diff --git a/protofsm/daemon_events.go b/protofsm/daemon_events.go
new file mode 100644
index 00000000000..e5de0b69517
--- /dev/null
+++ b/protofsm/daemon_events.go
@@ -0,0 +1,122 @@
+package protofsm
+
+import (
+	"github.com/btcsuite/btcd/btcec/v2"
+	"github.com/btcsuite/btcd/chaincfg/chainhash"
+	"github.com/btcsuite/btcd/wire"
+	"github.com/lightningnetwork/lnd/chainntnfs"
+	"github.com/lightningnetwork/lnd/fn"
+	"github.com/lightningnetwork/lnd/lnwire"
+)
+
+// DaemonEvent is a special event that can be emitted by a state transition
+// function. A state machine can use this to perform side effects, such as
+// sending a message to a peer, or broadcasting a transaction.
+type DaemonEvent interface {
+	daemonSealed()
+}
+
+// DaemonEventSet is a set of daemon events that can be emitted by a state
+// transition.
+type DaemonEventSet []DaemonEvent
+
+// DaemonEvents is a special type constraint that enumerates all the possible
+// types of daemon events.
+type DaemonEvents interface {
+	SendMsgEvent[any] | BroadcastTxn | RegisterSpend[any] |
+		RegisterConf[any]
+}
+
+// SendPredicate is a function that returns true if the target message should
+// sent.
+type SendPredicate = func() bool
+
+// SendMsgEvent is a special event that can be emitted by a state transition
+// that instructs the daemon to send the contained message to the target peer.
+type SendMsgEvent[Event any] struct {
+	// TargetPeer is the peer to send the message to.
+	TargetPeer btcec.PublicKey
+
+	// Msgs is the set of messages to send to the target peer.
+	Msgs []lnwire.Message
+
+	// SendWhen implements a system for a conditional send once a special
+	// send predicate has been met.
+	//
+	// TODO(roasbeef): contrast with usage of OnCommitFlush, etc
+	SendWhen fn.Option[SendPredicate]
+
+	// PostSendEvent is an optional event that is to be emitted after the
+	// message has been sent. If a SendWhen is specified, then this will
+	// only be executed after that returns true to unblock the send.
+	PostSendEvent fn.Option[Event]
+}
+
+// daemonSealed indicates that this struct is a DaemonEvent instance.
+func (s *SendMsgEvent[E]) daemonSealed() {}
+
+// BroadcastTxn indicates the target transaction should be broadcast to the
+// network.
+type BroadcastTxn struct {
+	// Tx is the transaction to broadcast.
+	Tx *wire.MsgTx
+
+	// Label is an optional label to attach to the transaction.
+	Label string
+}
+
+// daemonSealed indicates that this struct is a DaemonEvent instance.
+func (b *BroadcastTxn) daemonSealed() {}
+
+// SpendMapper is a function that's used to map a spend notification to a
+// custom state machine event.
+type SpendMapper[Event any] func(*chainntnfs.SpendDetail) Event
+
+// RegisterSpend is used to request that a certain event is sent into the state
+// machine once the specified outpoint has been spent.
+type RegisterSpend[Event any] struct {
+	// OutPoint is the outpoint on chain to watch.
+	OutPoint wire.OutPoint
+
+	// PkScript is the script that we expect to be spent along with the
+	// outpoint.
+	PkScript []byte
+
+	// HeightHint is a value used to give the chain scanner a hint on how
+	// far back it needs to start its search.
+	HeightHint uint32
+
+	// PostSpendEvent is a special spend mapper, that if present, will be
+	// used to map the protofsm spend event to a custom event.
+	PostSpendEvent fn.Option[SpendMapper[Event]]
+}
+
+// daemonSealed indicates that this struct is a DaemonEvent instance.
+func (r *RegisterSpend[E]) daemonSealed() {}
+
+// RegisterConf is used to request that a certain event is sent into the state
+// machien once the specified outpoint has been spent.
+type RegisterConf[Event any] struct {
+	// Txid is the txid of the txn we want to watch the chain for.
+	Txid chainhash.Hash
+
+	// PkScript is the script that we expect to be created along with the
+	// outpoint.
+	PkScript []byte
+
+	// HeightHint is a value used to give the chain scanner a hint on how
+	// far back it needs to start its search.
+	HeightHint uint32
+
+	// NumConfs is the number of confirmations that the spending
+	// transaction needs to dispatch an event.
+	NumConfs fn.Option[uint32]
+
+	// PostConfEvent is an event that's sent back to the requester once the
+	// transaction specified above has confirmed in the chain with
+	// sufficient depth.
+	PostConfEvent fn.Option[Event]
+}
+
+// daemonSealed indicates that this struct is a DaemonEvent instance.
+func (r *RegisterConf[E]) daemonSealed() {}
diff --git a/protofsm/log.go b/protofsm/log.go
new file mode 100644
index 00000000000..8ff9c1b62f2
--- /dev/null
+++ b/protofsm/log.go
@@ -0,0 +1,29 @@
+package protofsm
+
+import (
+	"github.com/btcsuite/btclog"
+	"github.com/lightningnetwork/lnd/build"
+)
+
+// 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("PFSM", nil))
+}
+
+// DisableLog disables all library log output.  Logging output is disabled
+// by default until UseLogger is called.
+func DisableLog() {
+	UseLogger(btclog.Disabled)
+}
+
+// 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/protofsm/msg_mapper.go b/protofsm/msg_mapper.go
new file mode 100644
index 00000000000..b96d677e6bb
--- /dev/null
+++ b/protofsm/msg_mapper.go
@@ -0,0 +1,15 @@
+package protofsm
+
+import (
+	"github.com/lightningnetwork/lnd/fn"
+	"github.com/lightningnetwork/lnd/lnwire"
+)
+
+// MsgMapper is used to map incoming wire messages into a FSM event. This is
+// useful to decouple the translation of an outside or wire message into an
+// event type that can be understood by the FSM.
