The Current State of Hydro

Quick Intro to The Lightning Network

The Lightning Network is a Layer-2 protocol on the Bitcoin blockchain. A payment channel is established between two parties. To send a payment, the balance of funds in this channel is updated with a signature from both parties. When a channel is closed, the funds are dispersed according to the most recent balance. A payment channel network emerges from these peer-to-peer connections where payments can be sent through intermediate parties assuming there is a route with enough liquidity.

Liquidity

A payment channel has two kinds of liquidity: inbound and outbound. Inbound allows a node to receive payments, while outbound liquidity allows a node to send payments. In the example below, Bob has opened channels to both Alice and Charlie where Bob has 4 BTC of outbound liquidity, and 0 BTC of inbound. But because Bob has no inbound liquidity, he cannot receive payments from either Alice or Charlie.

Sourcing Inbound Liquidity

If Bob were a merchant, this would a problem. Merchants require inbound liquidity in order to receive payments, but have limited options to source it. The three most popular ways to source inbound liquidity are to send payments, perform submarine swaps, or purchase channels. At AMBOSS, we believe the best solution for sourcing inbound liquidity will be affordable, automated, and add to the connectivity of the node.

HYDRO

On September 14, 2023, AMBOSS released HYDRO, an automated service to purchase liquidity from the MAGMA Marketplace. HYDRO subscribers specify capacity/liquidity triggers to purchase liquidity when it falls below a certain threshold. This ensure that subscribers have the liquidity necessary to accept payments on the Lightning Network.

Since HYDRO's launch we've added changes that not only optimize for cost, but also

• duration
• node connectivity
• payment reliability
• and minimum channel size

When purchasing channels on the user's behalf, HYDRO uses these metrics to select high quality offers. In terms of cost, most purchases have had a fee less than 1% with an average of 0.74% and median of 0.65%.

In the future, HYDRO will offer even more features such as manual triggers, the ability to purchase liquidity for others and more intelligent automation.