Every Lightning channel today needs its own on-chain transaction to open and close. Block space is limited, so not every person on Earth can have their own UTXO. Channel factories and Ark both try to let many users share one on-chain coin, while still allowing each user to exit on their own.
Channel factories
Proposed by Conrad Burchert, Christian Decker and Roger Wattenhofer in 2017. A group, for example Alice, Bob and Carol, puts funds into one n-of-n multisig output. They then sign off-chain transactions that spend it into payment channels between themselves. As long as they cooperate, only the shared output goes on-chain. If someone stops cooperating, the pre-signed transactions can be broadcast, and the channels are as secure as normal ones. Bitcoin Optech notes that, under ideal conditions, factories could cut Lightning's on-chain cost by 90% or more.
The catch: changing the factory needs everyone online, and a forced close of many channels at once could be expensive during high fees. Designs such as timeout trees and SuperScalar try to reduce these problems.
Ark
Ark uses a central but untrusted operator. In periodic "rounds", users and the operator sign a tree of off-chain transactions whose root is one on-chain output. Each user's branch is a VTXO (virtual UTXO).
- Exit: normally users exit cooperatively. If the operator disappears, a user can broadcast their branch and claim their coins on-chain.
- Expiry: VTXOs expire under an absolute timelock. After that, the operator can reclaim the funds, so users must refresh their VTXOs into a new round in time.
- Payments: paying another user before a new round requires the sender and operator to co-sign. The receiver must trust that those two do not collude until the coin is refreshed.
Today vs with covenants
Ark works on Bitcoin today without a consensus change, using pre-signed transactions. Covenant opcodes such as CTV, which are proposals and not active, would let it support more users more efficiently. Several teams have released Ark implementations, including Arkade and Second's Bark, which Optech reports went live on mainnet. Treat them as young software.
Takeaway
Both ideas trade some liveness or trust assumptions for far fewer on-chain transactions. They are research and early-stage tools, not yet the default way to use Bitcoin.