+type MsgMapper[Event any] interface {
+	// MapMsg maps a wire message into a FSM event. If the message is not
+	// mappable, then an None is returned.
+	MapMsg(msg lnwire.Message) fn.Option[Event]
+}
diff --git a/protofsm/state_machine.go b/protofsm/state_machine.go
new file mode 100644
index 00000000000..ecbd7483478
--- /dev/null
+++ b/protofsm/state_machine.go
@@ -0,0 +1,670 @@
+package protofsm
+
+import (
+	"context"
+	"fmt"
+	"sync"
+	"time"
+
+	"github.com/btcsuite/btcd/btcec/v2"
+	"github.com/btcsuite/btcd/chaincfg/chainhash"
+	"github.com/btcsuite/btcd/wire"
+	"github.com/lightningnetwork/lnd/chainntnfs"
+	"github.com/lightningnetwork/lnd/fn"
+	"github.com/lightningnetwork/lnd/lnutils"
+	"github.com/lightningnetwork/lnd/lnwire"
+)
+
+const (
+	// pollInterval is the interval at which we'll poll the SendWhen
+	// predicate if specified.
+	pollInterval = time.Millisecond * 100
+)
+
+// EmittedEvent is a special type that can be emitted by a state transition.
+// This can container internal events which are to be routed back to the state,
+// or external events which are to be sent to the daemon.
+type EmittedEvent[Event any] struct {
+	// InternalEvent is an optional internal event that is to be routed
+	// back to the target state. This enables state to trigger one or many
+	// state transitions without a new external event.
+	InternalEvent fn.Option[[]Event]
+
+	// ExternalEvent is an optional external event that is to be sent to
+	// the daemon for dispatch. Usually, this is some form of I/O.
+	ExternalEvents fn.Option[DaemonEventSet]
+}
+
+// StateTransition is a state transition type. It denotes the next state to go
+// to, and also the set of events to emit.
+type StateTransition[Event any, Env Environment] struct {
+	// NextState is the next state to transition to.
+	NextState State[Event, Env]
+
+	// NewEvents is the set of events to emit.
+	NewEvents fn.Option[EmittedEvent[Event]]
+}
+
+// Environment is an abstract interface that represents the environment that
+// the state machine will execute using. From the PoV of the main state machine
+// executor, we just care about being able to clean up any resources that were
+// allocated by the environment.
+type Environment interface {
+	// Name returns the name of the environment. This is used to uniquely
+	// identify the environment of related state machines.
+	Name() string
+}
+
+// State defines an abstract state along, namely its state transition function
+// that takes as input an event and an environment, and returns a state
+// transition (next state, and set of events to emit). As state can also either
+// be terminal, or not, a terminal event causes state execution to halt.
+type State[Event any, Env Environment] interface {
+	// ProcessEvent takes an event and an environment, and returns a new
+	// state transition. This will be iteratively called until either a
+	// terminal state is reached, or no further internal events are
+	// emitted.
+	ProcessEvent(event Event, env Env) (*StateTransition[Event, Env], error)
+
+	// IsTerminal returns true if this state is terminal, and false
+	// otherwise.
+	IsTerminal() bool
+
+	// TODO(roasbeef): also add state serialization?
+}
+
+// DaemonAdapters is a set of methods that server as adapters to bridge the
+// pure world of the FSM to the real world of the daemon. These will be used to
+// do things like broadcast transactions, or send messages to peers.
+type DaemonAdapters interface {
+	// SendMessages sends the target set of messages to the target peer.
+	SendMessages(btcec.PublicKey, []lnwire.Message) error
+
+	// BroadcastTransaction broadcasts a transaction with the target label.
+	BroadcastTransaction(*wire.MsgTx, string) error
+
+	// RegisterConfirmationsNtfn registers an intent to be notified once
+	// txid reaches numConfs confirmations. We also pass in the pkScript as
+	// the default light client instead needs to match on scripts created
+	// in the block. If a nil txid is passed in, then not only should we
+	// match on the script, but we should also dispatch once the
+	// transaction containing the script reaches numConfs confirmations.
+	// This can be useful in instances where we only know the script in
+	// advance, but not the transaction containing it.
+	//
+	// TODO(roasbeef): could abstract further?
+	RegisterConfirmationsNtfn(txid *chainhash.Hash, pkScript []byte,
+		numConfs, heightHint uint32,
+		opts ...chainntnfs.NotifierOption,
+	) (*chainntnfs.ConfirmationEvent, error)
+
+	// RegisterSpendNtfn registers an intent to be notified once the target
+	// outpoint is successfully spent within a transaction. The script that
+	// the outpoint creates must also be specified. This allows this
+	// interface to be implemented by BIP 158-like filtering.
+	RegisterSpendNtfn(outpoint *wire.OutPoint, pkScript []byte,
+		heightHint uint32) (*chainntnfs.SpendEvent, error)
+}
+
+// stateQuery is used by outside callers to query the internal state of the
+// state machine.
+type stateQuery[Event any, Env Environment] struct {
+	// CurrentState is a channel that will be sent the current state of the
+	// state machine.
+	CurrentState chan State[Event, Env]
+}
+
+// StateMachine represents an abstract FSM that is able to process new incoming
+// events and drive a state machine to termination. This implementation uses
+// type params to abstract over the types of events and environment. Events
+// trigger new state transitions, that use the environment to perform some
+// action.
+//
+// TODO(roasbeef): terminal check, daemon event execution, init?
