The Merchant: Avoiding Payment Channel Depletion through Incentives

Abstract

Payment channels networks drastically increase the throughput and hence scalability of blockchains by performing transactions off-chain. Hence, they are a promising substrate for all decentralized applications that require instant payments. In an off-chain payment, parties deposit coins in a channel and then perform transactions without invoking the global consensus mechanism of the blockchain. However, the transaction value is limited by the capacity of the channel, i.e., the amount of funds available on a channel. These funds decrease when a transaction is sent and increase when a transaction is received on the channel. Recent research indicates that there is an imbalance between sending and receiving transactions, which leads to channel depletion in the sense that one of these operations becomes impossible over time due to the lack of available funds. We incentivize the balanced use of payment channels through fees. Whereas the current fee model depends solely on the transaction value, our fee policies encourage transactions that have a positive effect on the balance in a channel and discourage those that have a negative effect. This paper first defines necessary properties of fee strategies. Then, it introduces two novel fees strategies that provably satisfy all necessary properties. Our extensive simulation study reveals that these incentives increase the effectiveness of payments by 8% to 19%.