Peer
      (outbound)

You gain outbound when:

Opening a channel with your funds
Receiving payments
Rebalancing inward

Inbound Liquidity

Funds on their side of channels = what you can receive.

You ←──[400,000]── Peer
       (inbound)

You gain inbound when:

Peer opens channel to you
Sending payments
Buying inbound (LSP)
Rebalancing outward

The Liquidity Problem

Opening Your First Channel

When you open a channel with your funds:

Before: You have 1 BTC on-chain
After:  Channel [You: 1 BTC | Peer: 0 BTC]

Problem: 100% outbound, 0% inbound. You can send but not receive.

Solving the Inbound Problem

Method	Cost	Speed	Complexity
Send payments	Variable	Immediate	Low
Receive from peer	Free	Depends	Low
Buy from LSP	~1-3%	Minutes	Low
Channel swap	On-chain fee	10-60 min	Medium
Circular rebalance	Routing fees	Seconds	Medium

Liquidity Strategies

1. Balanced Channel Opening

Open channels with a push amount—immediately give some to the peer:

lnd.open_channel(
    node_pubkey=peer_pubkey,
    local_funding_amount=1000000,
    push_sat=500000  # Give peer 50%
)

Result: 50% outbound, 50% inbound (but you lose 500k sats)

2. Dual-Funded Channels

Both parties contribute to the channel:

You contribute: 500,000 sats
Peer contributes: 500,000 sats
Channel: [You: 500,000 | Peer: 500,000]

Requires peer support (Core Lightning, Eclair).

3. Loop Out (Submarine Swap)

Move funds from Lightning to on-chain, creating inbound:

Before: [You: 1M | Peer: 0]
Loop:   Send 500k via LN, receive on-chain
After:  [You: 500k | Peer: 500k] + 500k on-chain

Cost: On-chain fee + service fee (~0.1-1%)

4. Circular Rebalancing

Route a payment to yourself through other channels:

You ─[outbound]→ A ─→ B ─→ C ─[inbound]→ You

Cost: Routing fees only Requirement: Multiple channels, circular path exists

Monitoring Liquidity

Check Channel Balances

channels = lnd.list_channels()

for ch in channels:
    total = ch.capacity
    local = ch.local_balance
    remote = ch.remote_balance

    local_pct = (local / total) * 100
    print(f"Channel {ch.chan_id}: {local_pct:.0f}% outbound")

Liquidity Alerts

def check_liquidity_health(channels, min_threshold=0.1):
    alerts = []

    for ch in channels:
        local_ratio = ch.local_balance / ch.capacity
        remote_ratio = ch.remote_balance / ch.capacity

        if local_ratio < min_threshold:
            alerts.append(f"Low outbound: {ch.chan_id}")
        if remote_ratio < min_threshold:
            alerts.append(f"Low inbound: {ch.chan_id}")

    return alerts

Rebalancing Techniques

Circular Rebalance

Send a self-payment through your channels:

# Find circular route
routes = lnd.query_routes(
    pub_key=my_pubkey,  # Pay yourself
    amt=100000,
    outgoing_chan_id=depleted_channel,
    last_hop_pubkey=refill_channel_peer
)

# Execute rebalance
lnd.send_to_route(
    payment_hash=random_hash,
    route=routes.routes[0]
)

Using Rebalancing Tools

Balance of Satoshis (BOS):

bos rebalance --amount 100000 --out-through DEPLETED_CHAN

Rebalance-LND:

rebalance-lnd --amount 100000 -o CHAN_FROM -i CHAN_TO

Liquidity Markets

Lightning Service Providers (LSPs)

Buy inbound liquidity from LSPs:

Provider	Min Channel	Fee
Voltage	100k sats	~1%
LNBIG	500k sats	~1-2%
Bitrefill	500k sats	Variable

Liquidity Ads

Core Lightning supports liquidity advertisements:

Node advertises:
  - Will open 1M sat channel
  - For 5000 sat fee
  - Locked for 2016 blocks

Pool (Lightning Labs)

Auction-based liquidity marketplace:

# Bid for inbound liquidity
pool.bid(
    amount=1000000,  # 1M sats channel
    rate=500,        # Premium in ppm
    duration=2016    # Blocks
)

Capacity Planning

For Sending Agents

If you primarily send payments:

Priority: Outbound liquidity
Strategy: Open channels with your funds
Rebalance: When outbound < 20%

For Receiving Agents

If you primarily receive payments:

Priority: Inbound liquidity
Strategy: Use LSPs, dual-funded channels
Rebalance: When inbound < 20%

For Routing Agents

If you route payments:

Priority: Balanced liquidity
Strategy: Multiple large channels, both directions
Rebalance: Keep channels 40-60% balanced

Liquidity Metrics

Metric	Formula	Target
Outbound ratio	local / capacity	> 0.2 for sending
Inbound ratio	remote / capacity	> 0.2 for receiving
Balance score	1 - abs(0.5 - local/capacity)	> 0.3

Aggregate Liquidity

def calculate_total_liquidity(channels):
    total_outbound = sum(ch.local_balance for ch in channels)
    total_inbound = sum(ch.remote_balance for ch in channels)
    total_capacity = sum(ch.capacity for ch in channels)

    return {
        "outbound": total_outbound,
        "inbound": total_inbound,
        "capacity": total_capacity,
        "outbound_pct": total_outbound / total_capacity * 100,
        "inbound_pct": total_inbound / total_capacity * 100
    }

Common Liquidity Issues

Issue	Symptom	Solution
Can’t receive	All outbound depleted	Buy inbound, Loop Out
Can’t send	All inbound (rare)	Open new channel
Large payments fail	Insufficient single-channel capacity	MPP, larger channels
High rebalance cost	Unbalanced network position	Better connected peers

Payment Channels - Channel fundamentals
LSPs - Liquidity providers
Submarine Swaps - Loop In/Out
Fees - Cost of rebalancing

Machine-Readable Summary

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    "outbound-liquidity",
    "rebalancing",
    "capacity-management"
  ],
  "strategies": [
    "dual-funded-channels",
    "circular-rebalance",
    "submarine-swaps",
    "lsp-channels"
  ],
  "metrics": {
    "min_outbound_ratio": 0.2,
    "min_inbound_ratio": 0.2,
    "balanced_target": 0.5
  }
}