Onboarding the Masses: Submarine Swaps
The Lightning Network (LN) is an impressive workaround to the limited capacity of Bitcoin.
The LN ensures that only a single on-chain transaction is required before parties are able to make payments back and forth near-instantly and without bloating the main chain. When it’s time to settle, the state of the channel is published to the blockchain, and on-chain funds are allocated to the respective parties.
With the advent of the LN came the promise of new ways of exchanging wealth between blockchains, sidechains and ancillary layers. In this piece, we’ll look at a solution that’s already up and running: the submarine swap.
In a word, submarine swaps ensure interoperability. They can be thought of as single-use payment channels, where a payee sends on-chain funds to a middleman in order to have the equivalent paid off-chain. You may be thinking that anyone could do this (which they could), but submarine swaps remove the need for trust in the counterparty (the magic of HLTCs).
It “can be pretty helpful if you want to use your regular on-chain funds and buy off-chain things,” Alex Bosworth, Lightning Infrastructure Lead at Lightning Labs (and creator of the concept) told me in an exchange.
“In theory you could also use it to buy on-chain things with off-chain funds.”
You can see this in action on the Submarine Swaps website. You’ll notice that the method isn’t Bitcoin-exclusive either: other cryptocurrencies can be sent to pay Lightning invoices – Alex has had success in swapping ETH, BCH and LTC for off-chain Bitcoin.
Right off the bat, this seems an ideal tool for cryptocurrency-accepting businesses and their clientele. Submarine swaps allow merchants to receive Lightning payments without their customers necessarily having a connected Lightning wallet.
However, there are a myriad of other use cases that these swaps can be applied to – outsourcing Lightning integration, rebalancing your portfolio, ‘cleaning’ coins or even refunding swaps to multisig addresses. Alex also touched on the notion of extending the longevity of LN channels:
“One benefit is refilling your existing channels. When channel liquidity depletes, like when you spend down your entire channel capacity, people may feel like they need to close their channel and make a new one. That limits the scalability multiplier of Lightning – we want to maximize the lifetime of all channels.
“Instead of closing your channel, you can do a submarine swap with someone on a side-chain for example. So you buy some bitcoins on a Liquid exchange, visit a Liquid LN bridge, trade them Liquid BTC for LN BTC, and your channel is refilled without having to do any main blockchain transactions at all.”
Insofar as infrastructure is concerned, it’s not hard to envision the benefits of trustless on-chain/off-chain bridges. Alex continued:
“I’m hoping more wallets add support for it over the next couple of years and we can standardize some elements of it. Overall I would say it can be a single tool in a wide toolbox of trust-minimized liquidity solutions.”
Submarine swaps will undoubtedly grow to become a critical component in the LN ecosystem. Though their value may be understated given the relatively low demand for block space these days, we’ll surely see them rise to prominence in the future to accommodate a wide range of use cases.
Thanks to Alex Bosworth for his input.
Cover art by the author.