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Stroom Network, a liquid staking project for Bitcoin's Lightning Network, has raised $3.5 million in an oversubscribed seed funding round led by Berlin-based crypto investment firm Greenfield, with strategic support from Mission Street, the venture arm of Ankr.
The funding round was also joined by Lemniscap, No Limit Holdings, and Cogitent Ventures, along with several other venture capital firms and angel investors.
By applying the mechanics of liquid staking—the process of staking tokens to a network and receiving a different token representing that staked position in return—Stroom Network offers users the ability to trustlessly use their Bitcoin (BTC) capital simultaneously on both the Lightning Network (LN) and Ethereum.
Stroom, which currently has eight members, plans to use the raised funds to further expand the team and release the Liquid Staking Token on the Ethereum mainnet.
The protocol effectively assigns BTC deposits within the Lightning Network to generate routing fees, while also generating its own equivalent of wrapped BTC (wBTC), called lnBTC, on a 1:1 basis.
This setup lets users pursue yield opportunities on Ethereum, similar to how they would when using wBTC.
“Despite having its limitations, Lightning Network is still the most promising payment technology out there,” Slava Zhygulin, the CTO of Stroom, told Decrypt. “It doesn't have any competitors within the crypto space and could effectively compete with traditional payment rails."
Solving Lightning’s liquidity issues
One of the main challenges with Lightning is the lack of liquidity. For a transaction to occur, there has to be sufficient liquidity present in the payment channels, and limited liquidity can lead to delayed or failed transactions.
According to Zhygulin, Stroom “holds the key to solving this issue once and for all.”
“We are confident that a well-managed liquidity allocation will drive adoption and result in higher yields,” he told Decrypt. “Our projections suggest a potential increase to a sustainable 6% APY in the near future."
Zhygulin further stated that Stroom’s goal is to simplify the process of earning Lightning routing fees while also contributing to Bitcoin's scalability. This is achieved by streamlining the technical intricacies associated with managing a Lightning node and introducing mechanics from the decentralized finance (DeFi) realm.
According to him, these mechanics have the potential to encourage Bitcoin users familiar with Ethereum to provide liquidity to the Lightning Network while still maintaining their yield on the Ethereum platform.
Stroom is also turning to a DAO-like structure using a multi-party signature computation mechanism to govern funds allocated to payment channels as liquidity.
This structure, according to Stroom, will be capable of establishing and modifying user incentives, upgrading the protocol, forming and using a treasury, as well as participating in decision-making processes related to spending collected fees.