+type StateMachine[Event any, Env Environment] struct {
+	cfg StateMachineCfg[Event, Env]
+
+	// events is the channel that will be used to send new events to the
+	// FSM.
+	events chan Event
+
+	// newStateEvents is an EventDistributor that will be used to notify
+	// any relevant callers of new state transitions that occur.
+	newStateEvents *fn.EventDistributor[State[Event, Env]]
+
+	// stateQuery is a channel that will be used by outside callers to
+	// query the internal state machine state.
+	stateQuery chan stateQuery[Event, Env]
+
+	wg   fn.GoroutineManager
+	quit chan struct{}
+
+	startOnce sync.Once
+	stopOnce  sync.Once
+}
+
+// ErrorReporter is an interface that's used to report errors that occur during
+// state machine execution.
+type ErrorReporter interface {
+	// ReportError is a method that's used to report an error that occurred
+	// during state machine execution.
+	ReportError(err error)
+}
+
+// StateMachineCfg is a configuration struct that's used to create a new state
+// machine.
+type StateMachineCfg[Event any, Env Environment] struct {
+	// ErrorReporter is used to report errors that occur during state
+	// transitions.
+	ErrorReporter ErrorReporter
+
+	// Daemon is a set of adapters that will be used to bridge the FSM to
+	// the daemon.
+	Daemon DaemonAdapters
+
+	// InitialState is the initial state of the state machine.
+	InitialState State[Event, Env]
+
+	// Env is the environment that the state machine will use to execute.
+	Env Env
+
+	// InitEvent is an optional event that will be sent to the state
+	// machine as if it was emitted at the onset of the state machine. This
+	// can be used to set up tracking state such as a txid confirmation
+	// event.
+	InitEvent fn.Option[DaemonEvent]
+
+	// MsgMapper is an optional message mapper that can be used to map
+	// normal wire messages into FSM events.
+	MsgMapper fn.Option[MsgMapper[Event]]
+
+	// CustomPollInterval is an optional custom poll interval that can be
+	// used to set a quicker interval for tests.
+	CustomPollInterval fn.Option[time.Duration]
+}
+
+// NewStateMachine creates a new state machine given a set of daemon adapters,
+// an initial state, an environment, and an event to process as if emitted at
+// the onset of the state machine. Such an event can be used to set up tracking
+// state such as a txid confirmation event.
+func NewStateMachine[Event any, Env Environment](cfg StateMachineCfg[Event, Env], //nolint:lll
+) StateMachine[Event, Env] {
+
+	return StateMachine[Event, Env]{
+		cfg:            cfg,
+		events:         make(chan Event, 1),
+		stateQuery:     make(chan stateQuery[Event, Env]),
+		wg:             *fn.NewGoroutineManager(context.Background()),
+		newStateEvents: fn.NewEventDistributor[State[Event, Env]](),
+		quit:           make(chan struct{}),
+	}
+}
+
+// Start starts the state machine. This will spawn a goroutine that will drive
+// the state machine to completion.
+func (s *StateMachine[Event, Env]) Start() {
+	s.startOnce.Do(func() {
+		_ = s.wg.Go(func(ctx context.Context) {
+			s.driveMachine()
+		})
+	})
+}
+
+// Stop stops the state machine. This will block until the state machine has
+// reached a stopping point.
+func (s *StateMachine[Event, Env]) Stop() {
+	s.stopOnce.Do(func() {
+		close(s.quit)
+		s.wg.Stop()
+	})
+}
+
+// SendEvent sends a new event to the state machine.
+//
+// TODO(roasbeef): bool if processed?
+func (s *StateMachine[Event, Env]) SendEvent(event Event) {
+	log.Debugf("FSM(%v): sending event: %v", s.cfg.Env.Name(),
+		lnutils.SpewLogClosure(event),
+	)
+
+	select {
+	case s.events <- event:
+	case <-s.quit:
+		return
+	}
+}
+
+// CanHandle returns true if the target message can be routed to the state
+// machine.
+func (s *StateMachine[Event, Env]) CanHandle(msg lnwire.Message) bool {
+	cfgMapper := s.cfg.MsgMapper
+	return fn.MapOptionZ(cfgMapper, func(mapper MsgMapper[Event]) bool {
+		return mapper.MapMsg(msg).IsSome()
+	})
+}
+
+// Name returns the name of the state machine's environment.
+func (s *StateMachine[Event, Env]) Name() string {
+	return s.cfg.Env.Name()
+}
+
+// SendMessage attempts to send a wire message to the state machine. If the
+// message can be mapped using the default message mapper, then true is
+// returned indicating that the message was processed. Otherwise, false is
+// returned.
+func (s *StateMachine[Event, Env]) SendMessage(msg lnwire.Message) bool {
+	// If we have no message mapper, then return false as we can't process
+	// this message.
+	if !s.cfg.MsgMapper.IsSome() {
+		return false
+	}
+
+	log.Debugf("FSM(%v): sending msg: %v", s.cfg.Env.Name(),
+		lnutils.SpewLogClosure(msg),
+	)
+
+	// Otherwise, try to map the message using the default message mapper.
+	// If we can't extract an event, then we'll return false to indicate
+	// that the message wasn't processed.
+	var processed bool
+	s.cfg.MsgMapper.WhenSome(func(mapper MsgMapper[Event]) {
+		event := mapper.MapMsg(msg)
+
+		event.WhenSome(func(event Event) {
+			s.SendEvent(event)
+
+			processed = true
+		})
+	})
+
+	return processed
+}
+
+// CurrentState returns the current state of the state machine.
