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highonchainfees.md

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High onchain fee environment

Notes on using the Lightning Network when miner fees are high.

Preparation

Recommendations to get ready for a high fee environment beforehand.

Channel management

  • Open channels during low fee times strategically (weekends)
  • Close inactive and unreliable channels early during low fee times
  • Minimise downtime and instability if running a routing node
  • Use private (unannounced) channels as a spending node so downtimes won't make the peer force-close

Wallet management

  • Funding from a single sig wallet is cheaper
  • Prepare a selection of good size UTXOs for minimal cost channel opens
    • consolidate (beware of privacy implications)
    • a well funded and long running JoinMarket Maker wallet will have different sizes of coinjoined outputs available

Configuration

General

  • maximise uptime
  • configure a hybrid connection if possible - note that skipping to always use a proxy will expose your IP address (use a VPN like Tunnelsats)

LND

  • check the options in the sample lnd.conf
  • Use Anchor Commitments
    • on by default on LND when both peers support anchors
    • will have 100000 sats reserved in the onchain wallet of LND to pay the closing fee with CPFP
    • raise the max-commit-fee-rate-anchors to a comfortably high level to avoid purging the transactions from the mempools.
  • Set the minchansize (eg. avoid <500k channels on a routing node)
  • set a long payments-expiration-grace-period
  • increase the CLTV delta: bitcoin.timelockdelta from the default 80
  • increase the smallest HTLC the node is willing to send out (in millisatoshi)
  • increase routing fees (applies to new channels only) 
    [Application Options]
minchansize=500000
max-commit-fee-rate-anchors=100
payments-expiration-grace-period=10000h

[Bitcoin]
bitcoin.timelockdelta=144
bitcoin.minhtlcout=100000
bitcoin.basefee=1000
bitcoin.feerate=2500

[tor]
tor.skip-proxy-for-clearnet-targets=true
  • consider increasing the fees towards peers not using anchor commitments: 
    lncli listchannels | jq '.channels[] | {remote_pubkey: .remote_pubkey, commitment_type: .commitment_type}'
  • set the base_fee_msat, fee_rate_ppm, min_htlc_msat and time_lock_delta on existing channels 
    lncli updatechanpolicy --base_fee_msat=1000 --fee_rate_ppm=2500 --min_htlc_msat=100000 --time_lock_delta=144

CLN

Routing fees and balances

  • All nodes:
    • the channel balance will appear to be smaller as the commitment reserve will be higher
    • offchain transaction fees will also increase (remains to be proportional to the payment amount)
    • payment failures might appear more often as liquidity dries up
  • Routing nodes:
  • Offchain traffic will increase
  • During high fee periods less channels will be opened
  • Less capital will be reallocated
  • Submarine Swaps get more expensive (requires on-chain transactions)
  • Overall channels will get out of balance quicker

Opening channels

  • Include a change output to be able to use CPFP to bump the fee of the channel open transaction
  • Batch opens
    • the biggest saving is when using 1 input to open multiple channels
    • aim for next block with the opening transaction fee to prevent the fees running away
    • can use PSBT-s (even from ean external wallet) with the command line tools available:
    • avoid opening public and private (unannounced) channels in the same batch - defeats the purpose of not announcing channels in the gossip

Do not leave a channel open pending for more than 2016 blocks (~2 weeks)

A pending channel will become "stale" after 2016 blocks - the peer will forget about the funding transaction, so the channel will never become online.

Closing channels

  • Aim for a cooperative close if must

    • can use CPFP from the receiving wallet if a pending ccooperative close is stuck in the mempool with a low fee

  • Run the channel close command again if the transaction has been removed from the mempool

    lncli closechannel FUNDING_TXID INDEX

  • Force closes are ~5x more expensive than the next block fee at the last update

    • LND updates every 10 min on an online channel
    • Long inactive channels are a liability - especially if was online last at low miner fee period

  • Avoid and prevent force closes by minimizing downtime and instability as a routing node

Watchtowers

  • If using watchtowers need to set the

    wtclient.sweep-fee-rate= in the lnd.conf

    to a sat/byte level where it can confirm within the CSV delay in case a breach transaction is broadcasted by the peer while the node is offline.

  • The CSV delay can be set to be longer with:

    lncli updatechanpolicy

Future improvements

  • Anchor commitments by default (affects only new channels and both peers need to support the feature)
  • Splicing and dual funding - extend the channel capacity in a single transaction
  • Taproot - can save on sending from the multisig (~26 byte from the min 140 bytes)
  • Taproot - funding from multisig wallets will be the same cost as from single sig wallets (slightly more expensive for single-sig)
  • ELTOO - multiparty channels and channel factories

References