Subject: Re: [bitcoin-dev] Scaling Lightning Safely With Feerate-Dependent Timelocks

From: "David A. Harding" <[email-masked]>
Date: Fri, 29 Dec 2023 17:11:48 -1000

On 2023-12-29 15:17, Nagaev Boris wrote:
> Feerate-Dependent Timelocks do create incentives to accept out-of-band
> fees to decrease in-band fees and speed up mining of transactions
> using FDT! Miners can make a 5% discount on fees paid out-of-band and
> many people will use it. Observed fees decrease and FDT transactions
> mature faster. It is beneficial for both parties involved: senders of
> transactions save 5% on fees, miners get FDT transactions mined faster
> and get more profits (for the sake of example more than 5%).

Hi Nagaev,

That's an interesting idea, but I don't think that it works due to the 
free rider problem: miner Alice offers a 5% discount on fees paid out of 
band now in the hopes of collecting more than 5% in extra fees later due 
to increased urgency from users that depended on FDTs.  However, 
sometimes the person who actually collects extra fees is miner Bob who 
never offered a 5% discount.  By not offering a discount, Bob earns more 
money on average per block than Alice (all other things being equal), 
eventually forcing her to stop offering the discount or to leave the 
market.

Additionally, if nearly everyone was paying discounted fees out of band, 
participants in contract protocols using FDTs would know to use 
proportionally higher FDT amounts (e.g. 5% over their actual desired 
fee), negating the benefit to miners of offering discounted fees.

-Dave