Lloyd Fournier [ARCHIVE] on Nostr: 📅 Original date posted:2019-05-04 📝 Original message: Hi ZmnSCPxj, I'm glad you ...
📅 Original date posted:2019-05-04
📝 Original message:
Hi ZmnSCPxj,
I'm glad you pointed this out. I think this protocol is practical. That
talk was actually given by my colleague :).
My post in the December thread was trying to explain the same idea but as a
[A -> Exchange -> A] on-chain trade (rather than a [A -> Exchange -> B]
cross chain L2 payment). For reference:
https://gist.github.com/LLFourn/d0afa6b37207aed7cd73f6b9203c0def.
I mentioned it was possible to do it in a channel. Although looking back at
it now it seems I was somewhat confused at the time. I said:
> As ZmnSCPxj demonstrated, the idea of sending a payment in asset A and
the other party receiving it as asset B with some exchange node in the
middle doing a conversion is unsound given what we are able to construct in
Lightning.
As you just showed, this is wrong. [A -> Exchange -> B] with the collateral
on the last hop works fine. After all, [A -> Exchange -> A] is just a
special case of [A -> Exchange -> B]. I agree that extending this idea
across multiple hops after the exchange securely looks impossible.
Note, the Exchange should watch carefully for their counter-party delaying
in signing the channel update on the final hop (to gain value from the
option this gives them). If they notice this they should close the channel
and avoid doing business with this party.
Despite this, it's still a far better protocol than the vanilla atomic swap
because the delaying party has a far less time to realise any gains from
the option. The exchange can put an end to it by closing the channel within
1 on chain tx.
On naming. I think it's better to call it *collateral* rather than an
*option premium* because it is only paid on a failure to execute the trade.
I was thinking we can call them collateralized HTLCs.
It's possible to modify the protocol slightly so that the party receiving
the option pays the *premium* regardless of whether they release x or not.
This makes it a proper cross chain option with guaranteed premium.
We made a poster describing this idea here:
https://coblox.tech/docs/financial_crypto19.pdf.
Cheers,
Lloyd
On Tue, Apr 23, 2019 at 1:52 PM ZmnSCPxj via Lightning-dev <
lightning-dev at lists.linuxfoundation.org> wrote:
> Good morning list,
>
> Reviving an old thread, but I saw this just recently:
> http://diyhpl.us/wiki/transcripts/scalingbitcoin/tokyo-2018/atomic-swaps/
>
> Suppose you are a BTC to WJT exchange.
> I want to pay 1 BTC to send 1000000000 WJT to YAIjbOJA.
> I have a BTC channel to you.
> You have a WJT channel to YAIjbOJA.
>
> In order to create a properly-incentivized American Call Option with a
> premium, you insist that 10% of the WJT value be the premium that is paid
> if the exchange does not pull through.
>
> We perform this ritual:
>
> 1. YAIjbOJA generates a secret x and gives h(x) to me.
> 2. On my channel to you, I get 1 BTC from my side and create an HTLC.
> Hash is h(x) payable to you, timelock is 2 days payable to me.
> 3. On your channel to YAIjbOJA, you get 1000000000 WJT from you, and
> 100000000 WJT (10%, the premium) from YAIjbOJA and create an HTLC.
> Hash is h(x) payable to YAIjbOJA, timelock is 1 days payable to you.
>
> The above also forms an American Call Option, but with a premium if the
> payment does not push through.
>
> However, extending this to beyond one hop after the exchange node is
> difficult.
> Problems in communicating with the next hop may cause the current hop
> after the exchange node to become liable for the premium without being able
> to forward the liability to the final payee, which is an avenue for attack.
> And if the payee must be the hop after the exchange node, the exchange
> node now knows exactly how much and when that node receives payment, and
> can sell this information and/or selectively disrupt/censor some payments.
>
> Putting the premium before the exchange node is possible with an
> additional transaction spending the HTLC (the timelock branch is payable to
> a 2-of-2 with a pre-signed transaction that sends the premium to the
> exchange and returns the rest of the value to the payer).
> But this is unsafe, since the exchange (and any node between the payer and
> the exchange) can stall the protocol deliberately and refuse to forward,
> extracting the premium via the timelock branch.
> This is effectively forcing fees even in a route failure, which does not
> incentivize intermediate nodes to actually forward when they can do nothing
> and receive fees anyway for not routing.
