diff --git a/instantout/reservation/actions.go b/instantout/reservation/actions.go
new file mode 100644
index 0000000..3d0965b
--- /dev/null
+++ b/instantout/reservation/actions.go
@@ -0,0 +1,176 @@
+package reservation
+
+import (
+	"context"
+
+	"github.com/btcsuite/btcd/btcec/v2"
+	"github.com/btcsuite/btcd/btcutil"
+	"github.com/lightninglabs/loop/fsm"
+	looprpc "github.com/lightninglabs/loop/swapserverrpc"
+)
+
+// InitReservationContext contains the request parameters for a reservation.
+type InitReservationContext struct {
+	reservationID ID
+	serverPubkey  *btcec.PublicKey
+	value         btcutil.Amount
+	expiry        uint32
+	heightHint    uint32
+}
+
+// InitAction is the action that is executed when the reservation state machine
+// is initialized. It creates the reservation in the database and dispatches the
+// payment to the server.
+func (r *FSM) InitAction(eventCtx fsm.EventContext) fsm.EventType {
+	// Check if the context is of the correct type.
+	reservationRequest, ok := eventCtx.(*InitReservationContext)
+	if !ok {
+		return r.HandleError(fsm.ErrInvalidContextType)
+	}
+
+	keyRes, err := r.cfg.Wallet.DeriveNextKey(
+		r.ctx, KeyFamily,
+	)
+	if err != nil {
+		return r.HandleError(err)
+	}
+
+	// Send the client reservation details to the server.
+	log.Debugf("Dispatching reservation to server: %x",
+		reservationRequest.reservationID)
+
+	request := &looprpc.ServerOpenReservationRequest{
+		ReservationId: reservationRequest.reservationID[:],
+		ClientKey:     keyRes.PubKey.SerializeCompressed(),
+	}
+
+	_, err = r.cfg.ReservationClient.OpenReservation(r.ctx, request)
+	if err != nil {
+		return r.HandleError(err)
+	}
+
+	reservation, err := NewReservation(
+		reservationRequest.reservationID,
+		reservationRequest.serverPubkey,
+		keyRes.PubKey,
+		reservationRequest.value,
+		reservationRequest.expiry,
+		reservationRequest.heightHint,
+		keyRes.KeyLocator,
+	)
+	if err != nil {
+		return r.HandleError(err)
+	}
+
+	r.reservation = reservation
+
+	// Create the reservation in the database.
+	err = r.cfg.Store.CreateReservation(r.ctx, reservation)
+	if err != nil {
+		return r.HandleError(err)
+	}
+
+	return OnBroadcast
+}
+
+// SubscribeToConfirmationAction is the action that is executed when the
+// reservation is waiting for confirmation. It subscribes to the confirmation
+// of the reservation transaction.
+func (r *FSM) SubscribeToConfirmationAction(_ fsm.EventContext) fsm.EventType {
+	pkscript, err := r.reservation.GetPkScript()
+	if err != nil {
+		return r.HandleError(err)
+	}
+
+	callCtx, cancel := context.WithCancel(r.ctx)
+	defer cancel()
+
+	// Subscribe to the confirmation of the reservation transaction.
+	log.Debugf("Subscribing to conf for reservation: %x pkscript: %x, "+
+		"initiation height: %v", r.reservation.ID, pkscript,
+		r.reservation.InitiationHeight)
+
+	confChan, errConfChan, err := r.cfg.ChainNotifier.RegisterConfirmationsNtfn(
+		callCtx, nil, pkscript, DefaultConfTarget,
+		r.reservation.InitiationHeight,
+	)
+	if err != nil {
+		r.Errorf("unable to subscribe to conf notification: %v", err)
+		return r.HandleError(err)
+	}
+
+	blockChan, errBlockChan, err := r.cfg.ChainNotifier.RegisterBlockEpochNtfn(
+		callCtx,
+	)
+	if err != nil {
+		r.Errorf("unable to subscribe to block notifications: %v", err)
+		return r.HandleError(err)
+	}
+
+	// We'll now wait for the confirmation of the reservation transaction.
