Building an overview of the Lightning Network ecosystem

In this article we attempt to lay out background and foundations for systematic research of the Lightning Network as an ecosystem of projects, startups and products that drive adoption of the technology in various use cases. While the direction of future research will most likely be from a VC angle, this is rather an academic attempt to enumerate, and classify the projects, highlighting emerging trends and open questions.

Progress of development and user adoption in the Lightning Network ecosystem has not been making frequent headlines in the media and has from time to time given rise to debate about the current state of the technology and it’s readiness for broader use¹. Ongoing qualitative research on the advantages and disadvantages of technology² is providing reasonable evidence of the progress and remaining challenges, and the ecosystem has recently enjoyed more interest from the venture capital industry³’⁴. But a comprehensive quantitative analysis was yet to be performed and we believe that this attempt paves the way to further systematic exploration of the ecosystem that will help answer questions about the domains of applicability of the Lightning Network and its incredible but yet to be fully uncovered economic and social potential.

This research was conducted during summer-autumn 2020 and was based in part on the preceding works of 2018 and 2019 and using many of the valuable resources maintained in the community (references in Appendix 2). Our main goal is to establish an open framework for future research collaborations that will help make the Lightning Network a mainstream technology in the modern world where decentralization, privacy and financial independence are slowly but evidently becoming important topics on the agenda of diverse social groups.

References to logos and projects below are used for illustration only, they do not represent a project’s perceived position in the ecosystem and not present an endorsement by the researchers.

Due to the overall moderate or low to no publicity and private nature of some developments, not all projects may have been covered in the research although we tried to perform cross-checks and seek external review and advice where possible. We optimized for building an overall picture rather than a concise catalogue and we mostly used already existing catalogues that we are very grateful to (links to catalogues in Appendix 2).

Image for post
Image for post

In a nutshell

  • Over 400 merchants claim support for LN payments with the number growing steadily at almost constant pace
  • 322 apps/projects were observed as part of the Lightning ecosystem (for quick reference the numbers were around 93 and 151 in 2018 and 2019 respectively)
  • Ecosystem growth is mainly driven by Lightning native projects (282 started in 2017 and later); but adoption of the technology among incumbent crypto companies is also notable (40 companies founded prior to 2017 claim lightning support)
  • Software components and developer tools came out as the single most represented category with 77 (25%) of all projects indicating that we are now in the active phase of building out the infrastructure layer. The share of this category when combined with Node management would be 120 or 37%)
  • Financial infrastructure and LiFi (a term supposedly introduced in the Lightning Labs newsletter) is the second prevailing segment (49 or 15%). Yes, we are building a financial system first of all!
  • Further on, substantial project activity is observed in wallet and gaming segments (90 or 28%) indicating that consumer use cases are dominating the minds of developers
  • Earning, stacking and tipping are very popular use cases too, though merchant-focused services did not see much innovation in 2020, while experiments with social apps have remained steady.
  • The database is here free to access, and a Google Spread Sheet version export is also available upon request.

Lightning implementations as the foundation for the ecosystem

The lightning ecosystem is still very nascent, although the foundational paper was published in 2016 (https://lightning.network/lightning-network-paper.pdf). In January 2018, Blockstream released Lightning Charge⁵, a Node.js server that provides a REST API for using the Lightning network. In March 2018, Lightning Labs announced the go-live of lnd 0.4-betа for the Lightning mainnet⁶. One month later ACINQ followed with the release of Strike, an API and dashboard to accept Lightning payments on Bitcoin mainnet⁷. All three companies were the first to raise significant amounts of venture capital in this industry. Other VC-backed and non-profit initiatives followed suit. Nayuta Pratmigan Lightning “reckless mainnet” implementation was released in April 2019⁸. RGB and RUST Lightning implementation projects were started later in 2019 and 2020 as well as the notable Square Crypto LDK⁹.

Bitfinex launched support for the Lightning Network in December 2019¹⁰ followed shortly by River Financial announcement¹⁶ that they support Lightning too, something we believe River was working on since day one. With Bitcoin and Lightning attracting more and more interest from professional investors since then (announced rounds of Strike and LNMarkets) we are now taking a closer look how the whole ecosystem building on these Lighting Network implementations is evolving.

