⚡Lightning -> Smart chain (new)

Lightning to Smart chain swaps removing the need for payee to send any smart chain transaction - improves UX & ensures payee doesn't need any upfront balance on the smart chain.

The new swap protocol addresses the drawback of the legacy one, mainly around user UX and the "cold start" problem - inability to onboard users onto the smart chain without them holding smart chain tokens first. This is accomplished by letting the LP node create the HTLC and offloading the HTLC claiming to external incentivized watchtowers, which listen to swap secrets over Nostr.

Requirements

• lightning invoice has to have a fixed amount

Parties

• payee - recipient of the smart chain token (e.g. WBTC on Starknet, BTC on Botanix), using the LP to do the swap

• LP node - handling the swap, sends the smart chain token and receives lightning network payment

• payer - the one paying on bitcoin lightning network

• watchtower - registers swaps, listens to swap secrets over Nostr and claims the swap on behalf of the user, while earning the watchtower fee

Process

1. Payee creates a secret S and payment hash P that is produced by hash of secret H(S)

2. Payee queries the LP node off-chain, with payment hash P and an amount he wishes the receive + his desired watchtower fee, LP node creates a bitcoin lightning invoice using payment hash P, with the amount specified and returns it to payee

3. Payee sends this lightning invoice to the payer

4. LP node receives an incoming lightning network payment from payer, but cannot settle it because LP node doesn't know secret S yet.

5. LP node funds an HTLC on the Smart chain, the HTLC is constructed such that:

   • paying the funds to payee if a valid secret S is provided, such that hash of secret H(S) is equal to payment hash P & pays out the watchtower fee to whoever executes the claim transaction

   • refunding the payer, but only after locktime T

locktime T is determined by LP node based on lightning invoice's min_cltv_delta - the minimal timeout delta for last lightning network HTLC in chain (last hop of the lightning network payment) as LP node needs to have a knowledge of secret S before then to successfully receive a payment

1. Watchtower observes the HTLC created on the Smart chain and registers it internally for claiming

Successful payment

1. Upon confirmation of HTLC creation's transaction on the Smart chain, payee first verifies that it fits the agreed-to conditions (amount, watchtower fees, etc.) and then broadcasts the secret S over Nostr

2. Watchtower will observe the Nostr message, construct an HTLC claim transaction, broadcasts it, claiming the funds from the HTLC to the payee & claiming the watchtower fee

If no watchtower claims on behalf of the user, the user can always claim by himself!

1. LP node observes this transaction on the Smart chain and uses the revealed secret S to settle the lightning network payment.

Payee went offline

1. LP node waits till the expiry of locktime T and then refunds his funds back from the HTLC

Diagram

Bitcoin Lightning -> Smart chain swap process (Intermediary = LP Node)