Builder's Guide
  • Welcome to the Builder's Guide to the LND Galaxy!
  • The Lightning Network
    • Overview
    • Payment Channels
      • Lifecycle of a Payment Channel
      • Watchtowers
      • Understanding Sweeping
      • Etymology
    • The Gossip Network
      • Identifying Good Peers on the Lightning Network
    • Pathfinding
      • Finding routes in the Lightning Network
      • Channel Fees
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    • Lightning Network Invoices
      • Understanding Lightning Invoices
    • Making Payments
      • The Payment Cycle
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      • ⭐Hashed Timelock Contract (HTLC)
      • Payment Etymology
      • ⭐What Makes a Good Routing Node
      • Understanding Submarine Swaps
      • Instant Submarine Swaps
    • Liquidity
      • ⭐Understanding Liquidity
      • Managing Liquidity on the Lightning Network
      • Liquidity Management for Lightning Merchants
      • How to Get Inbound Capacity on the Lightning Network
      • Lightning Service Provider
    • L402: Lightning HTTP 402 Protocol
      • Macaroons
      • L402
      • 📋Protocol Specification
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    • Taproot Assets
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    • Lightning Terminal
      • What is Lightning Terminal?
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      • The Loop CLI
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    • Pool
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    • Taproot Assets
      • Get Started
      • First Steps
      • Taproot Assets Channels
      • Asset Decimal Display
      • Become an Edge Node
      • RFQ
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      • Asset Loop
      • Debugging Tapd
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      • Minting Assets With an External Signer
      • Lightning Polar
      • Operational Safety Guidelines
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    • Aperture
      • ⚒️Get Aperture
      • LNC Backend
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    • Faraday
      • 🛠️Get Started
      • The Faraday CLI
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  • LAPPs
    • Guides
      • Use Polar to Build Your First LAPP
        • Setup: Local Cluster with Polar
        • Setup: Run the Completed App
        • Setup: Run the App Without LND
      • Add Features
        • Feature 1: Connect to LND
        • Feature 2: Display Node Alias and Balance
        • Feature 3: Sign and Verify Posts
        • Feature 4: Modify Upvote Action
      • Make Your own LNC-powered Application
    • Next Steps
  • Community Resources
    • Resource List
    • Lightning Bulb 💡
    • Glossary
    • FAQ
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  1. The Lightning Network
  2. Liquidity

Lightning Service Provider

A Lightning Service Provider (LSP) deploys liquidity in the Lightning Network on behalf of others.

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Last updated 2 years ago

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A Lightning Service Provider (LSP) is an entity providing liquidity services on the Lightning Network on behalf of others. Channels in the Lightning Network are naturally constrained by their size, and capacity is further limited by local and remote balances.

Lightning Service Providers typically help manage a user’s liquidity by performing one of two tasks

  • Swapping on-chain funds for off-chain funds or vice versa

  • Opening channels to increase a user’s or improve their

Ideally, a Lightning Service Provider interacts with their clients in a purely non-custodial way. Swaps can be constructed as to guarantee that the service provider cannot abscond with funds at any time. When opening channels to peers, the LSP retains custody over their side of the channel and earns routing fees as they forward payments.

Today, LSPs are most commonly known for providing liquidity to users of non-custodial wallets in the form of channels. This lets users immediately receive Lightning payments to their wallets without requiring active channel management or ownership over a UTXO. The LSP typically charges an upfront payment to compensate for mining fees and capital costs.

These fees are often deducted directly from an incoming payment, but could also be charged upfront. It may be difficult for the LSP to assess how large a new channel to a user should be.

An LSP may borrow bitcoin for this task, or deploy their own funds. It is also possible for an LSP to buy such channels on the open market, such as using sidecar channels, instead of opening them themselves.

inbound capacity
position in the graph
Submarine Swaps
Lightning Pool