Single-funded channels are a type of Lightning Network payment channel where only one party stakes funds for the channel. This allows a channel to be made when only one party signs their UTXO, while the other just shares their public key. This means that the channel is started by the party who signs the with their UTXO and the end state allocation, the channel output, provides funds to one party but liquidity to both parties.
For example, Alice can create a channel with Bob such that she funds the channel with 0.01 BTC by signing her UTXO and asking for Bob’s public key. The channel has an allocation of 0.01 BTC to Alice and 0.00 BTC to Bob, but Bob can use the 0.01 BTC liquidity to participate in the Lightning Network. Alice can use Bob’s node to connect to other nodes throughout the network with no risk to Bob.
Single-funded channels make it easier to start a payment channel and grow the topology of the Lightning Network. If Bob decides to sign with his UTXO, he can add funds to the channel and turn the channel into a bidirectional payment channel.