The role of the Liquidity Maker enables Lightning Nodes to participate in the capacity market while acting independently on the LN. Makers use the DLSP module to provide non-custodial inbound capacity to other Lightning Nodes (i.e. receiving payments limited to remote balance). LMs earn Royalties for licensing transaction data services via payment communication channels on the one hand and receive Channel Rewards from Plenny on the other.
Royalties are customizable and indicated in PL2 relative to bitcoin, but there is no fixed formula per sat as Makers are free to set the licensing fee and negotiate with Takers according to market conditions.
When specifying Royalties, Makers take into account the duration of the payment channel when providing inbound capacity, as the license fees are paid on a usage basis. Takers only pay for consumption for as long as they use the lightning services offered.
PL2 is the payment method on the Dapp while sat is used in parallel to provide payment channel capacity. In the process, LMs transact with Liquidity Takers directly using both, sat and PL2.
In summary, the capacity market works as follows:
- Lightning Nodes act as Liquidity Makers or Takers.
- The cost for inbound capacity is reflected in the Royalties (i.e. licensing fees paid by Takers).
- Royalties are subject to market demand and are therefore negotiable: Makers are free to post an asking price, Takers can accept or offer a bid price.
- Royalties are paid in PL2 serving as the payment token of the capacity market.
- Inbound capacity is provided in sat over the LN.
- Makers specify both of their rates independently, including the regular transaction fees in sat for providing inbound capacity over the LN and the Royalties in PL2 for rendering services to Takers over the capacity market.
- In addition to earning Royalties over the capacity market, Makers receive the Baseline Reward and Channel Rewards from the Treasury HODL.
- Makers receive the first payment (i.e. Fixed Royalty) right after the channel has been opened (to partially offset the costs of the metatransaction passed on by the Taker).
- Channel Rewards are locked for at least as long as the payment channel is open.
- Makers realize earnings in PL2 when the total Royalties and the Channel Rewards are collected.