Channeling Interest: How Companies Are Monetizing The Lightning Network

I'm Shone Anstey, the CEO of LQWD. We are a Bitcoin Lightning Network service provider, really focused on AI and the web. We've got systems in 18 countries all over the world and thousands of channels. We know these guys here, we work with them as part of a great network, and we're excited to be here.

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I'm Jesse Shrader, CEO and co-founder of Amboss Technologies. What we do is use data to help people allocate Bitcoin on the Lightning Network, and now stablecoins, including trading natively on Lightning.

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Hey everyone. I'm Tyler Wood, and I am a data scientist and product at Block. We work on the Lightning infrastructure that helps Cash App users send Lightning payments and Square businesses receive Lightning payments.

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Awesome. Thank you. The focus of this panel is really looking at Lightning, specifically on the liquidity side, and how there are unique opportunities popping up, or how things have evolved ever since the network first got created. What are the opportunities that are presenting themselves?

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A great place to start is the business model. Each business here incorporates Lightning in a very unique way. For some, it's at the forefront and core. For others, it's less core but still a very important piece. I'd love to hear from each one of you. How does Lightning fit into your business? How do you use Lightning, liquidity, routing, and all these things to make money?

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We are a liquidity service provider, so we are all about routing. We get a little fee every time a transaction goes across one of our hops. We have 18 nodes, 18 hubs around the world, and thousands of channels. We look at that as a longer-term volume game. We see the volume for the Lightning Network climbing quite quickly.

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We think the AI age, which is already happening, is important. We just announced an AI-only wallet because AI agents want mathematically pure money, and we see it transacting over there. For us, it's all about maintaining the network and seeing it grow. The Lightning Network is a continuation of the revolution of the internet. This is the open payment rail that we wanted in the 90s. It's finally here, and we can see massive takeoff in a really great way.

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For Amboss, we provide data and historical data, as well as the largest liquidity marketplace out there. We connect LPs, or liquidity service providers, with a whole base of customers that need liquidity. That supports businesses that are accepting Lightning payments into self custody.

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At Block, we incorporate Lightning into our products. Our main products are Cash App and Square. Our monetization strategy with Lightning tends to be that when a Cash App user wants to send Bitcoin with a payment, they purchase it from us. We're not trying to earn money on routing or anything like that. The Lightning infrastructure is the thing that facilitates those transactions.

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Similarly with Square, when we facilitate card payments, for example, we tend to take a 2% to 3% fee and pay some of that to the card networks. With Lightning, we can provide payment services for a lot cheaper and charge a lower fee. Lightning is just the underlying layer there, and we don't need to monetize it at the routing level, although sometimes we do incidentally earn some routing income based on activity happening across our nodes.

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Awesome. At Voltage, we're very focused on the payment side. We work with basically all the parties up here to provide the right kind of connectivity to help payments succeed. That's a really important bit about Lightning: payments are not going to work unless you have liquidity in the right place. Being able to focus on that to solve users' problems is incredibly important.

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Tyler, last year at the Bitcoin conference, you guys announced a 9% return on the Bitcoin that you put into your channels via routing and charging these fees. Are you able to share anything about where that stands today? Do you track that? How does Cash App think about that? Is it something you guys are looking at consistently, or is that a nice passive thing that you highlighted last year?

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We announced that last year, and I think it turned some heads. People were like, can you do that on the Lightning Network? I can help dispel some of the ambiguity around how that works.

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The first thing I want to do is reframe the conversation away from yield for us and more toward routing revenue. The reason for that is because this quantity that we're earning from routing isn't scaling with the amount of capital that we put on the node. It actually scales in proportion to the amount of real transaction activity that's happening with Cash App. If you call it a yield, that might suggest that we could put more money into our nodes and earn that same figure, but that's not necessarily the case.

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How we actually earn routing income from Cash App activity is that Cash App users are sending a lot of payments. They can send and receive, but on net they send way more than they receive. When we open a Lightning channel, all of the balance starts on our side. On net, Cash App users push it out to the other side of the channel, and we end up with all of this inbound liquidity.