>
> Regards,
> ZmnSCPxj
> _______________________________________________
> Lightning-dev mailing list
> Lightning-dev at lists.linuxfoundation.org
> https://lists.linuxfoundation.org/mailman/listinfo/lightning-dev
>
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📝 Original message:
Hi ZmnSCPxj,
I'm glad you pointed this out. I think this protocol is practical. That
talk was actually given by my colleague :).
My post in the December thread was trying to explain the same idea but as a
[A -> Exchange -> A] on-chain trade (rather than a [A -> Exchange -> B]
cross chain L2 payment). For reference:
https://gist.github.com/LLFourn/d0afa6b37207aed7cd73f6b9203c0def.
I mentioned it was possible to do it in a channel. Although looking back at
it now it seems I was somewhat confused at the time. I said:
> As ZmnSCPxj demonstrated, the idea of sending a payment in asset A and
the other party receiving it as asset B with some exchange node in the
middle doing a conversion is unsound given what we are able to construct in
Lightning.
As you just showed, this is wrong. [A -> Exchange -> B] with the collateral
on the last hop works fine. After all, [A -> Exchange -> A] is just a
special case of [A -> Exchange -> B]. I agree that extending this idea
across multiple hops after the exchange securely looks impossible.
Note, the Exchange should watch carefully for their counter-party delaying
in signing the channel update on the final hop (to gain value from the
option this gives them). If they notice this they should close the channel
and avoid doing business with this party.
Despite this, it's still a far better protocol than the vanilla atomic swap
because the delaying party has a far less time to realise any gains from
the option. The exchange can put an end to it by closing the channel within
1 on chain tx.
On naming. I think it's better to call it *collateral* rather than an
*option premium* because it is only paid on a failure to execute the trade.
I was thinking we can call them collateralized HTLCs.
It's possible to modify the protocol slightly so that the party receiving
the option pays the *premium* regardless of whether they release x or not.
This makes it a proper cross chain option with guaranteed premium.
We made a poster describing this idea here:
https://coblox.tech/docs/financial_crypto19.pdf.
Cheers,
Lloyd
On Tue, Apr 23, 2019 at 1:52 PM ZmnSCPxj via Lightning-dev <
lightning-dev at lists.linuxfoundation.org> wrote:
> Good morning list,
>
> Reviving an old thread, but I saw this just recently:
> http://diyhpl.us/wiki/transcripts/scalingbitcoin/tokyo-2018/atomic-swaps/
>
> Suppose you are a BTC to WJT exchange.
> I want to pay 1 BTC to send 1000000000 WJT to YAIjbOJA.
> I have a BTC channel to you.
> You have a WJT channel to YAIjbOJA.
>
> In order to create a properly-incentivized American Call Option with a
> premium, you insist that 10% of the WJT value be the premium that is paid
> if the exchange does not pull through.
>
> We perform this ritual:
>
> 1. YAIjbOJA generates a secret x and gives h(x) to me.
> 2. On my channel to you, I get 1 BTC from my side and create an HTLC.
> Hash is h(x) payable to you, timelock is 2 days payable to me.
> 3. On your channel to YAIjbOJA, you get 1000000000 WJT from you, and
> 100000000 WJT (10%, the premium) from YAIjbOJA and create an HTLC.
> Hash is h(x) payable to YAIjbOJA, timelock is 1 days payable to you.
>
> The above also forms an American Call Option, but with a premium if the
> payment does not push through.
>
> However, extending this to beyond one hop after the exchange node is
> difficult.
> Problems in communicating with the next hop may cause the current hop
> after the exchange node to become liable for the premium without being able
> to forward the liability to the final payee, which is an avenue for attack.
> And if the payee must be the hop after the exchange node, the exchange
> node now knows exactly how much and when that node receives payment, and
> can sell this information and/or selectively disrupt/censor some payments.
>
> Putting the premium before the exchange node is possible with an
> additional transaction spending the HTLC (the timelock branch is payable to
> a 2-of-2 with a pre-signed transaction that sends the premium to the
> exchange and returns the rest of the value to the payer).
> But this is unsafe, since the exchange (and any node between the payer and
> the exchange) can stall the protocol deliberately and refuse to forward,
> extracting the premium via the timelock branch.
> This is effectively forcing fees even in a route failure, which does not
> incentivize intermediate nodes to actually forward when they can do nothing
> and receive fees anyway for not routing.
>
> Regards,
> ZmnSCPxj
> _______________________________________________
> Lightning-dev mailing list
> Lightning-dev at lists.linuxfoundation.org
> https://lists.linuxfoundation.org/mailman/listinfo/lightning-dev
>
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