LOC Channel Rewards
Besides receiving Royalties from LTs, Liquidity Makers receive LOC Channel Rewards from Plenny for opening payment channels and logging the liquidity of Lightning Nodes over the capacity market.
The General Channel Rewards Formula is applied to LOC Channel Rewards. The formula calculates Channel Rewards for logging outbound capacity (i.e. sending payments limited to local balance). Simply put, Lightning Nodes receive Channel Rewards in proportion to the capacity (i.e. amount of sat) and relative to the duration of the payment channel, depending on Plenny's reserves. As a result, the value of LOC Channel Rewards is a fixed amount or a percentage amount depending on which is lower.
In summary, LOC Channel Rewards work as follows:
- Liquidity Makers receive LOC Channel Rewards automatically through logging payment channel capacity by using the DLSP module.
- The general reward threshold is set to X sat (e.g. 500,000), meaning Channel Rewards require this minimum amount of capacity in payment channels before LOC Channel Rewards can be generated.
- The decisive factor in the general formula is the capacity multiplier. By using a capacity multiplier, higher capacities receive above-average rewards. This exponential growth calculation is intended to favor the participation of high-volume payment channels provided by stable nodes. Channel Rewards grow exponentially depending on the outbound capacity in sat.
- In addition, Liquidity Makers receive the Baseline Reward. This minimum reward serves as a basic compensation in addition to the LOC Channel Rewards to make up for blockchain transaction costs.
- The Baseline Reward is a fixed amount (e.g. 250 PL2) and based on estimated average exchange rates. It offsets the cost of both Ethereum transaction fee (gas) and the Bitcoin on-chain transaction fee. The fixed amount in PL2 is designed to be equal or higher than the estimated total cost of gas and bitcoin fees and is supposed to include a +20% bonus. The bonus covers currency risk to which the transaction-related costs of the Lightning Nodes are exposed.