Running A Profitable Routing Node
The profitability of a routing node is like for any business - revenue minus costs. Revenue consists of fees that your node collects when routing transactions. Costs consist of channel close/open fees, costs to move sats to your node, channel rebalance costs, and loop in/outs. Therefore, your node is profitable as long as revenue minus costs is positive. Tracking nodes's p&l on a weekly basis may give you a good idea of how your node is progressing towards profitability. It is important to have KPIs for your node which you can measure before you can improve it.
Profitability is an important objective to keep in mind, but it takes time to get there. So when beginning your Lightning journey, it's essential to keep an open mind and be prepared to learn. There is no right or wrong way to develop your node, so it comes down to the strategy that you opt to follow. Allocate your capital strategically and be mindful of the costs (channel open/close, rebalancing, etc) and they do add up.
We talk about channel girth (size in sats) quite a bit, but the quality of your peer is more important than girth. In other words, you can have a very liquid 2mil sats channel and an illiquid 10mil channel. With that being said, a girthier channel to a quality peer is better.
A quality peer is a well-maintained active node that can help you get more traffic. One metric that you can look at when selecting a peer is centrality - how close your node is to the center of the graph as opposed to being on the outside. In addition, here are some of the tools that can help optimize your node's centrality: lnnodeinsight - has a channel simulator to test centrality before establishing a channel with a node; gridflare - provides node recommendations to improve centrality.
Your node will have a mix of channels of different sizes. In general, it does not make sense to keep liquidity in channels with inactive peers. You'd want to re-allocate your inactive liquidity either through circular rebalancing or through closing inactive channels and utilizing the freed-up liquidity elsewhere. You will incur fees either way, so it comes down to weighing pros/cost of the options. Based on our experience, mixing small channels with big channels does not impact a node's routing ability.
Terminal Web classifies nodes into good and pending and assigns a score. Based on our experience, the score does not materially affect routing, even though it helps attract other nodes to connect to yours (sort of like a marketing tool). You can use the Terminal Score Debugger tool to debug and optimize your node's score.
Balance of Satoshis is an excellent tool to help you optimize channel rebalancing. It'll show you routing hops along with fees for each hop. You can then further optimize rebalancing cost by excluding expensive nodes.
The following links discuss strategies and options you have available to run a profitable routing node.
- Fees And Profitability (Includes instructions for auto-adjusting fees, simple auto rebalancing, and automatic KPI script!)