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toneloc / stable-channels

p2p stable channels on the Bitcoin Lightning Network
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main on CLN v24.02.2

Note: Skip to Getting Started for technical startup instructions.

Stable Channels - Version 30MAY2024

This Twitter thread explains things pretty well, with an example - https://x.com/tonklaus/status/1729567459579945017

And this Delving Bitcoin post goes more in-depth - https://delvingbitcoin.org/t/stable-channels-peer-to-peer-dollar-balances-on-lightning

Stable Channels lets Lightning Network node runners keep one side of a Lightning channel balance stable in dollar terms, for example $100.

Stable Providers want to leverage their bitcoin. However, Stable Receivers put their bitcoin at risk by doing so.

Each of these two nodes query 5 price feeds every 5 minutes. Then, based on the new price, they update their channel balance with their counterparty to keep the Stable Receiver stable at $100 of bitcoin.

This basic process works as follows.

Every 5 minutes, either the price of bitcoin (a) goes up, (b) goes down, or (c) stays the same:

Stable Channels are non-routing channels. We are working on adding routing.

Technologically, these are vanilla Lightning channels with no DLCs, and there are no tokens or fiat on-ramps involved.

Stable Channels works as a plug-in on CLN, which is Blockstream's implementation of the Lightning Network specification.

Stable Channels also works on LND.

Stable Channels workflows end-to-end work like this:

  1. Match with a counterparty and come to an agreement on the parameters of the Stable Channel.
  2. Select the price feeds. By default, Stable Channels takes the median of five price feeds: BitStamp, CoinGecko, CoinDesk, Coinbase, and Blockchain.info
  3. Create a with the counterparty, each putting in the amount of the Stable Channel.
    • This can be dual-funded
    • Or you can attach the Stable Channel software to an existing channel.
    • Example: If the Stable Channel is for $100, each side of the channel puts in $100, for a total channel capacity of $200 at the time of channel creation
  4. Query the five price feeds' APIs and update the Stable Channel balance accordingly:
    • If the price went down, the Stable Provider needs to pay the Stable Receiver.
    • If the price went up, the Stable Receiver needs to pay the Stable Provider.
    • If the price stayed the same or moved only a tiny amount, no payment is required
    • Continue until either party wants to close

Getting Started

Currently, this works as a CLN plugin and as a standalone LND app. This code is at the root of this directory.

There are also some in-progress iOS apps, web apps, bash scripts, Python servers and other knick-knacks. Check that stuff out, as you wish, in /platforms.

Environment and dependencies

For CLN, clone this repo, or create a stablechannels.py file with the contents of stablechannels.py for CLN.

Copy the contents of lnd.py to a working directory for LND.

Stable Channels has a few dependencies.

Stablechannel balance results are written to either stablelog1.json if you are the Stable Receiver or stablelog2.json if you are the Stable Provider. These are in the stablechannels directory inside your network directory, e.g. ~/.lightning/bitcoin/stablechannels/stablelog1.json.

Connecting and creating a dual-funded channel (for CLN)

If your Lightning Node is running, you will need to stop your Lightning Node and restart it with the proper commands for dual-funded (or interactive) channels.

You can do this with the following commands.

Stop Lightning: lightning-cli stop or lightning-cli --testnet stop.

Next, start your CLN node, or modify your config files, to enable dual-funding channels up to the amount you want to stabilize, or leverage. This will look like this

lightningd --daemon --log-file=/home/ubuntu/cln.log --lightning-dir=/home/ubuntu/lightning --experimental-dual-fund --funder-policy=match --funder-policy-mod=100 --funder-min-their-funding=200000 --funder-per-channel-max=300000 --funder-fuzz-percent=0 --lease-fee-base-sat=2sat --lease-fee-basis=50 --experimental-offers --funder-lease-requests-only=false

The "funder" flags instruct CLN on how to handle dual-funded channels. Basically this command is saying: "This node is willing to fund a dual-funded up to 300000 sats, a minimum of 200000 sats, plus some other things not relevant for Stable Channels.

Your counterparty will need to run a similar command.

Next connect to your counterparty running the CLN connect command. This will look something like: lightning-cli connect 021051a25e9798698f9baad3e7c815da9d9cc98221a0f63385eb1339bfc637ca81 54.314.42.1

Now you are ready to dual-fund. This command will look something like lightning-cli fundchannel 021051a25e9798698f9baad3e7c815da9d9cc98221a0f63385eb1339bfc637ca81 0.0025btc

If all goes well, we should be returned a txid for the dual-funded channel, and both parties should have contributed 0.0025btc to the channel.

Now this needs to be confirmed on the blockchain.

Starting Stable Channels

We need to start the Stable Channels plugin with the relevant details of the Stable Channel.

The plugin startup command will look something like this for CLN:

lightning-cli plugin subcommand=start plugin=/home/clightning/stablechannels.py channel-id=b37a51423e67a1f6733a78bb654535b2b81c427435600b0756bb65e21bdd411a stable-dollar-amount=95 is-stable-receiver=True counterparty=026b9c2a005b182ff5b2a7002a03d6ea9d005d18ed2eb3113852d679b3ec3832c2 native-btc-amount=0

Modify the directory for your plugin.