+func (s *StateMachine[Event, Env]) CurrentState() (State[Event, Env], error) {
+	query := stateQuery[Event, Env]{
+		CurrentState: make(chan State[Event, Env], 1),
+	}
+
+	if !fn.SendOrQuit(s.stateQuery, query, s.quit) {
+		return nil, fmt.Errorf("state machine is shutting down")
+	}
+
+	return fn.RecvOrTimeout(query.CurrentState, time.Second)
+}
+
+// StateSubscriber represents an active subscription to be notified of new
+// state transitions.
+type StateSubscriber[E any, F Environment] *fn.EventReceiver[State[E, F]]
+
+// RegisterStateEvents registers a new event listener that will be notified of
+// new state transitions.
+func (s *StateMachine[Event, Env]) RegisterStateEvents() StateSubscriber[
+	Event, Env] {
+
+	subscriber := fn.NewEventReceiver[State[Event, Env]](10)
+
+	// TODO(roasbeef): instead give the state and the input event?
+
+	s.newStateEvents.RegisterSubscriber(subscriber)
+
+	return subscriber
+}
+
+// RemoveStateSub removes the target state subscriber from the set of active
+// subscribers.
+func (s *StateMachine[Event, Env]) RemoveStateSub(sub StateSubscriber[
+	Event, Env]) {
+
+	_ = s.newStateEvents.RemoveSubscriber(sub)
+}
+
+// executeDaemonEvent executes a daemon event, which is a special type of event
+// that can be emitted as part of the state transition function of the state
+// machine. An error is returned if the type of event is unknown.
+func (s *StateMachine[Event, Env]) executeDaemonEvent(
+	event DaemonEvent) error {
+
+	switch daemonEvent := event.(type) {
+	// This is a send message event, so we'll send the event, and also mind
+	// any preconditions as well as post-send events.
+	case *SendMsgEvent[Event]:
+		sendAndCleanUp := func() error {
+			log.Debugf("FSM(%v): sending message to target(%x): "+
+				"%v", s.cfg.Env.Name(),
+				daemonEvent.TargetPeer.SerializeCompressed(),
+				lnutils.SpewLogClosure(daemonEvent.Msgs),
+			)
+
+			err := s.cfg.Daemon.SendMessages(
+				daemonEvent.TargetPeer, daemonEvent.Msgs,
+			)
+			if err != nil {
+				return fmt.Errorf("unable to send msgs: %w",
+					err)
+			}
+
+			// If a post-send event was specified, then we'll funnel
+			// that back into the main state machine now as well.
+			return fn.MapOptionZ(daemonEvent.PostSendEvent, func(event Event) error { //nolint:lll
+				return s.wg.Go(func(ctx context.Context) {
+					log.Debugf("FSM(%v): sending "+
+						"post-send event: %v",
+						s.cfg.Env.Name(),
+						lnutils.SpewLogClosure(event),
+					)
+
+					s.SendEvent(event)
+				})
+			})
+		}
+
+		// If this doesn't have a SendWhen predicate, then we can just
+		// send it off right away.
+		if !daemonEvent.SendWhen.IsSome() {
+			return sendAndCleanUp()
+		}
+
+		// Otherwise, this has a SendWhen predicate, so we'll need
+		// launch a goroutine to poll the SendWhen, then send only once
+		// the predicate is true.
+		return s.wg.Go(func(ctx context.Context) {
+			predicateTicker := time.NewTicker(
+				s.cfg.CustomPollInterval.UnwrapOr(pollInterval),
+			)
+			defer predicateTicker.Stop()
+
+			log.Infof("FSM(%v): waiting for send predicate to "+
+				"be true", s.cfg.Env.Name())
+
+			for {
+				select {
+				case <-predicateTicker.C:
+					canSend := fn.MapOptionZ(
+						daemonEvent.SendWhen,
+						func(pred SendPredicate) bool {
+							return pred()
+						},
+					)
+
+					if canSend {
+						log.Infof("FSM(%v): send "+
+							"active predicate",
+							s.cfg.Env.Name())
+
+						err := sendAndCleanUp()
+						if err != nil {
+							//nolint:lll
+							log.Errorf("FSM(%v): unable to send message: %v", err)
+						}
+
+						return
+					}
+
+				case <-ctx.Done():
+					return
+				}
+			}
+		})
+
+	// If this is a broadcast transaction event, then we'll broadcast with
+	// the label attached.
+	case *BroadcastTxn:
+		log.Debugf("FSM(%v): broadcasting txn, txid=%v",
+			s.cfg.Env.Name(), daemonEvent.Tx.TxHash())
+
+		err := s.cfg.Daemon.BroadcastTransaction(
+			daemonEvent.Tx, daemonEvent.Label,
+		)
+		if err != nil {
+			return fmt.Errorf("unable to broadcast txn: %w", err)
+		}
+
+		return nil
+
+	// The state machine has requested a new event to be sent once a
+	// transaction spending a specified outpoint has confirmed.
+	case *RegisterSpend[Event]:
+		log.Debugf("FSM(%v): registering spend: %v", s.cfg.Env.Name(),
+			daemonEvent.OutPoint)
+
+		spendEvent, err := s.cfg.Daemon.RegisterSpendNtfn(
+			&daemonEvent.OutPoint, daemonEvent.PkScript,
+			daemonEvent.HeightHint,
+		)
+		if err != nil {
+			return fmt.Errorf("unable to register spend: %w", err)
+		}
+
+		return s.wg.Go(func(ctx context.Context) {
+			for {
+				select {
+				case spend, ok := <-spendEvent.Spend:
+					if !ok {
+						return
+					}
+
+					// If there's a post-send event, then
+					// we'll send that into the current
+					// state now.