+	for {
+		select {
+		case err := <-errConfChan:
+			r.Errorf("conf subscription error: %v", err)
+			return r.HandleError(err)
+
+		case err := <-errBlockChan:
+			r.Errorf("block subscription error: %v", err)
+			return r.HandleError(err)
+
+		case confInfo := <-confChan:
+			r.Debugf("reservation confirmed: %v", confInfo)
+			outpoint, err := r.reservation.findReservationOutput(
+				confInfo.Tx,
+			)
+			if err != nil {
+				return r.HandleError(err)
+			}
+
+			r.reservation.ConfirmationHeight = confInfo.BlockHeight
+			r.reservation.Outpoint = outpoint
+
+			return OnConfirmed
+
+		case block := <-blockChan:
+			r.Debugf("block received: %v expiry: %v", block,
+				r.reservation.Expiry)
+
+			if uint32(block) >= r.reservation.Expiry {
+				return OnTimedOut
+			}
+
+		case <-r.ctx.Done():
+			return fsm.NoOp
+		}
+	}
+}
+
+// ReservationConfirmedAction waits for the reservation to be either expired or
+// waits for other actions to happen.
+func (r *FSM) ReservationConfirmedAction(_ fsm.EventContext) fsm.EventType {
+	blockHeightChan, errEpochChan, err := r.cfg.ChainNotifier.
+		RegisterBlockEpochNtfn(r.ctx)
+	if err != nil {
+		return r.HandleError(err)
+	}
+
+	for {
+		select {
+		case err := <-errEpochChan:
+			return r.HandleError(err)
+
+		case blockHeight := <-blockHeightChan:
+			expired := blockHeight >= int32(r.reservation.Expiry)
+			if expired {
+				r.Debugf("Reservation %v expired",
+					r.reservation.ID)
+
+				return OnTimedOut
+			}
+
+		case <-r.ctx.Done():
+			return fsm.NoOp
+		}
+	}
+}
diff --git a/instantout/reservation/fsm.go b/instantout/reservation/fsm.go
new file mode 100644
index 0000000..3bd0820
--- /dev/null
+++ b/instantout/reservation/fsm.go
@@ -0,0 +1,229 @@
+package reservation
+
+import (
+	"context"
+
+	"github.com/lightninglabs/lndclient"
+	"github.com/lightninglabs/loop/fsm"
+	looprpc "github.com/lightninglabs/loop/swapserverrpc"
+)
+
+const (
+	// defaultObserverSize is the size of the fsm observer channel.
+	defaultObserverSize = 15
+)
+
+// Config contains all the services that the reservation FSM needs to operate.
+type Config struct {
+	// Store is the database store for the reservations.
+	Store Store
+
+	// Wallet handles the key derivation for the reservation.
+	Wallet lndclient.WalletKitClient
+
+	// ChainNotifier is used to subscribe to block notifications.
+	ChainNotifier lndclient.ChainNotifierClient
+
+	// ReservationClient is the client used to communicate with the
+	// swap server.
+	ReservationClient looprpc.ReservationServiceClient
+
+	// FetchL402 is the function used to fetch the l402 token.
+	FetchL402 func(context.Context) error
+}
+
+// FSM is the state machine that manages the reservation lifecycle.
+type FSM struct {
+	*fsm.StateMachine
+
+	cfg *Config
+
+	reservation *Reservation
+
+	ctx context.Context
+}
+
+// NewFSM creates a new reservation FSM.
+func NewFSM(ctx context.Context, cfg *Config) *FSM {
+	reservation := &Reservation{
+		State: fsm.EmptyState,
+	}
+
+	return NewFSMFromReservation(ctx, cfg, reservation)
+}
+
+// NewFSMFromReservation creates a new reservation FSM from an existing
+// reservation recovered from the database.