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Cash App users are sending payments so consistently outbound that we accumulate inbound liquidity. I think we're probably one of the lowest-cost inbound liquidity generators on the whole network. I tend to call Cash App the inbound liquidity generation engine.

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We have all this inbound liquidity piling up. We can use that inbound liquidity to receive payments on Square, which is the highest use of it for us. But right now, Square volumes aren't quite as big as Cash App, so we still have net sending activity. In the meantime, we can monetize that by offering inbound liquidity to other nodes on the network, by opening channels to swap services.

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You can open a channel to something like Lightning Loop and set a channel fee on that of 2,000 to 3,000 ppm, which is 0.2% to 0.3%. When a node that needs inbound liquidity uses the Loop service, they can use that channel. We get paid a little bit for that liquidity. If you cycle through it at high velocity, that's how you end up earning routing revenue that looks really nice as a function of how much capital you've put on the node.

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The other thing I want to mention is that for us, the P1 goal for running our Lightning infrastructure is to make payments reliable for Cash App users and Square users. If I had to put earning routing revenue as a prioritization, it wouldn't even necessarily be a P2 or a P3. It's something that just incidentally happens, and it's something we almost need to do as part of good node management to keep channel balances balanced. For us, it always comes back to providing reliable service for Cash App users and Square users.

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That's great to highlight, the flywheel that has to happen. Lightning is a payments network. Bitcoin is made for payments, and we want to keep payments front and center. But to make payments successful, you have to have liquidity in the right places and all these other things set up.

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Thinking not too technically, how do you each use liquidity in the way your product operates, or in the solutions that you're offering for your customers? How do you actually use Bitcoin in Lightning to do what you do?

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I'll answer that because we actually use some of your services too, Jesse. They've got a great service there. As a public company, we used our public treasury to buy Bitcoin. We make sure we have enough on the balance sheet, and we deploy it across thousands of channels.

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We use AI because we have a lot of data from our network, and we're able to have intelligent rebalancing using AI, which is very great for us. We use the Loop services, and we certainly use Jesse's and Amboss' services and the things he'll get into there.

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To Tyler's point previously, we're not so focused on just how much money we can make off the network. We're focused on how reliable and how great we can make it, and the rest is coming naturally to us. We see it growing naturally.

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The big push right now is certainly AI and web agents using it as a native payment layer. It is instant, and not just for payments. AI is using it for identification, authentication, and other things like that. They need this incredible network that can settle in milliseconds with a single sat to do what they do. This is a big growth component for the Lightning Network coming up here, and it's going to affect all of our companies in a big way. We use LDK as well from Block, so thanks, guys. That's a big part of it.

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For us, liquidity is a denomination of connectivity because this is a peer-to-peer payments network, and now it's a trading network as well. We're using liquidity providers like LQWD and others through our own Rails product to deploy Bitcoin in strategic locations so that you can have very high payment reliability.

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We've used machine learning to train it on increasing throughput, so you can have larger and larger payments happen over Lightning. Lightning is no longer just a payments network for micropayments. You can also buy hotel rooms, plane flights, maybe even purchase a house natively over the Lightning Network. That means instant settlement for payments that large. To make those things happen, you need quite a bit of liquidity. This is really our role in creating a liquidity marketplace, so that you can purchase that whenever you need it for your payments operations.

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Tyler, anything to add on that? Cash App is unique in that Cash App isn't made for Lightning liquidity or anything, but how do you use it to make Cash App so good at just being Cash App?

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Like Jesse, we use data to inform our liquidity allocation. I think his stuff is probably a little more sophisticated than our stuff, which is awesome. But we kind of do it on easy mode, honestly, because Cash App is a custodial wallet. We know where people are sending payments to, so we can know ahead of time where we should put channels.

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Also, because Cash App is this net sender, that means we almost always just need to create channels. We don't need to acquire inbound externally, so it's pretty simple for us, and that enables us to provide a really good experience.

