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This week, the Lightning Network set a new record for the dollar value held in its payment channels at $12.6 million, according to data shared by Bitcoin Visuals.
This metric is also known as the total value locked (TVL) in Bitcoin’s second layer payments solution and demonstrates the amount of money that users have moved into the channels, which let them quickly and efficiently transmit value to one another, before balances are settled and confirmed on the Bitcoin blockchain.
The factors that led to the new record are fairly easy to detect. For one, the price of BTC has risen by approximately 3x since a low in March 2020. (So, a more earnest metric for TVL might be the fact that 1,060 BTC are locked in payment channels, which is close to the record of 1,104.676 BTC set on May 9, 2019. After all, 1 BTC is always worth 1 BTC.) For another, LND started supporting wumbo channels last month, which allows users to deposit more money into Lightning Network channels and send larger transactions.
Quick Digression Into Wumbo
Wumbo channels, which are named after a line of dialogue from SpongeBob SquarePants, remove a limit on the amount of BTC that can be held in a channel (capped at 0.16 BTC) and a cap on how large individual payments can be, which was capped because of the relative novelty of the Lightning Network. For a payment channel to circumvent the caps via wumbo, users on both sides must signal their desire.
“If both sides of a new channel agree to wumbo each other by setting ‘option_i_wumbo_you_wumbo,’ they can build channels with capacity higher than 167.77216mBTC,” Lightning developer ZmnSCPxj explained to the Lightning Dev mailing list in November 2018. “A node that advertises ‘option_wumborama’ allows any node to build channels with capacity above the limit. Please blame one of the persons attending the [second Lightning Development Summit] for this term.”
Eclair and c-lightning adopted wumbo support earlier in 2020, and with LND’s more recent adoption it stands to reason that a significant portion of Lightning users are no longer constrained by channel limitations.
Back To TVL
So, obviously, removing the channel capacity limit enables a higher TVL on Lightning. But it doesn’t mean users will take advantage — a new record in TVL indicates that there is a demand for more robust use of Lightning channels that is now being met.
The growth of the value being transacted through Lightning, plus the rise of BTC price and the removal of channel caps that are likely fueling it, are all indicators that the technology is growing and that it’s most promising second layer is finding success. And these aren’t the only bullish metrics. The number of Lightning nodes is at an all-time high and the number of Lightning channels is near its record following growth in August.
The Lightning Network has been ballyhooed widely throughout the Bitcoin community. But, like a lot of Bitcoin stuff, it’s potential largely outweighs its actual use. That’s why these record metrics are worth parsing and celebrating — as the Lightning Network goes, so goes Bitcoin as a usable and scalable tool for shifting the way we transact value with one another.
The more value that people are locking into Lightning, the more Bitcoin is succeeding.
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