LND's Deadline-Aware Budget Sweeper

A notable aspect of this discourse involves the implementation of a grace period facilitated by a differentiated fee function, as highlighted in ongoing research. This concept introduces the possibility of adjusting fee functions based on the current deadline, addressing the inherent uncertainty in fee spikes or declines with each new block. This approach not only acknowledges the opportunity cost associated with skipping fee bumping but also considers the user's desire for quick liquidity access, underscoring the balance between time value and economic efficiency.

In the specific cases of Eclair and LDK, two prominent systems managing transaction fees, there is a consensus on the efficiency of exponential fee bumping as deadlines near. Eclair employs this strategy to ensure transactions are processed timely, leveraging the exponential model especially when traditional estimators do not recommend higher fees. The dialogue around these practices suggests a move toward integrating a budget-based fee function that incorporates a grace period before initiating fee adjustments. This proposed method aims to delay fee bumping until a significant portion of the expected timeline has elapsed, potentially offering a more cost-effective solution without compromising on timeliness.

Further insights into transaction fee optimization reveal a strategic approach that postpones fee bumping until just beyond the midpoint of the transaction count, utilizing a new budget-based fee function. This method seeks to minimize costs while still ensuring transactions are processed efficiently, challenging the conventional rush to increase fees close to the transaction deadline. By considering both economic and timing factors, this strategy offers a nuanced way to manage transaction fees, balancing urgency against resource allocation.

The challenge of achieving timely confirmations without overspending on fees is also evident in the utilization of the estimateSmartFee function by LN nodes. There exists a nuanced strategy that contradicts common misconceptions about achieving the fastest confirmations by setting the lowest possible confirmation target. The discussion underscores the importance of a balanced approach that aims for confirmations within a reasonable number of blocks while managing costs, highlighting the limitations and uncertainties involved in relying on fee estimators.

Lastly, the introduction of a revised sweeper subsystem in LND version 0.18.0 marks a significant advancement in managing transaction fees and security. By incorporating HTLC deadlines and budget considerations, the new system allows for dynamic fee adjustment, prioritizing transactions based on their urgency and enhancing protections against various attacks. This development reflects a broader effort to optimize transaction processing within the LN, emphasizing the importance of security, efficiency, and cost-effectiveness in network operations. Additionally, discussions about improving Bitcoin Core's fee estimation highlight the ongoing efforts to refine the accuracy and utility of fee predictions, further contributing to the robustness and reliability of blockchain transactions.