[bisq-network/proposals] Off-chain trading using a lightning network of BTC & tainted BSQ (#312)

[Steven Barclay]

Taking the above idea a bit further, we could have only one party (say the maker) providing a TBSQ bond and the taker providing a (much smaller) on-chain BTC security deposit (which, as I mentioned, is needed if either trader makes a bond of less than around 11% of the total required), with the rest of the trade being done off-chain, including provision of the security deposit of the maker. Then the on-chain tx would only need two inputs & two outputs, say:

Input 1: 10k TBSQ from the maker
Input 2: 0.15 BTC security deposit from the taker
Output 1: 10k TBSQ to lockup address
Output 2: 0.15 BTC to lockup address

This time, in the event of arbitration, the timelocked prepared tx would burn the maker's TBSQ and pay the (much smaller value) 0.15 BTC taker security deposit to the maker, so that they both have funds at stake.

If the trade closes normally, they would swap private keys (or maybe nonces instead) so that the TBSQ & BTC went back to the maker and taker respectively, but shaving a little bit off of each. In this way, the maker would pay the trade fees by burning some of their TBSQ and the taker would pay the mining fee. Also, the traders would try not to split or join their TBSQ or BTC coins, but instead keep passing them on from one trade to the next, shaving a little bit off each time to pay fees, so that each trade only required a single tx of 2 inputs & outputs like the above. The coins would not need to be the exact amount required and instead all the trades would be overcollateralised, using perhaps a range of reused coins of geometrically increasing size kept by each trader.

In this way, we could perhaps get the cost down to 208 vbytes per trade (or slightly more at 211 vbytes if we upgraded to taproot). It looks like recently the tx fees were reaching more than 150 sats/vbyte, so that would still be 31200 sats or around $15 per trade at the current BTC price. I have no idea how high that could climb over the next few years, maybe to $100's?


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