State Channel Liquidity Problem¶

In addition to the data avaliablitity problem described previously, state channel networks gain scalability also by trading off network liquidity. The two peers in a CelerPay channel can safely send each other payments at high speeds without on-chain transactions because they have deposited the required liquidity into the on-chain contract. This upfront liquidity locking works fine for the end users because they can simply deposit their tokens to the channels and enjoy the scalable dApps, just like using a debit card. However, this could pose a great challenge for those who want to operate as off-chain service providers (OSPs), because they need to lock tokens in each connected payment channels. Therefore a significant amount of crypto liquidity is needed by the OSP to provide effective off-chain services to a large number of user clients.

While running an OSP requires lots of liquidity, owners of a large number of crypto assets (whales) may not have the business interest or technical capability to run an off-chain service infrastructure. On the other hand, people who have the technical capability of running a reliable and scalable off-chain service often do not have enough capital for channel deposits. Such a mismatch could create a huge hurdle for the mass adoption and technical evolution of off-chain state channel networks.

To address this challenge, Celer provides a liquidity backing platform for OSPs to obtain enough liquidity through crowdlending, and for people to reliably earn interests from their idle crypto assets. Next section details the Celer liquidity backing mechanism.