Disclaimer: The next reply was created with the assistance of an LLM – although I checked and verfied it to the perfect of my potential
- In every spherical, customers “spend” a number of vTXOs and obtain new vTXOs (recipient + often a change vTXO). Conceptually this mirrors UTXOs on L1: inputs are destroyed, outputs are created. (Ark Protocol)
- Who fronts the outputs? The ASP does. Customers forfeit their enter vTXOs to the ASP, and the ASP “fronts” the on-chain liquidity that backs all of the new vTXOs created in that spherical. The ASP can solely unlock (reclaim) that forfeited worth later, when the forfeited vTXOs expire. Consider it because the ASP advancing short-term working capital and receiving IOUs that mature on the vTXO expiry. (Ark Protocol)
- Expiry / length: vTXOs have an absolute timelock. Within the reference docs it’s proven as 14 days; some write-ups (and implementations) talk about ~4 weeks. The mechanism is identical: earlier than expiry, customers should roll their vTXOs into a brand new spherical; after expiry, the ASP can sweep the funds, recovering the fronted liquidity. So the ASP’s liquidity is tied up roughly till the expiry window elapses for the inputs of that spherical. (Ark Protocol)
Sure. A single cost usually:
- consumes a number of enter vTXOs, and
- creates no less than two outputs: the receiver’s vTXO and the sender’s change vTXO (except it’s completely precise).
As a result of the ASP should fund each new output within the spherical (together with change), ASP liquidity consumed per cost might be bigger than the cost quantity. This “change amplification” is an enormous deal. (Weblog – Ark Labs)
A sensible psychological mannequin:
- Outline M = complete consumer funds “inside this ASP’s Ark” (sum of customers’ vTXOs).
- Outline V = “velocity” over the expiry window = complete worth spent by customers inside that window divided by M.
- First-order demand on ASP working capital throughout a window is on the order of V × M (the worth of outputs the ASP should entrance for inside transfers throughout that window).
- However as a result of most funds create a receiver output and a change output, the ASP fronts extra than simply the transferred quantity. With naïve splitting, the multiplier might be several-fold. Concrete simulations from Ark Labs present instances the place spending ~0.33 BTC of a 1 BTC steadiness required 2.67 BTC of ASP liquidity (≈8× the truly traded quantity) — and with many small splits it obtained worse (≈25×). That’s the “change amplification” impact. (Weblog – Ark Labs)
- Tenor: that fronted liquidity is tied up till the forfeited inputs expire (the vTXO expiry, e.g., ~14 days / ~4 weeks), at which level the ASP can reclaim it. So the ASP’s “peak liquidity” is the most internet worth of recent outputs it has created minus the worth of forfeits which have already matured—measured over the expiry horizon. (Ark Protocol)
- Every tiny cost tends to create two new outputs (receiver + change). In the event that they ping-pong throughout the similar expiry window, the ASP retains fronting extra outputs whereas the forfeited inputs from earlier rounds haven’t matured but.
- Web impact: the ASP’s excellent working capital retains climbing roughly with the variety of instances these cash flow into throughout the window, multiplied by the change-amplification issue from poor denomination/coin-selection. That’s precisely the pathological case highlighted within the liquidity write-up. (Weblog – Ark Labs)
TL;DR reply
- How a lot liquidity and for a way lengthy? Sufficient to cowl the sum of all new outputs created in rounds (receiver + change) throughout the expiry window, till forfeited inputs expire and might be swept by the ASP. Tenor ≈ the vTXO expiry (e.g., ~14 days or ~4 weeks, relying on coverage/implementation). (Ark Protocol)
- What if two customers ship backwards and forwards small funds? Liquidity necessities can blow up as a result of every tiny cost creates a number of outputs; the ASP retains fronting outputs whereas forfeits are unspendable. This will require multiples of the truly traded worth throughout the window. (Weblog – Ark Labs)
- Are necessities proportional to cost quantity throughout the vTXO timelock? Roughly proportional to quantity over the window (velocity × complete consumer funds), however amplified by change/fragmentation; good denomination and insurance policies can deliver it nearer to linear. (Weblog – Ark Labs)
