Channel liquidity

This guide is designed to help you manage your off-chain liquidity on Hydranet. Before delving into this guide, let’s clarify two liquidity concepts:

• Inbound liquidity: The amount of funds you can receive off-chain
• Outbound liquidity: The amount of funds you can send off-chain.

While you have direct control over your outbound liquidity, your inbound liquidity depends on the counterparty funding your state channel. To simplify this, Hydranet offers a Channel Rental Manager, allowing you to rent inbound liquidity on-demand, whenever needed. Read more about these concepts and how off-chain networks function here.

Ensure that you’ve set up your Hydranet testnet wallet and requested funds using the faucet bot on Hydranet’s Discord before diving into this guide. If you haven’t completed these steps yet, check out our Wallet setup guide for assistance.

Managing outbound liquidity - Moving funds between on- and off-chain 

Hydranet leverages off-chain networks to facilitate instant and gas-free transactions. This requires the ability to move funds seamlessly between on-chain and off-chain networks. These steps will show you how. Remember that moving funds between on- and off-chain is associated with an on-chain interaction and you will have to pay gas fees for such operations. Make sure to keep some native assets such as ETH and/or BTC in your wallet to pay for this. 

Transferring funds off-chain

1. Select asset
   Navigate to your wallet and choose the asset you’d like to transfer to off-chain. Click Transfer and select Transfer to off-chain
2. Allowance transaction
   For EVM tokens such as USDC, you’ll be prompted to authorize the Lithium protocol to interact with your wallet. This is done via an allowance transaction. Common practice is to set a reasonable allowance limit. However, as this is testnet, you can proceed setting a large limit without concern. 
3. Confirm the transfer
   Once the allowance transaction is confirmed, finalize the transfer to off-chain. Wait for the on-chain transaction to confirm. When successful, your off-chain balance will update, and the channel status on the Channels page will switch to ACTIVE.

Transferring funds back on-chain

1. Select asset
   Navigate to your wallet and choose the asset you’d like to transfer back on-chain. Click Transfer and select Transfer back on-chain
2. Fill in the details
   Enter the amount you wish to transfer back on-chain.
3. Confirm the transfer
   Confirm the transaction and wait for the on-chain confirmation.