Bitcoin Lightning Network Creates Efficiency for Traders

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The following is a direct excerpt from Marty’s Bent issue 1130: “The Lightning Network Creates Efficiency For Merchants.” Sign up for the newsletter here.

via Kollider

Here’s a great blog post from the team behind Kollider, an exchange that allows traders to trade bitcoin using leverage. In it, they dive into the typical needs and workflow of margin traders who have positions on multiple exchanges at the same time, how they work natively with on-chain bitcoin transactions, and how using the Lightning Network. modifies these operations and makes them extremely efficient. I highly recommend you check out the post if and when you get the chance.

As you can see from the screenshot above, due to the nature of the type of instant settlement the Lightning Network can provide compared to on-chain transactions, the amount of sats that an algo bitcoin trader must hold on a trade as margin the buffer is significantly reduced from 30% of the value at risk to 5% of the value at risk. The ability to quickly move sats on the Lightning Network from a portfolio owned by a particular trader or trading fund to an exchange allows these traders to have minimal exposure to third-party currency risk. And as you will find out if you read the article, that 5% buffer is even a little conservative as it takes into account potential channel liquidity issues that could arise if many traders move a lot of sats during times of high demand. volatility. Margin buffers could get even smaller if fears about a channel’s liquidity could be allayed by increased liquidity on the Lightning Network, which seems to happen every day.

Right now, intra-trade activity through the Lightning Network is only a very small percentage of overall intra-trade activity. As time passes, as the Lightning Network continues to mature, and as traders become more familiar with how to manage their funds on the Lightning Network, we can expect more traders to start firing. party of this utility. The increased use of this utility is expected to have positive externalities which include lower fees for traders (which means a higher margin – at least temporarily while the rest of the trading world gets up to speed), and less risk of trading. third party that comes with holding funds on an exchange. The Lightning Network allows traders to hold fewer and fewer sats in a third-party wallet while still enjoying the same benefits from trading platforms as they would when intra-trade arbitrage via on-chain trades.

It will be fun to watch this sector of the market develop in the years to come.

Forward!

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