Bitcoin Forum

Would it be possible to build a lightning network trading platform that used BTC as the collateral?

Yes and it probably already exists. The only issue I could see from building one would be who is paying the fees when channels close as that'd have to be covered in transaction fees (on the exchange) - just in case there's a forced channel closure.

Purse.io has lightning payment acceptance (the place where you can buy things from amazon with crypto at a discount) but I don't know if this is the exact way it's done there. Also lightning payments still mean the exchange is the custodian if the funds while they're there unless they're doing an atomic swap (I don't know if that would disincentivise users taking funds out of the platform if they know they can withdraw from it within a few seconds).

What do you mean by collateral, exchanges that you can use margin trading and future in a way you can leverage by having some trading fund as collateral? See below the lists of exchanges that accepts lighting deposit and withdrawal.

Lists of bitcoin lightning network exchanges (https://github.com/theDavidCoen/LightningExchanges)

I have used OKX (referred to as OKEX on the GitHub link which was the exchange name before it was changed to OKX), it support margin and derivative trading.

what he means is what the LN community call "atomic swaps"
where they trade different coins in LN

everyone knows LN can and does allow channels of different pegged currency(though they falsely pretend LN is bitcoin and only bitcoin)

everyone knows the msats in a channels payment onion is not actual bitcoin but pegged units of promise at 1:1000 rate (disclaimer: security risk:  no network audit/consensus to secure that peg rate)

but yes LN can swap coins. though with more disclaimers needed at a huge risk due to their crap code. flaws and bugs

I think what he means is that it's a funding value or he talks about opening a channel and then funding it with Bitcoin(Bitcoin as Collateral).

@jamietheframe
So it should be yes but the problem is if you are planning to build your trading exchange and can only deposit and withdraw with Bitcoin through lightning then no one will use it. Most traders and holders want an exchange with high liquidity that can able to withdraw them to any coins/token they want because if an exchange doesn't have sufficient liquidity and the exchange platform only use Bitcoin LN to deposit/withdraw then no one will use it. Unless you are planning something different in your own exchange?

Thanks for the replies!

I was thinking that everything can be built on the bitcoin network. If the lightning network can support derivatives then why would I need to use another chain or centralized exchange? It could use BTC as the settlement layer. Forgive me if I don't understand the lightning network fully, but it seems to me that it would be possible to do this.

I have a dream that we can exit this corrupt fiat system totally and just build everything on the bitcoin network. BTC would become the backbone of everything that happens in the economy. I mean I am struggling to fully understand the limitations of lightning, like why would I need to use any other chain if everything can effectively be done on a BTC layer 2? What are the limitations of the lightning network?

If you have some reading material on the lightning network that may help me that would be really appreciated.

Since you mention BTC layer 2 it means they use another chain than the mainnet. Like lightning networks or other off-chain networks like ERC20 and BEP20 they are just used to help the issue of the congested network with cheaper transaction fees when you need to transfer your coins to other exchanges but the problem is not all exchange support lightning network look at Binance I use binance but they don't yet added it on their payment method except to another layer 2 ERC20 and BEP2/20.

So it means you are going to use a other chain than the mainnet.

If you are looking for a great source to learn about lightning then check this link below

- https://github.com/tmlee/awesome-lightning-network

Something like this already exists and it's called Kollider.
They are also working on Kollider wallet, that should work for for quick swap, send and receive coins.
On exchange you can find Synthetic Stablecoins Euro and USD that are backed by Bitcoin.
Everything is in Beta phase, so you can expect some bugs along the way, but I think this is good move forward.

Website: https://pro.kollider.xyz/
Docs: https://docs.kollider.xyz/docs/

Personally, since when you hear the term "pegged coin" meaning that you will get a 1:1 value for all your coins, there is no evidence that you will get that value or that they will even fulfil the peg.

Therefore, if you mean the exchange of several cryptocurrencies and the security of Bitcoin in the process is centralized and you cannot prove that they have the same value 1:1.

Have you used them yet? I haven't seen your post until now. I made a topic about them earlier today after coming across them on Twitter.

[1] https://bitcointalk.org/index.php?topic=5422825.0