Preventing Delay Abuse in a Lightning Based Peer-to-Peer Exchange

Corné Plooy discussed a potential solution to prevent delay abuse in lightning based P2P exchange:

Lately I’ve been thinking about de-centralized crypto/crypto exchange (“atomic swap”) on the Lightning network. In my view, the main problem is that participants can delay transactions (up to HTLC time-out, which can be quite long), in order to speculate on exchange rate changes. I’ve been looking for several approaches to deal with this problem.

Atomic Swaps are one of the most innovative uses of lightning network, they are used to make crypto to crypto exchanges between different blockchains running Lightnin but a potential problem lies with them.

Exchanges have rates and these rates differ from time to time. Lightning transactions have HTLC outputs that are locked for a certain time until someone claims them, these contracts can be used to delay the exchange between the two users to speculate exchange rate changes.

This can be solved by quite a few solutions, some of which we mentioned before in our mitigation for loop attacks article and other solutions specific to atomic exchanges.

The first solution would be a latency monitoring service that uses this data to make a reputation system for the nodes so when nodes are slow and deceiving they get a reputation for it and other nodes can avoid them in the future.

Another solution would be the existence of trusted intermediary third party members, these members make sure that the other party does not use the delay attack. Given the trustless nature of LN, these third party members are not as decentralized as regular atomic swaps would be, but they are more secure than regular centralized exchanges as they can not steal your funds, and unless it specifically requires, it does not need to know your identity or the assets you are trading

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