Raiden is an off-chain scaling solution for transacting ERC-20 tokens that allows for low-fee, near-instant, privacy-preserving payments, similar to the Lightning Network in the context of Bitcoin. Raiden aims to encourage a market for bidirectional payment channels, whereby users are incentivized to maintain payment channels through which other (dispersed) parties can connect and exchange on the Raiden network. Nodes propping up payment channels, who are effectively loaning their tokens to the next node in a payment channel, can charge fees. In this manner, Raiden’s network is designed to scale in capacity proportionally to adoption—as more nodes enable payment channels, the network gains more routes for those wishing to transact.
Since the Raiden network facilitates off-chain token transfers in the temporary absence of global consensus, transactions via Raiden are not beholden to the Ethereum blockchain’s latency. This means that transactions can be locally confirmed without having to wait for sufficient propagation and verification from the Ethereum network. Payment channels are established by depositing tokens on the Ethereum mainchain before opening up communications about their respective ownership off-chain via a protocol. Agreement between depositors determines the ownership of these tokens.
Once tokens are deposited in the Raiden Network’s smart contract, the owner’s control over the tokens is suspended until the payment channel successfully closes. Interaction between the Raiden network and the mainchain occurs when payment channels open or close. To prevent double spending, payment channels are established between pairs, whereby neither party can remove their deposit until both parties have presented a proof of their balance. The tokens passing through multiple parties in an extended payment channel are secured with a cryptographic hash to which only the intended receiver of the funds holds the key. This key will initiate the transaction’s completion and settlement amongst all parties. The payment only completes when this puzzle is solved. Messages sent via the Raiden Network have their IPs obfuscated to mitigate the risk posed by DDoS attacks. Raiden anticipates a market for increased privacy measures to emerge amongst payment channel providers; a provider could offer services for obfuscating holdings by deliberately rebalancing payment channels. Raiden is currently in alpha, despite functioning on top of the Ethereum mainnet but has several limitations, including a maximum 250 ETH network capacity. In addition to the main Raiden network, Raiden has launched an auxiliary network called µRaiden, comprised of unidirectional payment channels and designed for smaller payments, or micropayments. So far, however, the Raiden network has failed to gather meaningful usage, with the inability to bring a fully or near fully-functional network to market in a timely manner while other second layer Ethereum payment protocols such as ZK-Rollups and Optimistic Rollups have begun to deliver on the promises that Raiden makes, namely fast, cheap transactions.
The Raiden token, the RDN, aims to function as a medium of exchange on the Raiden network and is designed to motivate developers working with Raiden to share a common metric and avoid multiple exchanges. However, for now, RDN can only be used on µRaiden while ETH is the sole currency supported on the main network. Raiden plans to provide automated acquisition of RDN on the main network such that users do not feel the friction of an additional token. Users can pay per instance of use for APIs, data storage or similar. There is a fixed supply of 100 million RDN, of which 50% was distributed via public auction, 34% retained by Brainbot labs Est.— who are leading Raiden’s development— and 16% to an external development fund. The Raiden token launch followed the form of a same-price Dutch auction, with a fixed percentage of tokens being offered, which means that everyone received the same price by the auction’s end. This was designed to encourage fair participation over time, and, since every participant paid the same final price for their tokens, the sales method removed ambiguity about the network’s potential maximum valuation.