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Things will get more complicated in the future when Square potentially gets bigger, and maybe it starts to dominate that equation and receive more than Cash App is sending. Then we're going to be a net sink on the network and need to acquire inbound, and that makes it a lot harder. I'm excited for that future. You should all go buy goods and services out in the real world at Square and try to grow that so that I have this new, fun problem to solve.

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Something that is very topical and a lot of people are interested in is yield from the other side, not from the business side. Whether it's a consumer or a business that wants to put my Bitcoin to work and earn yield on it, what does that landscape look like today? What is feasible? What is not feasible? How does it look for anyone thinking about yield earning inside of Lightning, how can they participate, and does it make sense?

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We've been approached by a number of companies that have Bitcoin on their balance sheet saying, we want to be able to put Bitcoin to work on the Lightning Network in a passive way and earn something like a money market fund type yield on it.

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For our company, we've seen yields anywhere between 3% and 6%. We also calculate a weighted APR, which is a higher number, but that's about short-term velocity and how much APR you get on a channel just opening. We have a few ways of calculating the metric, but the only one that really matters is the full-on APR itself.

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What we do see in the future, and we've looked at it as a thing called chain liquidity, is a company like a mining company or another treasury company potentially putting their Bitcoin on a node, having chain liquidity. It's still non-custodial, but we can draw off their liquidity as we need to.

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Down the line, you may see things where there is an actual bearer bond market. Companies like ours could produce something where you could have a custodian service and a bearer bond token. It would be an actual security, would have to be cleared by regulators, would trade on the market, and then the person could either redeem the Bitcoin off the network when they want it back and still earn yield on it, or trade it on an aftermarket. Now you have a true Wall Street bearer bond that actually earns yield in Bitcoin. That will probably come down the line, with a lot of regulations in the way. But the non-custodial thing is the most exciting for me in the short term.

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Last year at this conference, we announced Rails, our liquidity provider product. That allows people to keep self custody and deploy their Bitcoin on Lightning. The interest we've gotten from that product has accrued to a waitlist of 4,500 Bitcoin.

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There is essentially unlimited demand for yields on your Bitcoin denominated in Bitcoin, and that's really what this product offers. However, the yield or the fees that are derived from payment activity are completely tied to payment activity. The more Lightning traffic, transactions, trading, and payments that happen natively on Lightning, that drives the fees that can be derived from this.

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It allows a passive vehicle for someone to start accruing additional Bitcoin or stablecoins without putting their funds at risk in some strange DeFi protocol where they have to give up custody. They can keep it in self custody and still benefit from the activity of the network.

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I love your point, Jesse, about growing the Lightning economy. To me, that's what it all comes back to. If we want these opportunities to exist where you can earn a return on your Bitcoin, we just need more and more real economic activity happening on Lightning, because that's what's going to drive value and allow you to deploy more Bitcoin.

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At Block, we have a corporate treasury of about 8,000 Bitcoin. We have 240 Bitcoin capacity on our node. That tells you a little bit about how saturated we think our revenue-earning opportunity is. If we could put 1,000 Bitcoin on the Lightning Network and scale that 9% number, obviously we would do that. But right now it would just dilute that revenue because the pie is not big enough.

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For us, we're super focused on growing that pie, growing the Lightning economy, and getting more activity on there. As we actually grow the activity of real transactions for real goods and services happening with Bitcoin on Lightning, some of this monetization stuff will naturally follow. But we have to put value creation first.

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Absolutely. None of this yield stuff matters if we don't have the payments to support it. We have to have the activity for any of this to really matter and make sense.

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People have always wanted to get some kind of yield or return on their Bitcoin. We saw the BlockFis and all of these things come and go, and it ended up very bad for a lot of people. Similarly, in the DeFi ecosystem, just last week a whole protocol went underwater. There are so many problems out there, and this is definitely a better alternative as we look to the future.

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Shifting gears a little bit, how do we think about all the new things happening on Bitcoin, like stablecoins via Taproot Assets, other sidechain protocols, and AI? How does that affect yield and liquidity on Lightning? Does it help? Does it hurt? Is it a new problem to solve?