+					postSpend := daemonEvent.PostSpendEvent
+					postSpend.WhenSome(func(f SpendMapper[Event]) { //nolint:lll
+						customEvent := f(spend)
+						s.SendEvent(customEvent)
+					})
+
+					return
+
+				case <-ctx.Done():
+					return
+				}
+			}
+		})
+
+	// The state machine has requested a new event to be sent once a
+	// specified txid+pkScript pair has confirmed.
+	case *RegisterConf[Event]:
+		log.Debugf("FSM(%v): registering conf: %v", s.cfg.Env.Name(),
+			daemonEvent.Txid)
+
+		numConfs := daemonEvent.NumConfs.UnwrapOr(1)
+		confEvent, err := s.cfg.Daemon.RegisterConfirmationsNtfn(
+			&daemonEvent.Txid, daemonEvent.PkScript,
+			numConfs, daemonEvent.HeightHint,
+		)
+		if err != nil {
+			return fmt.Errorf("unable to register conf: %w", err)
+		}
+
+		return s.wg.Go(func(ctx context.Context) {
+			for {
+				select {
+				case <-confEvent.Confirmed:
+					// If there's a post-conf event, then
+					// we'll send that into the current
+					// state now.
+					//
+					// TODO(roasbeef): refactor to
+					// dispatchAfterRecv w/ above
+					postConf := daemonEvent.PostConfEvent
+					postConf.WhenSome(func(e Event) {
+						s.SendEvent(e)
+					})
+
+					return
+
+				case <-ctx.Done():
+					return
+				}
+			}
+		})
+	}
+
+	return fmt.Errorf("unknown daemon event: %T", event)
+}
+
+// applyEvents applies a new event to the state machine. This will continue
+// until no further events are emitted by the state machine. Along the way,
+// we'll also ensure to execute any daemon events that are emitted.
+func (s *StateMachine[Event, Env]) applyEvents(currentState State[Event, Env],
+	newEvent Event) (State[Event, Env], error) {
+
+	log.Debugf("FSM(%v): applying new event", s.cfg.Env.Name(),
+		lnutils.SpewLogClosure(newEvent),
+	)
+	eventQueue := fn.NewQueue(newEvent)
+
+	// Given the next event to handle, we'll process the event, then add
+	// any new emitted internal events to our event queue. This continues
+	// until we reach a terminal state, or we run out of internal events to
+	// process.
+	//
+	//nolint:lll
+	for nextEvent := eventQueue.Dequeue(); nextEvent.IsSome(); nextEvent = eventQueue.Dequeue() {
+		err := fn.MapOptionZ(nextEvent, func(event Event) error {
+			log.Debugf("FSM(%v): processing event: %v",
+				s.cfg.Env.Name(),
+				lnutils.SpewLogClosure(event),
+			)
+
+			// Apply the state transition function of the current
+			// state given this new event and our existing env.
+			transition, err := currentState.ProcessEvent(
+				event, s.cfg.Env,
+			)
+			if err != nil {
+				return err
+			}
+
+			newEvents := transition.NewEvents
+			err = fn.MapOptionZ(newEvents, func(events EmittedEvent[Event]) error { //nolint:lll
+				// With the event processed, we'll process any
+				// new daemon events that were emitted as part
+				// of this new state transition.
+				//
+				//nolint:lll
+				err := fn.MapOptionZ(events.ExternalEvents, func(dEvents DaemonEventSet) error {
+					log.Debugf("FSM(%v): processing "+
+						"daemon %v daemon events",
+						s.cfg.Env.Name(), len(dEvents))
+
+					for _, dEvent := range dEvents {
+						err := s.executeDaemonEvent(
+							dEvent,
+						)
+						if err != nil {
+							return err
+						}
+					}
+
+					return nil
+				})
+				if err != nil {
+					return err
+				}
+
+				// Next, we'll add any new emitted events to
+				// our event queue.
+				//
+				//nolint:lll
+				events.InternalEvent.WhenSome(func(es []Event) {
+					for _, inEvent := range es {
+						log.Debugf("FSM(%v): adding "+
+							"new internal event "+
+							"to queue: %v",
+							s.cfg.Env.Name(),
+							lnutils.SpewLogClosure(
+								inEvent,
+							),
+						)
+
+						eventQueue.Enqueue(inEvent)
+					}
+				})
+
+				return nil
+			})
+			if err != nil {
+				return err
+			}
+
+			log.Infof("FSM(%v): state transition: from_state=%T, "+
+				"to_state=%T",
+				s.cfg.Env.Name(), currentState,
+				transition.NextState)
+
+			// With our events processed, we'll now update our
+			// internal state.
+			currentState = transition.NextState
+
+			// Notify our subscribers of the new state transition.
+			//
+			// TODO(roasbeef): will only give us the outer state?
+			//  * let FSMs choose which state to emit?
+			s.newStateEvents.NotifySubscribers(currentState)
+
+			return nil
+		})
+		if err != nil {
+			return currentState, err
+		}
+	}
+
+	return currentState, nil
+}
+
+// driveMachine is the main event loop of the state machine. It accepts any new
+// incoming events, and then drives the state machine forward until it reaches
+// a terminal state.
+func (s *StateMachine[Event, Env]) driveMachine() {
+	log.Debugf("FSM(%v): starting state machine", s.cfg.Env.Name())
+
+	currentState := s.cfg.InitialState
+
+	// Before we start, if we have an init daemon event specified, then
+	// we'll handle that now.
+	err := fn.MapOptionZ(s.cfg.InitEvent, func(event DaemonEvent) error {
+		return s.executeDaemonEvent(event)
+	})
+	if err != nil {
+		log.Errorf("unable to execute init event: %w", err)
+		return
+	}
+
+	// We just started driving the state machine, so we'll notify our
+	// subscribers of this starting state.
+	s.newStateEvents.NotifySubscribers(currentState)
+
+	for {
+		select {
+		// We have a new external event, so we'll drive the state
+		// machine forward until we either run out of internal events,
+		// or we reach a terminal state.