Background of the research

How does the Lightning Network ecosystem look like today? To answer this question we are attempting to perform a helicopter view study of the Lightning Network that also builds on prior work of notable community members from 2018 and 2019. Results are open source and free to use by anyone and may:

  • provide insights into the degree of professionalization and developer activity in the ecosystem,
  • draw a comparison over years and discover trends regarding industry sectors and geographic distribution,
  • show sectors of high interest and potential white spots for founders and investors.

With Lightning App Directory, Lightning Network Stores, Building Bitcoin and quite a few others (see list in Appendix 2 below and more sources referenced in the research database in Sources column) there are already collections of Lightning projects available that provide a good overview. For our research we also referred to these such collections, but added further analysis and historic trending.

To gain a holistic overview of the global Lightning ecosystem, we used public data sources such as CrunchBase, Pitchbook, Twitter, GitHub and press releases. Data entries per project were accumulated in a Google Docs spreadsheet database with each entry typically including: company name, sector of activity, location, founders, contact details, company size in terms of employees and funding status.

Not only products and services offered by registered (incorporated) companies but all Lightning based projects and Lapps¹¹ are considered for this analysis. Entities offering more than one project appear according to the actual number of projects, products or services they work on.

Mapping out project categories

The research largely builds on previous collaborative work between Fulgur Ventures’ Oleg Mikhalsky and Andrew Samokhvalov of Bitlum in 2018 and a collaboration with Radar Relay in 2019. For this time, over 400 products, projects and Lapps were identified and narrowed down to just over 320 active ones as of the time of writing. This results in a larger number than 93 observed in 2018 and 152 from 2019 (Fulgur’s previously unpublished number), representing overall growth of 60–100%. However we expect growth slowing down at the end of 2020 that brings up a new interesting topic for research: how to facilitate developer ecosystem growth outside of early adopter community and attract non-bitcoin VCs to take the ecosystem on its journey of “crossing the chasm”¹².

Projects that allow Lightning payments but whose primary application is not Lightning-related such as shops are part of the list but have not yet been in the focus and not analyzed for data consistency and trends. Therefore the extent of data available for such entries is smaller but there are dedicated databases like LightningNetworkStores that show consistent growth of shops accepting lightning payments from 136 in Dec 2018 to 328 in Dec 2019 and over 400 at the time of writing this report. Inactive projects were also excluded from the final version.

A browsable version of the database is now available on our website here.
To improve data quality and completeness the source spreadsheet is also free to access and comment over this link.

Image for post
Image for post

As previously noted, infrastructure software components and developer tools come as the single most represented category with 77 (25% of all projects) indicating that we are now in the active phase of building out for the infrastructure layer. The share of this category when combined with Node management would be 120 or 37%). Financial infrastructure and LiFi (a term supposedly introduced in the Lightning Labs newsletter) is the second prevailing segment (49 or 15%). Yes, we are building a financial system first of all!

Gaming is the biggest category followed by Wallets & Payments and Merchant Services. As shops accepting Lightning payments have not been the focus of this study, only a fraction of the actual number appear in the database¹³. More granular categories are available for filtering and drill down in the database directly.

The previous graph confirms the use cases of Lightning in consumer apps and micro payments with Gaming and Wallets as the leading categories. If you strongly feel we have missed or misplaced any entry, do let us know.

The following graph illustrates how different types of projects were born throughout the first years of the lightning network. Note the almost constant number of new projects in Node Management, Infrastructure and Gaming. Interestingly enough, from conversations with lightning game developers we have also observed that due to the nature of small and frequent in-game transactions, game adoption at notable scale may lead to a demand for more real live resilient lightning infrastructure (including DevOps, cloud deployment and liquidity provisioning) as well as it may reveal some bottlenecks in lightning implementations, driving technology to the next maturity level. Games can become the spearhead of lightning adoption given the pre-existing notion of digital assets in games and the overall above average technical level of the gamers as many of them are geeks and new gadget lovers by nature. Add to that the sentiment that exists in some economically less developed geographies that gamers may earn more income by professional play rather than unskilled local work.

Image for post
Image for post

Compared to 2018 and 2019 activity of project initiation in 2020 is lower throughout the year. This can partially be attributed to lasting COVID that kept people out of conferences but also partially because of slow intake of new developers and potential founders into the ecosystem as most early adopters have already formed teams around their own projects or joined larger companies.

Image for post
Image for post

Since the release of the first Lightning implementations in 2018 numerous new projects were formed suggesting that Lightning native companies and projects are still the main driver behind the ecosystem growth. Entries in previous years are due to already existing companies (e.g. shops and exchanges) that adopted Lightning later on.

