Bitcoiner and data scientist at Galoy.
Bitcoin's lightning network is becoming more multi-asset, at the edges.
The payer of a lightning invoice can decide whether to make the payment or not, and the receiver of a lightning payment can decide whether to settle the payment or not. In a multi-asset network, this optionality, if left unpriced, could be abused to profit on the exchange rate volatility at the expense of market makers.
In this talk, we discuss the problem of unpriced optionality from the perspective of market makers on a multi-asset lightning network. We review mitigation strategies and option pricing models and discuss their effects on user experience, implementation complexity, and risk for market makers.