Atomic Swaps is the ability to perform instant cross-chain transactions. In other words, you'll be able to trade one coin for another without an exchange. This technology is being actively developed, as evidenced by on-chain AS swaps done via Litecoin/Decred/Vertcoin/Bitcoin earlier this year, and brings increased utility to these coins. Below, Litecoin will be used as a case study to explore how participating in a Lightning Network/Atomic Swap compatible ecosystem increases its value as Bitcoin and Litecoin are currently supported by the LND. The particular value of utilizing Atomic Swaps via the Lightning Network, as opposed to on-chain, will also be briefly explored later on in the article.

Thesis:

It will be cheaper to buy Bitcoin through Litecoin via Atomic Swaps. In order to prove this assertion, let’s take a look at what it might look like if on-chain Atomic Swaps were readily available today.

Premise 1:

If you want to buy Bitcoin, you must load up your fiat to an exchange, buy BTC, and then send it to your wallet. This would cost you around $26.50, the current average fee for BTC (12/18/17 bitinfocharts.com).

Premise 2:

If you have Litecoin and want to buy Bitcoin, you must send your LTC to an exchange, trade it for Bitcoin, and then withdraw it. With LTC’s average mining fee at $0.37, that’s a total of $26.87 you pay in transaction fees alone.

Premise 3:

If you have Bitcoin and want to own Litecoin, you must send your BTC to an exchange, trade it, then withdraw LTC. This would also cost $26.87 in fees alone.

Premise 4:

With on-chain Atomic Swaps, there will be a $26.50 transaction fee for Bitcoin as well as $0.37 transaction fee for Litecoin for a total of $26.87. Now here's where the advantage of Atomic Swaps comes in. Ideally, both parties would split combined cost for an average of $13.435. This is significantly less than $26.87 or $26.5.

In other words, Atomic Swaps allows for the exchange of Bitcoin for Litecoin at a reduced cost by averaging the transaction fees between the two transactions.

If you were to use an exchange, you would need two transactions and therefore two transaction fees: 1) To send your coins to the exchange 2) To withdraw from the exchange. This is what the cost would look like if you wanted to exchange Litecoin for Bitcoin through an exchange

Premise 5 (Atomic Swaps via the Lightning Network):

Earlier in November, an off-chain Atomic Swap was demonstrated by the LND between Litecoin and Bitcoin. This was a significant milestone for Litecoin. As we previously discussed earlier in this article, a shared transaction fee via on-chain Atomic Swaps increases Litecoin's value as it becomes a cheaper way to buy Bitcoin. However, using Atomic Swaps through the Lightning Network will actually further reduce these fees. Once a payment channel is opened, the split fee per transaction can be cut in half for each additional trade.

For example:

1 trade of LTC for BTC= $13.435.

2 trades of LTC for BTC= $6.717.

3 trades of LTC for BTC= $3.358.

Now it is quite possible that Lightning Network nodes will charge a fee to utilize their services. But even with a $1 fee (which would be fairly high) to perform an AS through the LN, it will still be cheaper to buy Bitcoin this way. Not only that, Atomic Swaps will make it cheaper to make payments through the Lightning Network with Litecoin as a form of payment even if they only accept Bitcoin.

Conclusion:

By splitting the costs of transaction fees, on-chain Atomic Swaps will make it cheaper to buy Bitcoin with Litecoin. Atomic Swaps on top of the Lightning Network further increases this advantage by reducing the cost of fees with every transaction. Finally, Atomic Swaps will allow Litecoin to serve as a cheaper payment method in the Lightning Network as opposed to Bitcoin. It is in this way that Atomic Swaps via the Lightning Network will increase Litecoin’s utility as the digital currency for payments.

If you want to learn more about Litecoin's goal to complement Bitcoin, read this article by Charlie Lee himself.