Liquidity Ads

What Are Liquidity Ads?

Liquidity ads (formally known as option_will_fund) are a protocol-level mechanism that allows Lightning Network nodes to advertise their willingness to lease inbound liquidity to other nodes through dual-funded channel openings. When a node enables liquidity ads, it broadcasts its lease terms across the network, and any other node can purchase a channel with guaranteed capacity for a specified duration.

The protocol was proposed by Lisa Neigut (niftynei) of Blockstream and is defined in BOLTs PR #878. It builds on the interactive transaction construction protocol (BOLTs PR #851), which enables dual-funded channels where both parties contribute funds to the opening transaction.

The core problem liquidity ads solve is straightforward: new nodes joining the Lightning Network have no inbound liquidity. They can send payments but cannot receive them until another node opens a channel toward them. Historically, obtaining inbound liquidity required personal relationships with well-connected nodes, centralized liquidity marketplaces, or paid services from LSPs. Liquidity ads create a permissionless, protocol-native alternative. For a deeper look at why inbound liquidity is critical, see the research article on Lightning Network liquidity.

How It Works

Liquidity ads operate through three phases: advertisement, negotiation, and enforcement.

Advertisement

A node that wants to sell liquidity configures its lease terms and broadcasts them via the standard node_announcement gossip message using a TLV (Type-Length-Value) extension. Every node on the network can see these offers, with no central registry or coordinator required.

The advertisement includes six fields:

Fee Calculation

The total cost of a liquidity lease combines three components:

Total cost = lease_fee_base_msat
           + (requested_sats × lease_fee_basis / 10,000)
           + (funding_weight × fee_rate_per_kw)

Example: 1,000,000 sat lease at 50 basis points, 500 base fee
  Base fee:          500 sats
  Proportional fee:  1,000,000 × 50 / 10,000 = 5,000 sats
  On-chain cost:     varies with current fee rate
  ─────────────────────────────────────────────
  Total:             ~5,500 sats + on-chain fees

Fees are calculated on the minimum of requested satoshis or actual funding satoshis provided. The seller also commits to maximum routing fees for the duration of the lease, giving the buyer predictable forwarding costs.

Negotiation and Channel Opening

When a buyer selects an offer, the process follows these steps:

1. The buyer connects to the selling node and initiates a dual-funded channel open, passing the seller's compact_lease to signal the expected rates
2. Both parties contribute inputs and outputs to a shared funding transaction using the interactive transaction construction protocol
3. The seller verifies the lease terms match their current advertisement (if terms have changed, the open fails and the buyer must re-fetch the latest compact_lease)
4. Both parties sign the funding transaction and broadcast it to the Bitcoin network
5. The channel is active once the transaction confirms, with the seller's contribution providing immediate inbound capacity for the buyer

Lease Enforcement

The protocol uses on-chain timelocks to prevent the seller from withdrawing their committed funds before the lease expires. The original specification used CSV (CheckSequenceVerify) locks, but the updated version switched to CLTV (CheckLockTimeVerify) locks on every commitment transaction output that goes to the seller.

This CLTV approach is simpler and more robust: if the seller attempts a force close before the lease expires, their funds remain locked until the agreed block height. The original specification used a fixed lease duration of 4,032 blocks (approximately 28 days), but the updated version supports variable durations where the buyer specifies the desired lease length.

Implementation Status

Liquidity ads are implemented in two major Lightning node implementations as of 2025:

Core Lightning (CLN)

Core Lightning was the first implementation to ship liquidity ads, beginning with c-lightning v0.10.1 in August 2021. Sellers configure their offers through the funder plugin:

# Configure as a liquidity seller
lightning-cli funderupdate -k \
  policy=match policy_mod=100 \
  lease_fee_base_msat=500sat \
  lease_fee_basis=50 \
  channel_fee_max_base_msat=100sat \
  channel_fee_max_proportional_thousandths=2

# Discover available offers
lightning-cli listnodes | grep -B20 -A7 option_will_fund

# Purchase liquidity from a specific node
lightning-cli fundchannel -k \
  id=<node_id> amount=1000000 \
  request_amt=1000000 \
  compact_lease=<value>

The policy=match with policy_mod=100 setting means the node contributes exactly the amount the buyer requests. Setting leases_only=true restricts the node to only fund channels where the buyer pays a lease fee.

