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CircularRebalancing.md

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How to perform circular rebalancing

Circular rebalancing is a popular tool for managing liquidity between channels. This document describes an approach to rebalancing using Eclair.

In this example we assume that there are 4 participants in the Lighting Network: Alice, Bob, Carol, and Diana.

            1x1x1
    Alice --------> Bob
      ^              |
4x4x4 |              | 2x2x2
      |              v
    Diana <------- Carol
            3x3x3

Alice has two channels 1x1x1 with outbound liquidity of 5M sats, and 4x4x4 with inbound liquidity of 5M sats. Now Alice wants to send some sats from channel 1x1x1 to channel 4x4x4 to be able to receive and forward payments via both channels.

First, Alice creates an invoice for the desired amount (eg. 1M sats):

eclair-cli createinvoice --description='circular rebalancing from 1x1x1 ro 4x4x4' \
                         --amountMsat=1000000000

Eclair cannot send payments to self using payinvoice CLI command. Fortunately, Alice can use sendtoroute CLI command to do so.

However, in this case Alice should provide a valid route from 1x1x1 to 4x4x4. It's pretty straightforward to build a route for our example network: 1x1x1 -> 2x2x2 -> 3x3x3 -> 4x4x4. Alice specifies the route using --shortChannelIds parameter as a comma separated list of short channel IDs.

eclair-cli sendtoroute --shortChannelIds=1x1x1,2x2x2,3x3x3,4x4x4 \
                       --amountMsat=1000000000 \
                       --invoice=<serialized invoice>

This command will send 1M sats from channel 1x1x1 to channel 4x4x4.

In real life its not always easy to find the most economically viable route manually, but Eclair is here to help. Similarly to payinvoice, findroute CLI command cannot find routes to self, but Alice can use a little trick with findroutebetweennodes, which allows finding routes between arbitrary nodes.

To rebalance channels 1x1x1 and 4x4x4, Alice wants to find a route from Bob (as a source node) to Diana (as a target node). In our example there's at least one route from Bob to Diana via Alice. In real life there can be many more such routes, because Alice can have way more than two channels, so Alice's node should be excluded from path-finding using --ignoreNodeIds parameter:

eclair-cli findroutebetweennodes --sourceNodeId=<Bob`s node ID> \
                                 --targetNodeId=<Diana`s node ID> \
                                 --ignoreNodeIds=<Alice`s node ID`> \
                                 --format=shortChannelId

Then Alice simply appends the outgoing channel ID to the beginning of the found route and the incoming channel ID to the end: 1x1x1,<found route>,4x4x4. In our example, the found route is 2x2x2,3x3x3, so the full route will be 1x1x1,2x2x2,3x3x3,4x4x4. Alice can use this route with sendtoroute command to perform rebalancing.