Blind statechains with Eltoo

One of the other second layer+third layer that has been proposed for Bitcoin.
It piggybacks on a important LN upgrade-Eltoo-while making its own scaling method.

This will be very interesting way for Bitcoin to progress.

How it works

Statechains are a novel layer two protocol, designed for off-chain Bitcoin transfer. It is facilitated by a multisig federation which never has complete control, making it non-custodial. The federation can be completely blind, meaning it won't even know which transactions it's signing.

Privacy is enhanced. UTXOs can be swapped atomically, allowing for the equivalent of off-chain coinjoin. Blind Signatures make the federation completely unaware of what they are signing. They can’t even see whether their activity has anything to do with Bitcoin!

It also allow for these features

This and many more features become possible off-chain – Discreet Log Contracts, cross-chain atomic swaps (DEX equivalent), transfer of non-fungible RGB tokens

Why Statechains are good for LN

Statechains integrates seamlessly with the Lightning Network, allowing the opening/rebalancing/closing of channels to occur off-chain via Statechains, making on-boarding onto Lightning instant, and allowing you to swap participants in and out of channel factories.

Also allows for better LN channel factory another LN scaling proposal.

Staechains adds to LN channel factories with dynamic membership set.

The problem with dynamic membership sets implemented with this mechanism is that under this mechanism, the federation can steal funds with the collusion of one participant (a participant added to the channel factory needs to be informed of the UTXO of the channel factory and the transaction used to distribute that UTXO, thus a single participant is enough to unblind the federation to what it is signing).

So if you dynamically add a new participant to the channel factory, you run the risk that the new participant is a secret agent of the federation which will collude with them and steal the channel factory's funds.

Note that these theft cannot be gainsaid by eltoo since the eltoo mechanism is running inside the federation-signature (or rather the federation+1user signature), so the federation signature takes precedence over the eltoo mechanism.

Channel factories with fixed membership sets are n-of-n and require the consensus of all participants to move fund allocations. They also have most of the effect of channel factories inside statechains: the only thing they lose is the ability to add new members or remove existing members, and they also lose the vulnerability to the federation going rogue.

There are other things on this thread I find very interesting even conversations comparing how trustless it is. Did not put it in for it more theory and unknown. You should read to learn more!
https://www.reddit.com/r/Bitcoin/comments/c1d47o/blind_statechains_moving_utxos_without_touching/

Do note I organized the info in diff part and changed wording to make it a little bit more easier to read. All info from thread just diff places. And hey if reddit goes down it now on the Blockchain :P