Lightning Labs Brings a New-and-Improved DeFi on the Bitcoin Network
On Nov 2, Lightning Labs, one of the teams behind Bitcoin’s main side chain scaling solution, the Lightning Network (LN), added a new functionality by introducing Lightning Pool. Lightning Pool will be non-custodial and will allow interaction between participants on a peer to peer basis. The LN team further indicated that the new offering enables its user to access liquidity by trading on the pool.
Solving Liquidity Shortcomings
According to the LN team, Lightning Labs, a non-custodial approach allows liquidity providers on the pool to attract incentives on their Bitcoin without transferring control to intermediaries. Incentives are harvested from those taking liquidity from the pool.
Notably, the new offering is one way for Lightning Labs to drive the network’s uptake by solving the liquidity equation. In the past, LN users have relied on approaches such as over the counter and chat groups. Unfortunately, Lightning Labs noted that this was only available to a section of LN users prompting a standardized solution like Lightning Pool.
Here Comes the LiFi Dawn
Notably, the pool brings new dawn called LiFi or Lightning-themed financial products. LiFi is different from decentralized finance (DeFi) because Bitcoiners don’t have to convert their holdings into wrapped BTCs to earn yields on a DeFi platform.
“Unlike other services on the market, Pool sellers can earn yield on real bitcoin without trusting a third party or losing custody of their funds.”
After the reserved testing phase on select leading crypto wallets and exchanges, Lightning Pool will launch with a fixed maximum order amount of 10 BTCs. However, the team notes that the amount is bound to increase once the system has been thoroughly tested. Part of the reason for capping the maximum amount at 10 BTCs is the hype around DeFi and yield farming.
Lightning Labs fears that cryptocurrency investors can provide the pool with “a million dollars” on the first day of operation. Therefore, there needs to be a complete stress test before the amounts can be increased.
While speaking to Bitcoin Magazine, Ryan Gentry, the head of the business development department at Lightning Labs, notes that Lightning Pool will use a shadow chain. The chain will help the team implement a complex logic on top of the Bitcoin blockchain. For instance, it will facilitate off-chain transactions that will be settled as a batch on the main chain.