Lightning Channels

The most basic way of earning fees on the Lightning Network is by participating as an intermediary routing node. The fee consists of a base fee for every transaction routed and a fee per Satoshi routed. In October of 2023, River Financial published a comprehensive report[9] highlighting the immense growth exhibited by the Lightning Network in the last couple of years. Lightning saw a 1,212% increase in transactions from August 2021 to 2023. In August 2023 alone, the Lightning Network was estimated to have processed 6.6 million monthly transactions, with a total value of $78.2 million. The report also mentions that River Financial was earning a 1% annual yield on their Lightning capacity around that time. This amount may seem modest compared to other financial instruments, but it is important to consider the low-risk nature of Lightning Network operations, and the potential for higher returns as the network continues to grow and mature. Lightning channels also don’t have any sort of lock time or maturity date, so they are perpetually open until closed by either party. This is very useful for PegaSys, as we can source liquidity to fulfil withdrawals on an as-needed basis by closing lightning channels. In the context of PegaSys, this yield generation tactic will only be used for a fraction of the protocol’s reserves in order to make sure that the system is poised to be able to handle a sudden influx in withdrawals. The bulk of the protocol’s yield is going to come from more lucrative methods discussed below.