Earning Yield on Bitcoin with Lightning

Key Insights

• The Lightning Network allows bitcoin holders to generate passive income while maintaining custody and without any counterparty risk, making bitcoin a productive asset.
• Lightning node operators earn fees from routing transactions and providing inbound liquidity to users and merchants.
• The average APR generated from leasing out inbound liquidity in the last three months was 3.5%.
• A top 100 ranked node averaged a 2.5% APR in the first half of this year from routing transactions on the Lightning Network.
• The Lightning Network establishes a framework for calculating bitcoin’s risk-free rate, a necessary step for Bitcoin to develop a mature capital market and potentially reach reserve currency status.

The Lightning Network (LN) has been in its own siloed bull market over the past year, insulated from the overall market downturn. As a Layer-2 protocol, LN aims to serve as a scaling solution that addresses Bitcoin’s high transaction fee problem. Namely, it intends to increase the network’s throughput, and decrease transaction settlement time.