The value of the Lightning Network is closely related to the price of Bitcoin, according to a recent research report.
The report argues that the maximum flow, representing the maximum transaction capacity of the network, is a key metric to assess the true value of the Lightning Network, a leading second layer (L2) of Bitcoin.
This means that the value of the Lightning Network is directly proportional to the rising price of Bitcoin (BTC), according to Jesse Shrader, CEO and co-founder of Amboss Technologies.
Shrader spoke with TinTucBitcoin:
"The Lightning Network is currently optimized for micro-payments, but as the price of Bitcoin increases, the payment infrastructure also develops in parallel with the price. Larger payments begin to operate as micro-payments with higher efficiency compared to the increasingly valuable Lightning channels."
"It's like your dial-up internet connection has become broadband because the price of Bitcoin has gone up," he added.
Maximum flow, reliability of payments by volume. Source: Amboss Technologies
According to a research report published by Amboss Technologies, a company building infrastructure for the Lightning Network, evaluating the maximum flow will become a key factor in measuring the increasing value of the Lightning Network, as traditional metrics like the number of nodes and channels are not a comprehensive way to measure the scaling layer of Bitcoin.
Maximum Flow: Understanding a Key Metric of the Lightning Network
The maximum flow can help assess the reliability of payments on the network, showing how the probability of transaction success changes with different payment amounts.
This is because the number of nodes does not accurately measure how payments are routed through the Lightning Network, which is what makes the L2 valuable.
Payment success on the Lightning Network vs. price. Source: Amboss Technologies
By measuring the probability of a transaction's success, the maximum flow helps assess the distribution of liquidity and identify potential bottlenecks, which could ultimately improve the overall performance of the network. The report states:
"For example, if a channel holds 0.1 BTC and Bitcoin is priced at $50,000, the channel can transfer $5,000. If the Bitcoin price doubles to $100,000, the channel can handle $10,000—without any changes to the underlying infrastructure."
The Growth Potential of the Lightning Network May Attract Institutional Capital to the Chain
Institutional adoption of cryptocurrencies will require a payment infrastructure on the blockchain with higher reliability and scalability.
Many institutions may start flocking to the Lightning Network, thanks to the network's increasing channel capacity, as evidenced by the maximum flow metric. Shrader explains:
"As channel capacity increases and liquidity is better distributed across the network, we may see more institutional capital leveraging the Lightning Network."
The growth potential of the Lightning Network's maximum flow could lead to lower costs and easier transactions for institutions. He added:
"Increased channel capacity also means that institutions can route larger payments with lower fees and without needing to perform frequent on-chain transactions. This reduces costs and friction, potentially leading to more institutional activity off-Chain as organizations use Lightning for payment purposes."
Lightning Network, total value locked, chart over time. Source: defillama.
According to data from defillama, the Lightning Network has a total value locked of over $346 million, making it the 3rd largest protocol built on the Bitcoin network.
