Using Atomic Swaps to DCA during high Fees and Obtaining Private UTXOs

Swapping from Lightning to Liquid to avoid high on-chain fees when Dollar Cost Averaging (DCA) and swapping back on-chain to obtain fresh private UTXO's

I believe I may have stumbled upon one of the easiest and cheapest ways to convert your KYC'd Bitcoin to fresh UTXO's completely detached from the original transaction. Additionally, many of us will stack sats by dollar cost averaging with Bitcoin being accumulated by purchasing relatively small amounts on a regular basis and for the greatest security and self-sovereignty these should be stored in a non-custodial wallet to which the keys only you control. With fees being as high as they are at the moment you either have to eat the high fee and diminish your stack or leave sats potentially exposed on an exchange until the amount becomes cost effective enough to warrant the transaction fee on withdrawal.

The process is as follows:

  1. Purchase BTC on exchange which supports lightning (CoinCorner and Kraken both do).
  2. Use to create an atomic swap, which will swap your layer 2 sats on Lightning to sats on the Layer 2 Liquid network.
  3. Repeat the above process untill you have accumulated enough Bitcoin in liquid to justifiy the on chain fees.
  4. Use Boltz again to swap from liquid to on-chain.

NOTE: Since writing this I have discovered which appears to be cheaper than Boltz, you can just send sats to Coinos via lightning and then send from Coinos to your Liquid wallet and Coinos will do the swap for you.

At time of writing you can save about 90% in fees but as an added benefit Boltz is non-KYC and non-custodial meaning when you swap back from liquid to on-chain you get completely fresh UTXOs that are not tied to your original KYC'd Bitcoin purchased on the exchange. This can also be used for rebalancing channels on your Lightning node.

BTC Sessions has a good video tutorial to walk you though the process. the Blockstream Green software wallet and Blocksteam Jade hardware wallet are Bitcoin wallets that both support Liquid and I have been using for a long time. As a side note, periods of high fees also highlight the need for good UTXO management, BTC Sessions also has a good video on this.

Now to be clear, Liquid BTC is not BTC. Liquid is a sidechain or Layer 2 Bitcoin network that allows users of the Liquid Network to move Bitcoin between the two networks with a two-way peg. Bitcoin used in the Liquid Network is referred to as L-BTC, and each L-BTC has a verifiably equivalent amount of BTC secured by the Liquid members called functionaries. You are swapping the risk of an exchange holding your private keys for the risk of not being able to redeem your Liquid BTC for on-chain BTC at a future date. I personally think it a worthwhile trade off but only you can make that decision.