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It certainly adds more things we have to look at. I think a lot of these things will continue to increase overall activity on the network itself, and we're excited to see that. In terms of APRs and the actual traffic being driven, our biggest view is that volume is going to drive it over the longer term.

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Stablecoins are going to be active. The way I look at the Lightning Network, and I look at it from my own past history, is that it is an open payment layer of the internet itself. It is the true payments layer that we wanted back in the 90s. I'm dating myself, but it didn't exist.

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Now it has the magic of Bitcoin, which is a trust protocol, where the first use case is money. Now we're scaling Bitcoin the same way we scaled the internet, by having multiple layers of technology. It is true peer-to-peer. Its architecture is like the internet, because it is the internet.

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This kind of stuff is coming naturally to it because this is a frictionless payment system. We really saw in our own ecosystem where just-in-time channels showed up in the last couple of years. The software went from 30% of payments working back in 2015, when it was very experimental, to now 99.999% or whatever. It works like magic behind the scenes. People are going to use it and won't even know they're using it, and that's where the adoption is going to continue to go up.

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For merchant adoption, a lot of people have been afraid of Bitcoin's volatility, and really that ends today because we just launched Rails X, which is the peer-to-peer trading layer available through ThunderHub. This is your own node, your own keys, and you are able to use the Lightning Network as a peer-to-peer DEX. This is the first DEX on Bitcoin.

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Now you'll be able to use Taproot Assets and swap between Bitcoin, USDT, and USDC available as wrapped stablecoins natively on Lightning. You can execute trades far more efficiently than you could using any centralized exchange in order to do that. That's all enabled by the atomic payments available on Lightning.

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This functionality is now available to anyone who wants to participate, run a node, manage their treasury, and accept payments in stablecoins. That is mapping to the $20 trillion market that we're seeing in stablecoins today, and being able to move that activity onto Bitcoin, where we really see Bitcoin as the fundamental technology for the global economy.

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We have a version of stablecoin payments on Cash App and Square right now that's done at the app layer. We launched this in November, where Cash App users can pay a Lightning invoice from their dollar balance. We're doing essentially a just-in-time Bitcoin buy on their behalf and then sending it. We also have the reverse functionality in Square.

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That functionality has shown really good adoption and product-market fit. If we can bring that to a more robust protocol-level solution, that's awesome. At Block, we believe one of the ways Bitcoin wins is that Lightning is going to be the lingua franca of value transfer in the future, and it will be the value transfer protocol for the internet.

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If we can leverage the fact that this is going to be the best open money network, and if we co-opt other stablecoins and different things and make them interoperable with that network, it builds the network effect of Lightning. It's going to be better for everyone participating. I think it's more of an open tent mentality. All of these things are welcome. If we can get more things settling value using Lightning, using HTLCs, using Lightning routing, that benefits everyone plugged into this network. That's how we win, so I would love to see it.

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I couldn't agree more. The payments use case and bringing more activity to Bitcoin from the payment side also helps the HODL narrative. It has to have both for it to be the asset that we all want it to be ultimately. The more we can bring to it, the better.

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What are you guys thinking about in terms of hurdles? What do we need to solve inside Lightning, maybe from the liquidity perspective but also more broadly? What should we be looking to when we come to the Bitcoin conference next year? What do we want to be able to solve by then?

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The liquidity behind the scenes is just happening behind the scenes, and users don't care about that. They care about a very easy-to-use interface that simply works, and they don't know it.

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We get out of our own bubble in North America, and around the world people want Bitcoin because they don't trust their governments, and nor should they. Their currencies are going to zero. Ultimately, the Lightning Network and Bitcoin network are mathematically pure money. It is the trust protocol. It can be used by anybody. Anyone can hop on, anyone can hop off. There are no restrictions.

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The more people see that and understand that message, the more people are going to use it. It's our job to make it as easy as possible for that to happen in an open source format, where it can really change how the world runs.

