Lightning Drop in Lightning Network Points to Larger Problem

Hello defiers and happy Friday! Here’s what’s going on in decentralized finance,

• BTC held in the lightning network appeared to plunge to 73 from ~800
• DeFi dashboards space getting crowded

Lightning Drop in Lightning Network Highlights Slide

The lightning network is struggling to gain traction.

An apparent glitch in the data made it seem like the bitcoin held in the network’s channels plunged to 73 from ~800 and quickly erased losses three times in a couple of minutes. Some attributed the move to a node outage.

Image source: DeFi Pulse

While far from the 1,000% plunge in one day, the move called attention to the overall trend. BTC in the network dropped 75 percent from the high of over 1k BTC in May, according to DeFi Pulse. Number of channels in the system is steadily sliding from a record of over 36k in March to over 27k today, according to Bitcoin Visuals. Total nodes are up in that time, but only slightly, to ~4.9k from ~4k.

Image Source: Bitcoin Visuals

The lightning network is a Layer 2 solution built on top of the Bitcoin blockchain, which establishes payment channels between network nodes to allow for cheap and fast payments using BTC. It’s the only Bitcoin-based application on DeFi.

LN was initially seen as a solution for Bitcoin’s slow transaction times, as it takes about 10 minutes to confirm each block, and occasional high fees. It would allow Bitcoin to become the “peer-to-peer electronic cash system” hailed in the whitepaper’s title. With about 1,000 transactions per day according to LNBIG, an entity which makes up 40 percent of the network’s capacity, cited by The Block, it has so far failed to achieve that goal at scale.

Meanwhile, payments systems built on top of Ethereum are seeing increased use. Dai in xDai, an Ethereum sidechain for micropayments, is up to ~37k from ~1.6k at the start of the year.

Image source: DeFi Pulse

To be sure, at about $6 million in BTC, LN still holds the most value out of all the DeFi payments systems. But if the trends hold, that won’t be true for much longer.

DeFi Dashboards Popping Up

With the proliferation of decentralized finance platforms, developers are making tools to help users organize all their assets and data in one place, rather have to access to them individually.

The latest is Frontier Wallet, which is in beta for Android and iOS. The mobile app supports MakerDao SCD, Compound Finance, Set Protocol, Uniswap and dYdX. Next on their list is Fulcrum, NUO, Synthetix and MakerDao MCD.

Ramp Instant and Zerion partnered up to provide a similar product. Ramp will provide the fiat on-ramp, allowing users to buy crypto directly from each other using fiat currencies. Zerion is a platform which lest users visualize their portfolio and their assets on Compound and MakerDAO.

DeFi Saver also aims to provide a one-stop management solution for DeFi, and is integrated with Compound and MakerDAO.

These dashboards are similar to so-called personal finance management apps used in traditional fintech, like Mint or Quicken. It’s been challenging to monetize PFMs, which mainly rely on cross selling products. This will be even tougher to do in DeFi, so they’ll probably have to rely on charging small fees per transactions. It will be fascinating to see how these business models play out.

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