highonchainfees.md

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

• Activate Anchor Commitments
  • affects only the new channels opened when both peers support anchors
  • protocol.anchors=true in the lnd.conf
  • available since LND v0.12.0
  • aimed to be active by default from LND v0.13
  • will need one UTXO per channel in the onchain wallet of LND to pay the closing fee with CPFP - these are not reserved in the wallet yet
• Set the minchansize in lnd.conf (eg. avoid <500k channels on a routing node)

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:
  • Routing fees need to be increased to make up for the increased onchain fees and rebalancing costs
  • Auto-rebalancing should be allowed to use higher fees
• 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:

    • LND: Balance of Satoshis

      bos open and bos fund

    • C-lightning CLI

      lightningcli fundchannel_start id amount [feerate announce close_to push_msat]

  • 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.

• the only option left to unlock the funds from the multisig will be an (expensive) force close.
• Use CPFP (never RBF)

  • CPFP can be only used if there is a change output from the opening transaction: https://api.lightning.community/?shell#bumpfee):

    lncli wallet bumpfee --sat_per_byte 110 TXID:INDEX

    Lightningwiki.net article: https://lightningwiki.net/index.php/Bumping_fee_for_lightning_channel_open

• Can cancel the transaction by spending it to a change address in Electrum

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 to the multisig (~26 byte from the min 140 bytes)
• Taproot - funding from multisig wallets will be the same cost as from single sig wallets
• ELTOO - multiparty channels and channel factories

References

• What is CPFP?
• Can a channel be closed while the funding tx is still stuck in the mempool?