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As we've been chatting with people about deploying their Bitcoin on Lightning, one of the barriers we've run into is that many Bitcoin treasury companies need to use a custodian. We built this self custody product, and that means the people we've actually been serving are high-net-worth individuals and smaller businesses that aren't so restricted.

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I think what we're seeing coming forward is that custodians will begin to integrate these types of systems and help their customers deploy Bitcoin on the Lightning Network, and tap into these low-risk opportunities to support the Bitcoin payments network.

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I don't have that much to add to that. At the risk of being a broken record, I'm just going to harp on growing the size of the Lightning economy and using Bitcoin as everyday money. If we have more people buying and selling stuff with Bitcoin, then I think a lot of this stuff will fall into place.

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As closing thoughts, when you think about the next year or so, what metrics are you tracking? What are you looking for in your companies to track success or growth? Alongside the hurdles, what are you looking at to make sure things are going correctly and the network is on the right trajectory?

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We look at the number of Bitcoin that's on the network itself, how much is being deployed, and how efficiently it's being used. We've talked about rebalancing and the number of channels. In the early days, it was done by a lot of grassroots engineers from their homes. Now you're seeing it become a little more corporate. You're going to get a mix of everything.

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Companies like ours and Jesse's are the Lightning service providers behind the things. Think of Verizon connecting through Rogers and all the communication stuff that goes around the world for the internet as it is. These are the foundations of the payment layers that are going on there.

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Right now, we're seeing stablecoins. Stablecoin is a nice gateway drug to Bitcoin. This is an open network, and it's going to be used the way people are going to use it. It is a morally agnostic network, and eventually the mathematically pure money just continues to go through.

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We're certainly watching the volumes grow. I think the River report was really helpful to show that Lightning has gone up by 400x over the past year, and I think we'll see more of that with Square's continued adoption and being able to do Lightning payments every day.

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We're watching the entire capacity of the Lightning Network cycle, sometimes multiple times per month. Within our own cluster, we're cycling the entire 61 Bitcoin that we've deployed every single month. I think that trend is going to continue as we see more payment volume adoption and trading volume adoption happening on this network.

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Internally, we're laser focused on reliable payments for Cash App and Square. Outside of that, what I would like to see is for it to be economically rational for consumers to use Bitcoin payments.

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Consumers right now, if you ask them if they want to use Bitcoin, they say, well, I have my credit card. It gives me awesome rewards, it has an amazing tap-to-pay user experience, I can do chargebacks, and all this stuff. Why would I buy Bitcoin on Cash App, pay a 3% fee, send it, and maybe have a tax liability?

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We're laser focused on trying to make that user experience on par with cards, and actually make it so normal non-Bitcoin people think it's economically rational to pay via Bitcoin, even if they don't know that it's Bitcoin. It could just be pay via Cash App at Square, or pay via this external wallet or something like that. That's the beauty of an open network. We want to shift payment activity, not just from people who are motivated to pay via Bitcoin because they're Bitcoiners. I want it to be economically rational for the normal person to do that payment. I think that's possible.

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Thank you guys for your answers. We've got about 30 seconds here. I'd love any closing thoughts or shout-outs to where people can find you or learn more about your companies.

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I'm Shone from LQWD. We're publicly traded on the TSX. We've been around for a long time. If you have questions about Bitcoin itself, not even just about the company, come find me. I'm happy to talk about our experiences.

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You can always find us at Amboss. I would love it if you all try out some trading natively on Lightning without giving up your KYC information or any of that. It's all available through ThunderHub, which is an open source manager. Give it a try. Give us your feedback. We'd love to see this take off.

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Thanks everyone. My name is Tyler and I work at Block. The one parting thought I'd have is if you've never spent Bitcoin, now is your time to do it. We have a Block village out there, and then there's also the BTC Inc stores. I think we're giving 5% back if you go make your first Bitcoin payment. Go try it out. I think you'll be blown away by the UX. Spending Bitcoin feels good, and you should do it more.

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Awesome. Thanks everybody.