+func NewFSMFromReservation(ctx context.Context, cfg *Config,
+	reservation *Reservation) *FSM {
+
+	reservationFsm := &FSM{
+		ctx:         ctx,
+		cfg:         cfg,
+		reservation: reservation,
+	}
+
+	reservationFsm.StateMachine = fsm.NewStateMachineWithState(
+		reservationFsm.GetReservationStates(), reservation.State,
+		defaultObserverSize,
+	)
+	reservationFsm.ActionEntryFunc = reservationFsm.updateReservation
+
+	return reservationFsm
+}
+
+// States.
+var (
+	// Init is the initial state of the reservation.
+	Init = fsm.StateType("Init")
+
+	// WaitForConfirmation is the state where we wait for the reservation
+	// tx to be confirmed.
+	WaitForConfirmation = fsm.StateType("WaitForConfirmation")
+
+	// Confirmed is the state where the reservation tx has been confirmed.
+	Confirmed = fsm.StateType("Confirmed")
+
+	// TimedOut is the state where the reservation has timed out.
+	TimedOut = fsm.StateType("TimedOut")
+
+	// Failed is the state where the reservation has failed.
+	Failed = fsm.StateType("Failed")
+
+	// Spent is the state where a spend tx has been confirmed.
+	Spent = fsm.StateType("Spent")
+
+	// Locked is the state where the reservation is locked and can't be
+	// used for instant out swaps.
+	Locked = fsm.StateType("Locked")
+)
+
+// Events.
+var (
+	// OnServerRequest is the event that is triggered when the server
+	// requests a new reservation.
+	OnServerRequest = fsm.EventType("OnServerRequest")
+
+	// OnBroadcast is the event that is triggered when the reservation tx
+	// has been broadcast.
+	OnBroadcast = fsm.EventType("OnBroadcast")
+
+	// OnConfirmed is the event that is triggered when the reservation tx
+	// has been confirmed.
+	OnConfirmed = fsm.EventType("OnConfirmed")
+
+	// OnTimedOut is the event that is triggered when the reservation has
+	// timed out.
+	OnTimedOut = fsm.EventType("OnTimedOut")
+
+	// OnSwept is the event that is triggered when the reservation has been
+	// swept by the server.
+	OnSwept = fsm.EventType("OnSwept")
+
+	// OnRecover is the event that is triggered when the reservation FSM
+	// recovers from a restart.
+	OnRecover = fsm.EventType("OnRecover")
+)
+
+// GetReservationStates returns the statemap that defines the reservation
+// state machine.
+func (f *FSM) GetReservationStates() fsm.States {
+	return fsm.States{
+		fsm.EmptyState: fsm.State{
+			Transitions: fsm.Transitions{
+				OnServerRequest: Init,
+			},
+			Action: nil,
+		},
+		Init: fsm.State{
+			Transitions: fsm.Transitions{
+				OnBroadcast: WaitForConfirmation,
+				OnRecover:   Failed,
+				fsm.OnError: Failed,
+			},
+			Action: f.InitAction,
+		},
+		WaitForConfirmation: fsm.State{
+			Transitions: fsm.Transitions{
+				OnRecover:   WaitForConfirmation,
+				OnConfirmed: Confirmed,
+				OnTimedOut:  TimedOut,
+			},
+			Action: f.SubscribeToConfirmationAction,
+		},
+		Confirmed: fsm.State{
+			Transitions: fsm.Transitions{
+				OnTimedOut: TimedOut,
+				OnRecover:  Confirmed,
+			},
+			Action: f.ReservationConfirmedAction,
+		},
+		TimedOut: fsm.State{
+			Action: fsm.NoOpAction,
+		},
+		Failed: fsm.State{
+			Action: fsm.NoOpAction,
+		},
+	}
+}
+
+// updateReservation updates the reservation in the database. This function
+// is called after every new state transition.
+func (r *FSM) updateReservation(notification fsm.Notification) {
+	if r.reservation == nil {
+		return
+	}
+
+	r.Debugf(
+		"NextState: %v, PreviousState: %v, Event: %v",
+		notification.NextState, notification.PreviousState,
+		notification.Event,
+	)
+
+	r.reservation.State = notification.NextState
+
+	// Don't update the reservation if we are in an initial state or if we
+	// are transitioning from an initial state to a failed state.