+		case newEvent := <-s.events:
+			newState, err := s.applyEvents(currentState, newEvent)
+			if err != nil {
+				s.cfg.ErrorReporter.ReportError(err)
+
+				log.Errorf("unable to apply event: %v", err)
+
+				// An error occurred, so we'll tear down the
+				// entire state machine as we can't proceed.
+				go s.Stop()
+
+				return
+			}
+
+			currentState = newState
+
+		// An outside caller is querying our state, so we'll return the
+		// latest state.
+		case stateQuery := <-s.stateQuery:
+			if !fn.SendOrQuit(stateQuery.CurrentState, currentState, s.quit) { //nolint:lll
+				return
+			}
+
+		case <-s.wg.Done():
+			return
+		}
+	}
+}
diff --git a/protofsm/state_machine_test.go b/protofsm/state_machine_test.go
new file mode 100644
index 00000000000..0432f386b70
--- /dev/null
+++ b/protofsm/state_machine_test.go
@@ -0,0 +1,456 @@
+package protofsm
+
+import (
+	"encoding/hex"
+	"fmt"
+	"sync/atomic"
+	"testing"
+
+	"github.com/btcsuite/btcd/btcec/v2"
+	"github.com/btcsuite/btcd/chaincfg/chainhash"
+	"github.com/btcsuite/btcd/wire"
+	"github.com/lightningnetwork/lnd/chainntnfs"
+	"github.com/lightningnetwork/lnd/fn"
+	"github.com/lightningnetwork/lnd/lnwire"
+	"github.com/stretchr/testify/mock"
+	"github.com/stretchr/testify/require"
+)
+
+type dummyEvents interface {
+	dummy()
+}
+
+type goToFin struct {
+}
+
+func (g *goToFin) dummy() {
+}
+
+type emitInternal struct {
+}
+
+func (e *emitInternal) dummy() {
+}
+
+type daemonEvents struct {
+}
+
+func (s *daemonEvents) dummy() {
+}
+
+type dummyEnv struct {
+	mock.Mock
+}
+
+func (d *dummyEnv) Name() string {
+	return "test"
+}
+
+type dummyStateStart struct {
+	canSend *atomic.Bool
+}
+
+var (
+	hexDecode = func(keyStr string) []byte {
+		keyBytes, _ := hex.DecodeString(keyStr)
+		return keyBytes
+	}
+	pub1, _ = btcec.ParsePubKey(hexDecode(
+		"02ec95e4e8ad994861b95fc5986eedaac24739e5ea3d0634db4c8ccd44cd" +
+			"a126ea",
+	))
+	pub2, _ = btcec.ParsePubKey(hexDecode(
+		"0356167ba3e54ac542e86e906d4186aba9ca0b9df45001c62b753d33fe06" +
+			"f5b4e8",
+	))
+)
+
+func (d *dummyStateStart) ProcessEvent(event dummyEvents, env *dummyEnv,
+) (*StateTransition[dummyEvents, *dummyEnv], error) {
+
+	switch event.(type) {
+	case *goToFin:
+		return &StateTransition[dummyEvents, *dummyEnv]{
+			NextState: &dummyStateFin{},
+		}, nil
+
+	// This state will loop back upon itself, but will also emit an event
+	// to head to the terminal state.
+	case *emitInternal:
+		return &StateTransition[dummyEvents, *dummyEnv]{
+			NextState: &dummyStateStart{},
+			NewEvents: fn.Some(EmittedEvent[dummyEvents]{
+				InternalEvent: fn.Some(
+					[]dummyEvents{&goToFin{}},
+				),
+			}),
+		}, nil
+
+	// This state will proceed to the terminal state, but will emit all the
+	// possible daemon events.
+	case *daemonEvents:
+		// This send event can only succeed once the bool turns to
+		// true. After that, then we'll expect another event to take us
+		// to the final state.
+		sendEvent := &SendMsgEvent[dummyEvents]{
+			TargetPeer: *pub1,
+			SendWhen: fn.Some(func() bool {
+				return d.canSend.Load()
+			}),
+			PostSendEvent: fn.Some(dummyEvents(&goToFin{})),
+		}
+
+		// We'll also send out a normal send event that doesn't have
+		// any preconditions.
+		sendEvent2 := &SendMsgEvent[dummyEvents]{
+			TargetPeer: *pub2,
+		}
+
+		return &StateTransition[dummyEvents, *dummyEnv]{
+			// We'll state in this state until the send succeeds
+			// based on our predicate. Then it'll transition to the
+			// final state.
