I've read and watched as many presentations as I could about the lightning network. I have a few questions about the economic model of the network.
What would happen when a large hub turns nefarious and change the transaction state dishonestly? I understand that everyone who has an open channel with that hub can revert and back out of the channel on their own accords. I assume the software will send the last good state of the channel back to layer 1 - bitcoin to settle. Wouldn't that flood the blockchain with settlement transactions? Same thing could happen if a software glitch happen to one of the hub rendering it dishonest/buggy output (like what happened with parity in Ethereum).
Since bitcoin fee is dynamic and blocksize is limited, what happen if the fee to settle a channel exceed the value of the channel itself? Wouldn't that mean a huge amount of fund would be deadlocked?