+	if r.reservation.State == fsm.EmptyState ||
+		r.reservation.State == Init ||
+		(notification.PreviousState == Init &&
+			r.reservation.State == Failed) {
+
+		return
+	}
+
+	err := r.cfg.Store.UpdateReservation(r.ctx, r.reservation)
+	if err != nil {
+		r.Errorf("unable to update reservation: %v", err)
+	}
+}
+
+func (r *FSM) Infof(format string, args ...interface{}) {
+	log.Infof(
+		"Reservation %x: "+format,
+		append([]interface{}{r.reservation.ID}, args...)...,
+	)
+}
+
+func (r *FSM) Debugf(format string, args ...interface{}) {
+	log.Debugf(
+		"Reservation %x: "+format,
+		append([]interface{}{r.reservation.ID}, args...)...,
+	)
+}
+
+func (r *FSM) Errorf(format string, args ...interface{}) {
+	log.Errorf(
+		"Reservation %x: "+format,
+		append([]interface{}{r.reservation.ID}, args...)...,
+	)
+}
+
+// isFinalState returns true if the state is a final state.
+func isFinalState(state fsm.StateType) bool {
+	switch state {
+	case Failed, TimedOut, Spent:
+		return true
+	}
+	return false
+}
diff --git a/instantout/reservation/interfaces.go b/instantout/reservation/interfaces.go
new file mode 100644
index 0000000..c999d1b
--- /dev/null
+++ b/instantout/reservation/interfaces.go
@@ -0,0 +1,33 @@
+package reservation
+
+import (
+	"context"
+	"fmt"
+)
+
+var (
+	ErrReservationAlreadyExists = fmt.Errorf("reservation already exists")
+	ErrReservationNotFound      = fmt.Errorf("reservation not found")
+)
+
+const (
+	KeyFamily         = int32(42068)
+	DefaultConfTarget = int32(3)
+	IdLength          = 32
+)
+
+// Store is the interface that stores the reservations.
+type Store interface {
+	// CreateReservation stores the reservation in the database.
+	CreateReservation(ctx context.Context, reservation *Reservation) error
+
+	// UpdateReservation updates the reservation in the database.
+	UpdateReservation(ctx context.Context, reservation *Reservation) error
+
+	// GetReservation retrieves the reservation from the database.
+	GetReservation(ctx context.Context, id ID) (*Reservation, error)
+
+	// ListReservations lists all existing reservations the client has ever
+	// made.
+	ListReservations(ctx context.Context) ([]*Reservation, error)
+}
diff --git a/instantout/reservation/log.go b/instantout/reservation/log.go
new file mode 100644
index 0000000..c7f818f
--- /dev/null
+++ b/instantout/reservation/log.go
@@ -0,0 +1,26 @@
+package reservation
+
+import (
+	"github.com/btcsuite/btclog"
+	"github.com/lightningnetwork/lnd/build"
+)
+
+// Subsystem defines the sub system name of this package.
+const Subsystem = "RSRV"
+
+// log is a logger that is initialized with no output filters.  This
+// means the package will not perform any logging by default until the caller
+// requests it.
+var log btclog.Logger
+
+// The default amount of logging is none.
+func init() {
+	UseLogger(build.NewSubLogger(Subsystem, nil))
+}
+
+// UseLogger uses a specified Logger to output package logging info.
+// This should be used in preference to SetLogWriter if the caller is also
+// using btclog.