+			NextState: &dummyStateStart{
+				canSend: d.canSend,
+			},
+			NewEvents: fn.Some(EmittedEvent[dummyEvents]{
+				ExternalEvents: fn.Some(DaemonEventSet{
+					sendEvent, sendEvent2,
+					&BroadcastTxn{
+						Tx:    &wire.MsgTx{},
+						Label: "test",
+					},
+				}),
+			}),
+		}, nil
+	}
+
+	return nil, fmt.Errorf("unknown event: %T", event)
+}
+
+func (d *dummyStateStart) IsTerminal() bool {
+	return false
+}
+
+type dummyStateFin struct {
+}
+
+func (d *dummyStateFin) ProcessEvent(event dummyEvents, env *dummyEnv,
+) (*StateTransition[dummyEvents, *dummyEnv], error) {
+
+	return &StateTransition[dummyEvents, *dummyEnv]{
+		NextState: &dummyStateFin{},
+	}, nil
+}
+
+func (d *dummyStateFin) IsTerminal() bool {
+	return true
+}
+
+func assertState[Event any, Env Environment](t *testing.T,
+	m *StateMachine[Event, Env], expectedState State[Event, Env]) {
+
+	state, err := m.CurrentState()
+	require.NoError(t, err)
+	require.IsType(t, expectedState, state)
+}
+
+func assertStateTransitions[Event any, Env Environment](
+	t *testing.T, stateSub StateSubscriber[Event, Env],
+	expectedStates []State[Event, Env]) {
+
+	for _, expectedState := range expectedStates {
+		newState := <-stateSub.NewItemCreated.ChanOut()
+
+		require.IsType(t, expectedState, newState)
+	}
+}
+
+type dummyAdapters struct {
+	mock.Mock
+
+	confChan  chan *chainntnfs.TxConfirmation
+	spendChan chan *chainntnfs.SpendDetail
+}
+
+func newDaemonAdapters() *dummyAdapters {
+	return &dummyAdapters{
+		confChan:  make(chan *chainntnfs.TxConfirmation, 1),
+		spendChan: make(chan *chainntnfs.SpendDetail, 1),
+	}
+}
+
+func (d *dummyAdapters) SendMessages(pub btcec.PublicKey,
+	msgs []lnwire.Message) error {
+
+	args := d.Called(pub, msgs)
+
+	return args.Error(0)
+}
+
+func (d *dummyAdapters) BroadcastTransaction(tx *wire.MsgTx,
+	label string) error {
+
+	args := d.Called(tx, label)
+
+	return args.Error(0)
+}
+
+func (d *dummyAdapters) RegisterConfirmationsNtfn(txid *chainhash.Hash,
+	pkScript []byte, numConfs, heightHint uint32,
+	opts ...chainntnfs.NotifierOption,
+) (*chainntnfs.ConfirmationEvent, error) {
+
+	args := d.Called(txid, pkScript, numConfs)
+
+	err := args.Error(0)
+
+	return &chainntnfs.ConfirmationEvent{
+		Confirmed: d.confChan,
+	}, err
+}
+
+func (d *dummyAdapters) RegisterSpendNtfn(outpoint *wire.OutPoint,
+	pkScript []byte, heightHint uint32) (*chainntnfs.SpendEvent, error) {
+
+	args := d.Called(outpoint, pkScript, heightHint)
+
+	err := args.Error(0)
+
+	return &chainntnfs.SpendEvent{
+		Spend: d.spendChan,
+	}, err
+}
+
+// TestStateMachineOnInitDaemonEvent tests that the state machine will properly
+// execute any init-level daemon events passed into it.
+func TestStateMachineOnInitDaemonEvent(t *testing.T) {
+	// First, we'll create our state machine given the env, and our
+	// starting state.
+	env := &dummyEnv{}
+	startingState := &dummyStateStart{}
+
+	adapters := newDaemonAdapters()
+
+	// We'll make an init event that'll send to a peer, then transition us
+	// to our terminal state.
+	initEvent := &SendMsgEvent[dummyEvents]{
+		TargetPeer:    *pub1,
+		PostSendEvent: fn.Some(dummyEvents(&goToFin{})),
+	}
+
+	cfg := StateMachineCfg[dummyEvents, *dummyEnv]{
+		Daemon:       adapters,
+		InitialState: startingState,
+		Env:          env,
+		InitEvent:    fn.Some[DaemonEvent](initEvent),
+	}
+	stateMachine := NewStateMachine(cfg)
+
+	// Before we start up the state machine, we'll assert that the send
+	// message adapter is called on start up.
+	adapters.On("SendMessages", *pub1, mock.Anything).Return(nil)
+
+	stateMachine.Start()
+	defer stateMachine.Stop()
+
+	// As we're triggering internal events, we'll also subscribe to the set
+	// of new states so we can assert as we go.
+	stateSub := stateMachine.RegisterStateEvents()
+	defer stateMachine.RemoveStateSub(stateSub)
+
+	// Assert that we go from the starting state to the final state.  The
+	// state machine should now also be on the final terminal state.
+	expectedStates := []State[dummyEvents, *dummyEnv]{
+		&dummyStateStart{}, &dummyStateFin{},
+	}
+	assertStateTransitions(t, stateSub, expectedStates)
+
+	// We'll now assert that after the daemon was started, the send message
+	// adapter was called above as specified in the init event.
+	adapters.AssertExpectations(t)
+	env.AssertExpectations(t)
+}
+
+// TestStateMachineInternalEvents tests that the state machine is able to add
+// new internal events to the event queue for further processing during a state
+// transition.
+func TestStateMachineInternalEvents(t *testing.T) {
+	t.Parallel()
+
+	// First, we'll create our state machine given the env, and our
+	// starting state.
+	env := &dummyEnv{}
+	startingState := &dummyStateStart{}
+
+	adapters := newDaemonAdapters()
+
+	cfg := StateMachineCfg[dummyEvents, *dummyEnv]{
+		Daemon:       adapters,
+		InitialState: startingState,
+		Env:          env,
+		InitEvent:    fn.None[DaemonEvent](),
+	}
+	stateMachine := NewStateMachine(cfg)
+	stateMachine.Start()
+	defer stateMachine.Stop()
+
+	// As we're triggering internal events, we'll also subscribe to the set
+	// of new states so we can assert as we go.
+	stateSub := stateMachine.RegisterStateEvents()
+	defer stateMachine.RemoveStateSub(stateSub)
+
+	// For this transition, we'll send in the emitInternal event, which'll
+	// send us back to the starting event, but emit an internal event.
+	stateMachine.SendEvent(&emitInternal{})
+
+	// We'll now also assert the path we took to get here to ensure the
+	// internal events were processed.
