If one LN participant tries to broadcast an outdated channel commitment, effectively claiming more BTC than they currently deserve, that’s a fraudulent channel close. Lightning’s ‘penalty transactions’ guard against this, allowing the honest counterparty to swoop in and confiscate the cheater’s funds once the old state hits the blockchain.

This harsh penalty discourages bad actors, since the cost of getting caught is losing all channel funds. Alternative proposals like Eltoo aim to replace the penalty approach with a system that simply invalidates older channel states, but as it stands, LN is all about brandishing a big stick to keep participants honest.