Lightning Loop is a non custodial service offered by Lightning Labs to bridge
on-chain and off-chain Bitcoin using Submarine swaps.
Step 1: Deciding to Loop Out
You have a channel with a local balance amount and you want to gain inbound liquidity.
Step 2: Send lightning payment
Your node pays a lightning invoice for the amount requested via the loop
service. This moves the local balance, for the amount paid, to the remote side of the channel.
Step 3: Receive funds back
Loop service then sends you a payment on-chain for the amount same as the lightning payment minus the fee.
Done!
Final settlement occurs when your node sweeps the on-chain payment and the loop server settles the lightning invoice. You receive the payment on-chain in your wallet and also move local
balance to the remote side of the channel, gaining inbound capacity.