Eltoo reimagines how Lightning channels handle state updates. Instead of punishing a cheater who broadcasts an old channel state, it simply invalidates old states by referencing the newest transaction. This requires a new SIGHASH flag (ANYPREVOUT) to let the final transaction override earlier ones.

The advantage: no penalty transaction or forced security windows, reducing channel closure complexity and user error. If implemented, Eltoo could simplify off-chain contract logic, but it demands a soft-fork to enable ANYPREVOUT. Though not yet active, it remains a top contender for advancing LN’s robustness.