Ark as a Channel Factory: Compressed Liquidity Management for Improved Payment Feasibility

The discussion centers around the economic efficiencies and drawbacks of utilizing Ark for improving payment feasibility through compressed liquidity management in comparison with On-chain funded topologies. Ark-funded models, referred to as "the Factory," allow a Liquidity Service Provider (LSP) to minimize liquidity mismatches efficiently. However, this model introduces a perpetual "Liveness Tax" due to the necessity of refreshing or rolling over backing virtual Transaction Outputs (vTXOs) at each expiry period, typically every 2 to 4 weeks. This requirement not only incurs recurring Application Specific Port (ASP) fees but also operational demands.

On the other hand, the On-chain funded model, known as "Legacy channels," presents a different set of economic implications. In this scenario, an LSP faces a high opportunity cost due to the inefficient allocation of locked capital. Despite this inefficiency, the model benefits from near-zero maintenance costs, contrasting sharply with the continuous overhead associated with the Ark-funded approach.

A pivotal question arises regarding the strategic deployment of these funding models within a network graph to enhance payment feasibility. The inquiry delves into whether an entire network should adopt the Ark-funded model to leverage its liquidity management benefits fully or if there exists a demand threshold. Beyond this threshold, predictable demand enables balanced flows or high velocity, thereby diminishing the value of dynamic resizing offered by the Factory. This situation could render a static channel approach more economically advantageous, prompting a reassessment of the Factory's role: whether it serves as a permanent solution or merely a transitional phase towards Liquidity Discovery.