- Amboss Technologies launches Magma, a new marketplace for buying and selling liquidity on the Lightning Network.
- Magma uses a new “HODL” invoice that waits for three on-chain confirmations before completing a channel purchase.
- The market will also track reputation, remove repeat offenders and confirmed cheaters.
Lightning Network startup Amboss Technologies is launching Magma, a peer-to-peer (P2P) liquidity marketplace for Bitcoin’s Lightning Network, according to a press release sent to Bitcoin Magazine.
Ambos noted that while liquidity markets are not new, the company has combined a range of features to deliver a unique offering, including a new smart contract setup and reputation feature.
Liquidity is an essential aspect of managing the Lightning Network’s node and channels. The incoming capacities of their peers will determine how much bitcoin they can receive, and their outgoing capacities will determine how much bitcoin they can send.
Users can acquire outgoing capacity by opening a channel with another peer on the network, but in order to receive Lightning transactions, one needs to acquire incoming capacity. But the tricky part of managing Lightning’s liquidity is how to quickly find new incoming capacity to keep your business receiving Lightning Network payments. This is where the liquidity markets come in.
Liquidity Markets seeks to improve connectivity around the places that require liquidity in the Lightning Network. Market pricing information can help participants with some extra bitcoins make the best decision on where they need the liquidity (and get paid for it).
For the P2P market to function, the channels between the participants need to deposit funds into the channel that can be handled back and forth. Payments in the Lightning Network can flow in both directions. It is trading the same money over and over, rather than trying to get new money into the ecosystem for every purchase, allowing the market to operate without a central authority providing liquidity.
However, a problem arises when a buyer indicates his need for liquidity.
“Opening a lightning channel to provide liquidity uses a standard Bitcoin transaction, which requires multiple confirmations before a payment can be considered final. For Lightning, this process is almost instant.
This mismatch between on-chain and Lightning transactions confirmation times creates a moment between a Lightning transaction and the corresponding on-chain confirmation that allows users to “cheat” the system – a gap Magma seeks to bridge.
Magma aims to protect users who buy liquidity on the platform by setting up a new smart contract called a HODL bill, which prevents instant payments by waiting for three confirmations on the Bitcoin blockchain. As a result, the time window that an attacker can exploit is removed.
This functionality allows Amboss to act as a gatekeeper without requiring any custody of funds on either side of the transaction. If the customer selling the liquidity does not establish the channel in time, they will not receive a Lightning payment as the contract is cancelled.
The time limit requirement creates a highly responsive liquidity market, but Amboss took it one step further and implemented another precautionary measure.
Amboss will also create a reputation system on Magma to help ensure market integrity, reward market participants who follow the rules and penalize those who manipulate the system.
If a consumer buys a channel that for some reason has not been resolved, Amboss will keep track of fee updates and update the seller’s reputation. Repeated system abuse or fraud assertions may result in expulsion from Magma Market which may require bad actors to use another channel for liquidity needs.