Dmytro Piatkivskyi started the following discussion on lightning-dev regarding the topic of channel rebalancing.
There has been a lot of discussion on sending cycle transactions to oneself to ’re-balance’ the network. On LN mailing list  or numerous places elsewhere. There has been even a paper suggesting a smart mechanism to do the re-balancing (see Revive or Liquidity network ). My question is what do we actually get from it?  states that the distribution of funds in channels does not really affect the network liquidity. I can see cheaper fees or shorter paths if the network is kept balanced. But don’t you think that a smart fee strategy will do the job?
To save your time,  explains the gist from .
-  https://lists.linuxfoundation.org/pipermail/lightning-dev/2018-February/001005.html
-  https://www.reddit.com/r/ethereum/comments/7bse33/were_very_happy_to_announce_the_liquiditynetwork/
-  https://arxiv.org/abs/1007.0515
-  https://medium.com/@dimapiatkivskyi/why-would-you-re-balance-a-payment-network-796756ad4f31
Let’s first try to briefly understand channel rebalancing with a simple example. Say I am Bob and I have open channels with both Alice and Mark. Alice is my employer and so she pays my monthly salary through the channel every month. Mark is my landlord and I need to pay him every month. Instead of paying him through my channel with Alice and letting Alice know my every payment move, I can just route the money to my other channel with Mark and then pay him as I wish.
Now the necessity of such act is being discussed. Some people say it’s necessary for the liquidity of the network. Others disagree that it will just cost you money by introducing more routing fees and may as well temporarily decrease the liquidity of the network as HTLCs will lock up funds during this process.
There might however be some benefits in the process, first of which was explained in the example; it might be more private to defer payments of channels whose operators know your identity. Another benefit might be saving on fees: if I constantly buy something from a store and I have a channel with this store, why constantly pay more routing fees through Alice’s channel if I can just pay it once ?
Another argument is that without Atomic Multi-Path Payments, you might not be able to receive a payment at all without channel rebalancing. If, for example, you want to receive 0.3 BTC and you only have 0.1 BTC to receive in one channel and 0.2 BTC to receive in another channel, you might not be able to receive the payment unless you rebalance your channels. This can also work as an equilibrium mechanism, as you might not want a channel with 20 BTC to send while all your other channels are dried out. Whether channel rebalancing is necessary or not, it might just be useful to do. Your editors will keep an eye on this discussion.