Eclair

Eclair added liquidity ads support in 2024 with "extensible liquidity advertisements." ACINQ also implemented on-the-fly funding, which combines liquidity ads with splicing to dynamically negotiate liquidity purchases when payments arrive. This powers Phoenix Wallet's seamless receive experience, where channels are opened or resized automatically when needed.

LND

LND has not implemented liquidity ads as of 2025. The prerequisite is full support for dual-funded channels (the interactive transaction protocol), which remains in development. LND nodes can relay liquidity ad data from CLN and Eclair nodes through the gossip protocol but cannot participate as buyers or sellers.

Use Cases

New Node Bootstrapping

A node joining the Lightning Network for the first time can immediately purchase inbound liquidity from multiple sellers, establishing channel capacity for receiving payments without relying on personal connections or waiting for organic channel opens. This is particularly valuable for merchants who need to accept payments from day one.

Routing Node Operations

Routing nodes can use liquidity ads to acquire strategically positioned channels that improve their routing capabilities. Instead of negotiating individually with well-connected nodes, operators can browse available offers and purchase capacity where the network needs it most. For more on routing strategy, see the Lightning channel management guide.

Decentralized Liquidity Marketplace

Liquidity ads create a market where capital-rich nodes earn returns by leasing their funds and capital-poor nodes gain capacity on demand. This market operates without any central coordinator, contrasting with platforms like Lightning Pool (Lightning Labs) or Magma (Amboss) that require accounts and intermediary infrastructure. For a comparison of approaches, see the research on Lightning Service Providers.

On-the-Fly Funding

When combined with splicing, liquidity ads enable on-the-fly channel resizing. A node receiving a payment larger than its current inbound capacity can automatically negotiate a liquidity purchase, open or resize a channel, and complete the payment in a single flow. Phoenix Wallet uses this pattern with lease durations of approximately one year.

Liquidity Ads vs. Other Approaches

Several mechanisms exist for obtaining Lightning liquidity. The key differences:

Liquidity ads offer the strongest censorship resistance and privacy: no third party sees who is buying or selling, and any node with at least one public channel can participate. The tradeoff is a thinner market with no built-in reputation system or automated price discovery.

Risks and Considerations

Griefing During Channel Opens

A malicious buyer can initiate a liquidity purchase, causing the seller to lock UTXOs for the funding transaction, then abandon the process. This locks the seller's capital without completing the channel. Eclair addressed this in 2025 with configurable UTXO locking and timeout mechanisms that abort unresponsive channel opens.

Thin Market and Low Adoption

As of 2025, liquidity ads remain experimental. Only Core Lightning and Eclair support them, and the specification is still under review. The market has limited participants, making it difficult to find competitive rates or reliable sellers. Without LND support, the majority of Lightning nodes cannot participate.

No Built-In Reputation

The protocol does not include a reputation system. A seller could advertise favorable terms but provide poor routing performance, go offline frequently, or operate a poorly connected node. Buyers must evaluate sellers based on external information such as node age, channel count, and routing history.

Capital Lockup for Sellers

Sellers commit their funds for the full lease duration. If market conditions change or the buyer's node becomes inactive, the seller's capital remains locked in an unproductive channel until the CLTV timelock expires. Unlike traditional financial instruments, there is no way to exit a lease early or transfer the obligation.

Routing Fee Commitment Limitations

While sellers commit to maximum routing fees during the lease, enforcement is imperfect. There is no automated on-chain mechanism to penalize a seller who raises fees above the committed maximum. The community has discussed cryptographic fraud proofs but no practical solution has been deployed.

This glossary entry is for informational purposes only and does not constitute financial or investment advice. Always do your own research before using any protocol or technology.