Lightning Labs, the startup spearheading development of the lnd Lightning Network client, today announced a $10 million Series A funding round, led by Craft Ventures. Accompanying the announcement, Lightning Labs also released its Lightning Loop service in beta, marking the company’s first commercial service to help resolve Lightning liquidity bottlenecks.
“I think this funding round is another confirmation that the Lightning Network is getting real,” Lightning Labs Co-Founder and CEO Elizabeth Stark told Bitcoin Magazine. “Our first lnd beta was released less than two years ago, and by now a whole new crop of startups that didn’t even exist yet is building on top of the infrastructure that we provide.”
Since lnd was the first Lightning implementation released in beta in March 2018, Lightning Network growth has exploded. Publicly available data reveals that Bitcoin’s overlay network for fast and cheap payments today consists of over 11,000 nodes, sharing almost 36,000 payment channels, together holding more than 870 Bitcoin (worth about $8 million at the time of writing). Estimates suggest that private channels add between 35 to 40 percent to these numbers.
One remaining challenge on the Lightning Network is channel liquidity. In contrast to regular, on-chain Bitcoin payments, Lightning users can only make or receive payments if they have sufficient funds locked up on the right side of their payment channels. If a user (say, a merchant) mostly receives payments, funds in his channels can quickly accumulate on his end — making him unable to receive more payments through his existing channels. Vice versa, a user that mostly sends payments can find his side of the channels depleted, as all funds accumulate on the opposite end.
Lightning Loop lets users trustlessly rebalance their channels through on-chain payments to and from Lightning Labs. To get more inbound liquidity (needed to receive Lightning payments), they can “Loop Out,” paying Lightning Labs over the Lightning Network to receive an on-chain transaction in return. To get more outbound liquidity (needed to send Lightning payments), they can “Loop In,” paying Lightning Labs on-chain and receiving a Lightning payment in return.
“Lightning Loop is a scalable commercial submarine-swap service,” Lightning Labs Co-Founder and CTO Olaoluwa “Laolu” Osuntokun summarized. “If you visualize it, the user makes a loop with themselves, crossing the on-chain and off-chain boundaries.”
Leveraging Lightning Loop, users can keep their existing channels open indefinitely, instead of having to close and open channels each time they need to rebalance liquidity. This offers more block-space efficiency, lower fees and more Lightning Network stability as channels are more reliable, benefiting payment routing.
On top of that, Lightning Loop can also be used to make or receive on-chain payments indirectly from a Lightning channel. If someone, for example, wants to deposit Bitcoin into an exchange that only accepts on-chain transactions, funds can be sent to the exchange through a Loop Out. Conversely, to withdraw from the exchange, on-chain funds can be converted easily into a Lightning channel through Loop In.
Lightning Loop has been in alpha since March 2019 and June 2019 for Loop Out and Loop In, respectively. Developers have been experimenting with it since then, and some companies have already started building products on top of the service. With the beta release, Lightning Labs is now opening up Lightning Loop for wider use. This, for example, also means that the initial amount limits are lifted to match the Lightning protocol’s existing limit of 0.04 BTC.
“Another big advantage is that with our latest lnd release, you can combine Lightning Loop with multi-path payments: a user can top off, or make more space for receiving in several channels at the same time, at the cost of only a single on-chain output,” Osuntokun said. “We also offer discounts for users if they want to wait a bit longer for their swaps, so we can batch them together in one on-chain transaction to minimize fees.”
Lightning Loop is Lightning Labs’ first commercial product; the company charges upward from a 0.05 percent fee for each Loop, with the exact amount depending on the size of the payment and some other factors.
Lighting Labs’ Series A
Lightning Labs was one of the first startups to start implementing the Lightning Network protocol in 2015. Today, the lnd implementation it spearheads is generally considered one of three major Lightning implementations, the other two being ACINQ’s Eclair and Blockstream’s c-lightning. The company had already raised a little over $3 million in venture funding from investors including Twitter and Square CEO Jack Dorsey, former PayPal COO David Sacks, Litecoin Creator Charlie Lee and former BitGo CTO Ben Davenport.
Now, Lightning Labs has announced a $10 million…