What this command says is: "Start the plugin at this directory. Make the Lightning channel with channel ID b37a51423e67a1f6733a78bb654535b2b81c427435600b0756bb65e21bdd411a a stable channel at $95.00. and 0 sats of BTC. Is is True that the node running this command is the Stable Receiver. Here's the ID of the counterparty 026b9c..."

Your counterparty will need to run a similar command, and the Stable Channels software should do the rest.

The startup command for the LND plugin will be something like this:

python3 lnd.py 
    --tls-cert-path=/Users/alice/tls.cert
    --expected-dollar-amount=100 
    --channel-id=137344322632000 
    --is-stable-receiver=false 
    --counterparty=020c66e37461e9f9802e80c16cc0d97151c6da361df450dbca276478dc7d0c271e 
    --macaroon-path=/Users/alice/admin.macaroon 
    --native-amount-sat=0 
    --lnd-server-url=https://127.0.0.1:8082

Stable Channel balance results for the Stable Receiver are written to the stablelog1.json file and logs for the Stable Provider are written to the stablelog2.json file.

Payout matrix

Assume that we enter into a stable agreement at a price of $27,500 per bitcoin. Each side puts in 1 bitcoin, for a total channel capacity of 2 bitcoin, and a starting USD nominal value of $55,000 total. The below table represents the payouts and percentage change if the bitcoin price increases or decreases by 10%, 20%, or 30%. Check out this payout matrix to better understand the mechanics of the trade agreement.

Abbreviations:

Price Change (%) New BTC Price SR (BTC) SR (USD) SP (BTC) SP (USD) SR Fiat Δ$ SR BTC Δ SR Fiat Δ% SR BTC Δ% SP Fiat Δ$ SP BTC Δ SP Fiat Δ% SP BTC Δ%
-30 $19,250 1.4286 $27,500 0.5714 $11,000 $0 +0.4286 0% +42.86% -$16,500 -0.4286 -60% -42.86%
-20 $22,000 1.25 $27,500 0.75 $16,500 $0 +0.25 0% +25% -$11,000 -0.25 -40% -25%
-10 $24,750 1.1111 $27,500 0.8889 $22,000 $0 +0.1111 0% +11.11% -$5,500 -0.1111 -20% -11.11%
0 $27,500 1 $27,500 1 $27,500 $0 0 0% 0% $0 0 0% 0%
10 $30,250 0.9091 $27,500 1.0909 $33,000 $0 -0.0909 0% -9.09% +$5,500 +0.0909 +20% +9.09%
20 $33,000 0.8333 $27,500 1.1667 $38,500 $0 -0.1667 0% -16.67% +$11,000 +0.1667 +40% +16.67%
30 $35,750 0.7692 $27,500 1.2308 $44,000 $0 -0.2308 0% -23.08% +$16,500 +0.2308 +60% +23.08%

Roadmap

Hope to move all this to issues and PRs soon.

Done:

To do:

Rationale and Challenges

The most valuable stablecoins today are Tether and USDC. These stablecoins hold their value in fiat: cash and bonds. This cash and these bonds have fiat custodians. These fiat custodians are centralized companies that may be forced to freeze these assets or revoke banking access. Either of these scenarios mark a liveness failure of that stablecoin to retain its purchasing power, or worse.

Stable Channels intends to provide a more socially scalable solution. Stable Channels, as a solution, is self-custodial, has no token or token issuer, and intends to give a real-time, streaming finance experience for its users. The vision is to create a self-custodial p2p exchange where users can hedge or lever up their bitcoin exposure.

Stable Channels inherit many of the challenges of the Lightning Network. One challenges is that with Lightning, bitcoin is held in an online wallet. Another challenges is that both nodes must always be online. Yet another challenge is getting trustworthy price feeds. Finally, there are various potential cyber and social engineering attacks.

The Stable Channels approach is that while all of these failure modes and attacks are plausible, it is only by building a USD experience on top of only bitcoin that we can, over the long term, give users the best derivatives trading experience.

For those users who want USD experience and are Americans, we recommend FDIC-insured bank accounts. For those users who want bitcoin exposure, we recommend simply HODLing spot bitcoin.

Splicing workflow

Stable Channels can use channel splicing to handle "margin calls."

Acknowledgements

Thanks to Christian Decker and the Core Lightning team from Blockstream for his help with setting up Greenlight. Thanks to Michael Schmoock (m-schmoock) for writing the "currencyrate" plugin, which I use. Thanks to @jamaljsr for developing the Polar Lightning Network visualization tool. I also used Jamal's code for the Stable Channels.com website. Thanks to Dan Robinson for his work on Rainbow Channels. Thanks to Daywalker90 for his open-source contributions.

Thanks to all of the Lightning Network core developers, and all of the bitcoin open-source devs on whose giant shoulders we stand.