+func UseLogger(logger btclog.Logger) {
+	log = logger
+}
diff --git a/instantout/reservation/reservation.go b/instantout/reservation/reservation.go
new file mode 100644
index 0000000..f220866
--- /dev/null
+++ b/instantout/reservation/reservation.go
@@ -0,0 +1,137 @@
+package reservation
+
+import (
+	"bytes"
+	"errors"
+	"fmt"
+
+	"github.com/btcsuite/btcd/btcec/v2"
+	"github.com/btcsuite/btcd/btcutil"
+	"github.com/btcsuite/btcd/wire"
+	"github.com/lightninglabs/loop/fsm"
+	reservation_script "github.com/lightninglabs/loop/instantout/reservation/script"
+	"github.com/lightningnetwork/lnd/keychain"
+)
+
+// ID is a unique identifier for a reservation.
+type ID [IdLength]byte
+
+// FromByteSlice creates a reservation id from a byte slice.
+func (r *ID) FromByteSlice(b []byte) error {
+	if len(b) != IdLength {
+		return fmt.Errorf("reservation id must be 32 bytes, got %d, %x",
+			len(b), b)
+	}
+
+	copy(r[:], b)
+
+	return nil
+}
+
+// Reservation holds all the necessary information for the 2-of-2 multisig
+// reservation utxo.
+type Reservation struct {
+	// ID is the unique identifier of the reservation.
+	ID ID
+
+	// State is the current state of the reservation.
+	State fsm.StateType
+
+	// ClientPubkey is the client's pubkey.
+	ClientPubkey *btcec.PublicKey
+
+	// ServerPubkey is the server's pubkey.
+	ServerPubkey *btcec.PublicKey
+
+	// Value is the amount of the reservation.
+	Value btcutil.Amount
+
+	// Expiry is the absolute block height at which the reservation expires.
+	Expiry uint32
+
+	// KeyLocator is the key locator of the client's key.
+	KeyLocator keychain.KeyLocator
+
+	// Outpoint is the outpoint of the reservation.
+	Outpoint *wire.OutPoint
+
+	// InitiationHeight is the height at which the reservation was
+	// initiated.
+	InitiationHeight int32
+
+	// ConfirmationHeight is the height at which the reservation was
+	// confirmed.
+	ConfirmationHeight uint32
+}
+
+func NewReservation(id ID, serverPubkey, clientPubkey *btcec.PublicKey,
+	value btcutil.Amount, expiry, heightHint uint32,
+	keyLocator keychain.KeyLocator) (*Reservation,
+	error) {
+
+	if id == [32]byte{} {
+		return nil, errors.New("id is empty")
+	}
+
+	if clientPubkey == nil {
+		return nil, errors.New("client pubkey is nil")
+	}
+
+	if serverPubkey == nil {
+		return nil, errors.New("server pubkey is nil")
+	}
+
+	if expiry == 0 {
+		return nil, errors.New("expiry is 0")
+	}
+
+	if value == 0 {
+		return nil, errors.New("value is 0")
+	}
+
+	if keyLocator.Family == 0 {
+		return nil, errors.New("key locator family is 0")
+	}
+	return &Reservation{
+		ID:               id,
+		Value:            value,
+		ClientPubkey:     clientPubkey,
+		ServerPubkey:     serverPubkey,
+		KeyLocator:       keyLocator,
+		Expiry:           expiry,
+		InitiationHeight: int32(heightHint),
+	}, nil
+}
+
+// GetPkScript returns the pk script of the reservation.
+func (r *Reservation) GetPkScript() ([]byte, error) {
+	// Now that we have all the required data, we can create the pk script.
+	pkScript, err := reservation_script.ReservationScript(
+		r.Expiry, r.ServerPubkey, r.ClientPubkey,
+	)
+	if err != nil {
+		return nil, err
+	}
+
+	return pkScript, nil
+}
+
+func (r *Reservation) findReservationOutput(tx *wire.MsgTx) (*wire.OutPoint,
+	error) {
+
+	pkScript, err := r.GetPkScript()
+	if err != nil {
+		return nil, err
+	}
+
+	for i, txOut := range tx.TxOut {
+		if bytes.Equal(txOut.PkScript, pkScript) {
+			return &wire.OutPoint{
+				Hash:  tx.TxHash(),
+				Index: uint32(i),
+			}, nil
+		}
+	}
+
+	return nil, errors.New("reservation output not found")
+}