Anchor Outputs Channels Are Here

By Wilmer Paulino on 8/3/2023 - Tags: Channels, Anchor Outputs, Fees

v0.0.116 of LDK with added support for opening channels with anchor outputs (opens new window) is live. This much-requested feature brings multiple security and usability improvements to Lightning channels.

Lightning channels rely on pre-signed transactions that participants broadcast to the network if they wish to close a channel unilaterally, e.g., when their counterparty is offline. Before introducing anchor outputs to the Lightning protocol, participants continually negotiated their commitment transaction’s fees based on the current block-space demand. This fee negotiation unfortunately came with its own set of problems. If participants disagreed on the proposed fee range, a unilateral close made the channel unusable. Underestimating the required fee could result in loss of funds if an HTLC needed to be resolved on-chain, and overestimating would misallocate the channel balance towards fees, potentially rendering the channel useless.

With anchor outputs, participants can now contribute the majority of fees required at the time of broadcast by bumping the commitment transaction's fee via a child transaction using the Child-Pays-For-Parent (CPFP) (opens new window) fee-bumping mechanism. A small portion of fees must still be allocated to commitment transactions to ensure they can enter nodes' mempools independently. This will be required until package relay (opens new window) is deployed network-wide. At that point, we can have a fixed 1 sat/vB commitment transaction that is likely to do away with the fee negotiation once and for all, eliminating the most common cause of unilateral closes that we see today.

Given LDK's modularized design, support for anchor outputs posed a few challenges. As a Lightning-only library, we do not include an on-chain wallet as a traditional node implementation would, requiring manual integration work by the application developer. However, we were able to leverage our existing event-based API (opens new window) to communicate that a commitment or HTLC transaction's fee needs to be bumped. The handling of these events is often non-trivial, so we added a utility (BumpTransactionEventHandler (opens new window)) to simplify required integration work. With this utility, an application developer only needs to provide a view into their on-chain wallet for LDK to access confirmed UTXOs and sign them.

Note that node operators need to maintain a reserve of confirmed funds if they wish to exit a channel unilaterally. LDK will not ensure this reserve is enforced, but we’re exploring possible ways to do so (opens new window). Without such enforcement, a node may open or accept more channels than its provisioned reserve allows it to handle, potentially resulting in a loss of funds if any HTLCs need to be resolved on-chain. In the meantime, application developers must determine whether their use case warrants such enforcement, then implement it themselves. For example, a mobile user connected to a LSP could always defer to the LSP to broadcast the latest state so that the user wouldn’t need to maintain a reserve.

While the feature is now available, we still consider it experimental. We're always seeking feedback on how to improve our API and provide a better developer experience.