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Channel liquidity

INTERMEDIATE2 min readUpdated

On Lightning you can only send what's on your side of a channel and receive what's on the other side. Learn how to manage inbound and outbound liquidity.

Two directions

Orange is your side (outbound); the rest is their side (inbound)YouPeerchannel balance (orange = your side)payments shift the balance instantly, off-chainopened and closed with on-chain transactions · funds sit in a 2-of-2 multisig output
Orange is your side (outbound); the rest is their side (inbound)
  • Outbound liquidity: your balance in your channels. That's what you can send.
  • Inbound liquidity: your peers' balance in channels with you. That's what you can receive.

If you open a channel with 1,000,000 sats, at first you have 1,000,000 outbound and 0 inbound: you can pay, but you can't be paid until you spend some.

Getting inbound liquidity

  • Spend: paying moves balance to the other side.
  • Ask a peer to open a channel to you, or buy one from a liquidity provider (a "liquidity ad" or lease).
  • Swaps: send funds out on-chain via a submarine swap, keeping the channel capacity.
  • LSPs: many mobile wallets use a Lightning service provider that opens channels with inbound capacity as needed.

For merchants

A shop mostly receives, so it needs plenty of inbound capacity. Planning liquidity is part of running Lightning payments.

Balancing channels

Routing nodes "rebalance" by paying themselves in a circle, moving funds from a channel that's too full on their side to one that's too empty. It costs routing fees but keeps the node useful in both directions.

A merchant's checklist

  • Inbound capacity at least as large as a day's expected sales.
  • Channels with several well-connected peers, not just one.
  • A plan to move received funds out (swaps or closes) as channels fill.
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Key takeaways

  • You send with outbound liquidity and receive with inbound liquidity.
  • A new channel you fund starts with all-outbound balance.
  • Merchants need inbound capacity to receive payments.

Common questions

Why can't I receive a Lightning payment?

Your channels probably lack inbound liquidity, or your node is offline.

Is liquidity the same as capacity?

Capacity is the channel's total; liquidity is how it's split between the two sides.

What is inbound liquidity?

The amount your peers hold in channels with you, which is how much you can receive.

Can I buy inbound liquidity?

Yes. Liquidity providers and marketplaces sell channels opened toward you.