nick on Nostr: Why is this so wrong? John has underestimated this business greatly. 1M sats for ...
Why is this so wrong?
John has underestimated this business greatly.
1M sats for every user is a good place to start, but remember, as that user receives bitcoin, the investment decreases per user. Receiving bitcoin into a user channel puts that channel's ownership towards the user’s balance and adds the LSP’s investment back into routing channels. If John onboarded 1M people in the same instant, he would need that liquidity, but over time, he could recycle capital from used channels into new ones.
Thinking of LSP channels as an investment you can get 1% annual return on is grossly underestimating the ROI. Lightning returns are not capital dependent, they are payment volume dependent.
Users – 1M
GPV / user – $2,400
Total GPV – $2.4B
Conservative outside volume (routing begets routing) – $1B
Take rate – 1% (0.5% in, 0.5% out, LSP user only pays for send)
Outside take rate – 0.1%
Revenue – $25M
Investment – I’d peg this at 1500 BTC
ROI – 28%
Hang on, why such a low investment?
Consider a single LSP channel. At the beginning of its life, we allocate 100% of the liquidity for that channel. As the end user uses that channel, they carry some ongoing balance and use a percentage of the channel for daily payments. The more that user holds in that channel, the less capital the LSP has committed to that individual user. The only capital the LSP ends up committing to that user is their receivable capacity. The rest is held by the user. While the initial first investment is 100% of channel capacity, this quickly moves back to more active external channels and back into the LSP’s wallet if they’d like. Total investment depends on how much your users like to hodl as opposed to how many users you have. John is assuming a lot of Hodlers, I assume they hold 85% of the channel they request.
Similarly, with such a successful LSP, we can realize efficiencies of scale on the routing side, assuming many users are sending and receiving, we can open large channels that have little turnover.
On the whole, at steady state an LSP can optimize its liquidity to the point where the capital invested is mostly to support ongoing payment flows (that make money). Inactive hodlers do not add to the overall cost of capital, especially with the ability to splice out inbound from inactive channels over time, which further increases capital efficiency.
Now assume we’re really trying to grow this thing. We have plenty of revenue to invest into free onboarding for new users.
John has underestimated this business greatly.
1M sats for every user is a good place to start, but remember, as that user receives bitcoin, the investment decreases per user. Receiving bitcoin into a user channel puts that channel's ownership towards the user’s balance and adds the LSP’s investment back into routing channels. If John onboarded 1M people in the same instant, he would need that liquidity, but over time, he could recycle capital from used channels into new ones.
Thinking of LSP channels as an investment you can get 1% annual return on is grossly underestimating the ROI. Lightning returns are not capital dependent, they are payment volume dependent.
Users – 1M
GPV / user – $2,400
Total GPV – $2.4B
Conservative outside volume (routing begets routing) – $1B
Take rate – 1% (0.5% in, 0.5% out, LSP user only pays for send)
Outside take rate – 0.1%
Revenue – $25M
Investment – I’d peg this at 1500 BTC
ROI – 28%
Hang on, why such a low investment?
Consider a single LSP channel. At the beginning of its life, we allocate 100% of the liquidity for that channel. As the end user uses that channel, they carry some ongoing balance and use a percentage of the channel for daily payments. The more that user holds in that channel, the less capital the LSP has committed to that individual user. The only capital the LSP ends up committing to that user is their receivable capacity. The rest is held by the user. While the initial first investment is 100% of channel capacity, this quickly moves back to more active external channels and back into the LSP’s wallet if they’d like. Total investment depends on how much your users like to hodl as opposed to how many users you have. John is assuming a lot of Hodlers, I assume they hold 85% of the channel they request.
Similarly, with such a successful LSP, we can realize efficiencies of scale on the routing side, assuming many users are sending and receiving, we can open large channels that have little turnover.
On the whole, at steady state an LSP can optimize its liquidity to the point where the capital invested is mostly to support ongoing payment flows (that make money). Inactive hodlers do not add to the overall cost of capital, especially with the ability to splice out inbound from inactive channels over time, which further increases capital efficiency.
Now assume we’re really trying to grow this thing. We have plenty of revenue to invest into free onboarding for new users.