+	expectedStates := []State[dummyEvents, *dummyEnv]{
+		&dummyStateStart{}, &dummyStateStart{}, &dummyStateFin{},
+	}
+	assertStateTransitions(
+		t, stateSub, expectedStates,
+	)
+
+	// We should ultimately end up in the terminal state.
+	assertState[dummyEvents, *dummyEnv](t, &stateMachine, &dummyStateFin{})
+
+	// Make sure all the env expectations were met.
+	env.AssertExpectations(t)
+}
+
+// TestStateMachineDaemonEvents tests that the state machine is able to process
+// daemon emitted as part of the state transition process.
+func TestStateMachineDaemonEvents(t *testing.T) {
+	t.Parallel()
+
+	// First, we'll create our state machine given the env, and our
+	// starting state.
+	env := &dummyEnv{}
+
+	var boolTrigger atomic.Bool
+	startingState := &dummyStateStart{
+		canSend: &boolTrigger,
+	}
+
+	adapters := newDaemonAdapters()
+
+	cfg := StateMachineCfg[dummyEvents, *dummyEnv]{
+		Daemon:       adapters,
+		InitialState: startingState,
+		Env:          env,
+		InitEvent:    fn.None[DaemonEvent](),
+	}
+	stateMachine := NewStateMachine(cfg)
+	stateMachine.Start()
+	defer stateMachine.Stop()
+
+	// As we're triggering internal events, we'll also subscribe to the set
+	// of new states so we can assert as we go.
+	stateSub := stateMachine.RegisterStateEvents()
+	defer stateMachine.RemoveStateSub(stateSub)
+
+	// As soon as we send in the daemon event, we expect the
+	// disable+broadcast events to be processed, as they are unconditional.
+	adapters.On(
+		"BroadcastTransaction", mock.Anything, mock.Anything,
+	).Return(nil)
+	adapters.On("SendMessages", *pub2, mock.Anything).Return(nil)
+
+	// We'll start off by sending in the daemon event, which'll trigger the
+	// state machine to execute the series of daemon events.
+	stateMachine.SendEvent(&daemonEvents{})
+
+	// We should transition back to the starting state now, after we
+	// started from the very same state.
+	expectedStates := []State[dummyEvents, *dummyEnv]{
+		&dummyStateStart{}, &dummyStateStart{},
+	}
+	assertStateTransitions(t, stateSub, expectedStates)
+
+	// At this point, we expect that the two methods above were called.
+	adapters.AssertExpectations(t)
+
+	// However, we don't expect the SendMessages for the first peer target
+	// to be called yet, as the condition hasn't yet been met.
+	adapters.AssertNotCalled(t, "SendMessages", *pub1)
+
+	// We'll now flip the bool to true, which should cause the SendMessages
+	// method to be called, and for us to transition to the final state.
+	boolTrigger.Store(true)
+	adapters.On("SendMessages", *pub1, mock.Anything).Return(nil)
+
+	expectedStates = []State[dummyEvents, *dummyEnv]{&dummyStateFin{}}
+	assertStateTransitions(t, stateSub, expectedStates)
+
+	adapters.AssertExpectations(t)
+	env.AssertExpectations(t)
+}
+
+type dummyMsgMapper struct {
+	mock.Mock
+}
+
+func (d *dummyMsgMapper) MapMsg(wireMsg lnwire.Message) fn.Option[dummyEvents] {
+	args := d.Called(wireMsg)
+
+	//nolint:forcetypeassert
+	return args.Get(0).(fn.Option[dummyEvents])
+}
+
+// TestStateMachineMsgMapper tests that given a message mapper, we can properly
+// send in wire messages get mapped to FSM events.
+func TestStateMachineMsgMapper(t *testing.T) {
+	// First, we'll create our state machine given the env, and our
+	// starting state.
+	env := &dummyEnv{}
+	startingState := &dummyStateStart{}
+	adapters := newDaemonAdapters()
+
+	// We'll also provide a message mapper that only knows how to map a
+	// single wire message (error).
+	dummyMapper := &dummyMsgMapper{}
+
+	// The only thing we know how to map is the error message, which'll
+	// terminate the state machine.
+	wireError := &lnwire.Error{}
+	initMsg := &lnwire.Init{}
+	dummyMapper.On("MapMsg", wireError).Return(
+		fn.Some(dummyEvents(&goToFin{})),
+	)
+	dummyMapper.On("MapMsg", initMsg).Return(fn.None[dummyEvents]())
+
+	cfg := StateMachineCfg[dummyEvents, *dummyEnv]{
+		Daemon:       adapters,
+		InitialState: startingState,
+		Env:          env,
+		MsgMapper:    fn.Some[MsgMapper[dummyEvents]](dummyMapper),
+	}
+	stateMachine := NewStateMachine(cfg)
+	stateMachine.Start()
+	defer stateMachine.Stop()
+
+	// As we're triggering internal events, we'll also subscribe to the set
+	// of new states so we can assert as we go.
+	stateSub := stateMachine.RegisterStateEvents()
+	defer stateMachine.RemoveStateSub(stateSub)
+
+	// First, we'll verify that the CanHandle method works as expected.
+	require.True(t, stateMachine.CanHandle(wireError))
+	require.False(t, stateMachine.CanHandle(&lnwire.Init{}))
+
+	// Next, we'll attempt to send the wire message into the state machine.
+	// We should transition to the final state.
+	require.True(t, stateMachine.SendMessage(wireError))
+
+	// We should transition to the final state.
+	expectedStates := []State[dummyEvents, *dummyEnv]{
+		&dummyStateStart{}, &dummyStateFin{},
+	}
+	assertStateTransitions(t, stateSub, expectedStates)
+
+	dummyMapper.AssertExpectations(t)
+	adapters.AssertExpectations(t)
+	env.AssertExpectations(t)
+}