A channel means 2 people can give money to each other, and gamble with each other multiple times, without writing _anything_ to the blockchain.
My intuition is that there will still be transaction fees in proportion to the usefulness of each market.
Since you can't tell when people are betting in a channel, then there is no way to charge a trading fee.
A judging fee would at least ensure that the oracles get paid at all. They would get a flat rate for each judgement, regardless of popularity.
After all, doesn't someone need to place a big trade to "open" the market up, and buy 10 million of "Yes" and 10 million of "No"
Channels can be used to make order books very simply, because channels allow pairs of people to make bets with each other.
There is no way to buy yes shares in a channel, unless your partner is willing to hold the opposite position.
To make a market maker with channels is a little complex, the hub would have channels with each trader, and the hub would update all of traders simultaneously by hash locking them. That way the hub and traders never have to trust each other.
Only the hub knows the volume of trading that occurs. He could lie about it, and no one could prove otherwise. So if we charge him a fee based on his volume of trading, then he will lie and say a very small volume of trades occurred.
And won't multiple hubs compete, and some will do arbitrage against the actual non-Hub blockchain itself?
There will be arbitrage between the Hubs, but not between the blockchain and a hub.
You can't hashlock the blockchain with a channel.
Hashlocking channels is how you simultaneously adjust multiple channels to allow arbitrage without risk.
Blockchain-hub isn't arbitrage, because one of your trades might not succeed, so you are exposed to risk.
I wasn't planning on allowing open bets on the blockchain at all.
Also, my understanding is that LN relies on incrementing the sequence number...we might, if we wanted to, force a higher trading fee as the sequence number increases.
You are correct that each channel has a sequence number that increases every time you update the channel.
You are wrong in thinking that you can look at other people's sequence numbers. This number is written in the channel, and can only be seen by the 2 participants in the channel.