Noteworthy, services for merchants, paywalls or tipping were initiated mainly in 2018, but activity has been decreasing since then, which hints to a saturation in the market given the current demand for Lightning payments in their field of application or the lack of traction and monetization models that also derailed a few bitcoin payment companies started around 2014¹⁴’¹⁵. Lightning node services depicted as “Node Management” around Lightning nodes remain constant since 2018 signaling a demand for better user experience around the operation and management of Lightning nodes.

From an initial assessment to a comprehensive ecosystem view

All information in this research is derived from publicly available data. As projects are continually entering and leaving the ecosystem or even shutting down the number of entries keeps changing. Therefore, the collection can only show an approximation of the status quo in the ecosystem. Depending on usage and feedback from the community the database will be regularly updated by extending the current list and maintaining existing entries.

More importantly the collection provides fundamental information for further research not only for founders but investors, developers or product managers as well. Tracking inactive projects allows the identification of reasons for business failures for instance. With a growing ecosystem trends in venture funding will become more and more visible. Furthermore, the list of open source projects provides an overview of available tools for developers and product managers for their daily work.

Questions for future research

What could be done further, what research topic is of highest interest and priority? Your opinion would help us make research effort more valuable for the community. In our midterm roadmap we are considering, for example, an overview of Lightning Network implementations from developer/startup/ /business application point of view. What could it cover?

Other possible topics of broader nature:

  • Future of games and in-game assets
  • Developer tools and education to bring more developers
  • Where to find more founders/product managers/seasoned professionals and not-first time entrepreneurs
  • User adoption metrics and follow-on fundraising by lightning startups
  • B2B vs B2C adoption or native Lightning models (M2M?)
  • Lessons learned on what did not work with some of the projects and startup ideas

Some more technical /in-depth or challenging topics:

  • Custodial/non custodial/hardware, importance of decentralization and trustless-ness
  • Mapping out public infrastructure and liquidity, metrics correlated with activity of projects
  • Future of DeFi and Discreet Log Contracts and Bitcoin native financial products
  • How future updates to bitcoin core will contribute to lightning development
  • Regulatory aspects

If your research question is still unanswered or not on the list, please reach out to us.

We would like to thank everyone who rigorously maintain data sources that we used in our research, and our special thanks are to the reviewers and contributors to this research: Simon Cowell, Michael Grosser, Sergej Kotliar, Raphael Leiteritz, Roy Sheinfeld, Max Webster and others.

If you are further interested, Fulgur Ventures Lightning resources web page aggregates statistical data on the Lightning Network and activity in the Lightning ecosystem since early 2019. Check it out at https://fulgur.ventures/lightning.html

Subscribe here if you want us to drop our future research in your inbox.

About the authors: Moritz Kaminski is a business development specialist with years of experience in tech ventures and early stage funding. Oleg Mikhalsky is a partner at Fulgur Ventures focused on the Lightning Network and Bitcoin ecosystem.

Appendix 1

Taxonomy of the Lightning Network projects. At the time of compiling the database in late 2020 we came up with the following definition of categories. As the ecosystem is in continuous evolution, there may be a need to revise the taxonomy from time to time and we appreciate feedback in this regard.

  • Gaming includes games and game developer studios providing Lightning based in-game payments.
  • Infrastructure Software and Developer Tools includes Lightning infrastructure apps and development tools.
  • Financial Infrastructure and LiFi includes Lightning integrated financial services such as exchanges and asset trading, and includes LiFi ;).
  • Lightning Social Apps includes apps that provide social media functionality such as messaging over the Lightning protocol.
  • Merchant, Paywall & Tipping Service includes apps that enable a merchant, content creator or any person to receive Lightning payments
  • Node Management includes node management user interfaces and a variety of service apps around Lightning nodes (e.g. watchtowers).
  • Rewards & Earning includes apps that reward a certain action (e.g. microtasks, online purchases) with lightning payments.
  • Shop refers to e-commerce websites accepting Lightning payments.
  • Wallet & Payments includes wallet apps to send and receive Lightning payments.

Appendix 3

Number of stores accepting lightning network payments.
Source: https://lightningnetworkstores.com/stats

Image for post
Image for post

Written by

We invest in early stage startups focused on Bitcoin and the Lightning Network

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store