Jesse, welcome to the podcast.
Thanks so much, Jake.
My pleasure.
Super simple question to start with.
What are you most excited about working on today?
Today, I'm really excited about bringing stable coins to the Lightning Network.
I think basically putting together all of the information necessary to get people excited
about bringing other assets onto Bitcoin and having in-flight currency exchange.
Wow.
There's a lot to dive into there.
Yeah, absolutely.
And that wasn't the answer I was expecting, which is particularly cool.
Let's start here.
So stablecoins, what are they?
And why would it be useful to have them on the Lightning Network?
Yeah.
So stable coins are tokens that basically enable any merchant to be able to receive payments over the internet, just like they would receive Bitcoin, but they don't have to worry about volatility.
Now, when you have stable coins, there are some trust considerations.
but overall it means that you know you're trusting an issuer of a currency just like
you're trusting the u.s dollar but now you have the technology upgrade that we've all been enjoying
with bitcoin and lightning cool and my i i personally don't use stable coins all that much
just thinking about my personal use case which is always helpful with this kind of thing right
And that's because I'm not too pissed off with the Australian dollar, which is where I now live, having grown up in the UK.
And so I'm happy to use the fiat banking rails for general day-to-day life purposes.
But there was incredible traction with stablecoins all around the world in different countries.
And that classic phrase of like, check your financial privilege.
People don't have access to bank accounts.
People don't have access to US dollars.
People don't have access to all of these different financial services.
and a stable coin comes along and they're like,
hang on, I don't have short-term volatility risk here.
Boom.
And talk to me then about the kind of person
that loves this product as they are today.
Yeah, the type of people that love it
are really businesses,
especially people and businesses
that have expenses denominated in fiat.
If you've got fiat expenses,
like rent, well, then you can't stomach any of the volatility that a lot of the Bitcoin
investors really love because, you know, that volatility means that their savings are
generally going up. But if you have a drawdown and, you know, Bitcoin is known for this,
where it, you know, occasionally crashes by 30, sometimes 80 percent, you know,
a business isn't equipped to stomach that type of volatility.
They still have their expenses.
They still have to make payroll.
So that's really the fit for stable coins.
Interesting. Okay.
And I mean, I have so many questions for you, Jesse.
Let's try to do a bit of a journey, shall we say.
So like, how did you come across this problem?
And why is it the most exciting thing you're working on today?
uh i came across this problem because we've been working on bitcoin um and improving the payment
experience when using bitcoin and trying to answer this question of why are we having so
much difficulty getting merchant adoption of bitcoin payments and by asking the questions
of really what's holding you back from doing this.
The payment processing is so good with Bitcoin,
with lightning added to it,
but why aren't we seeing everybody accept payments?
And it kept on coming up that merchants are afraid of volatility.
They want to be able to receive payments at a low cost,
be able to pay their employees, their team members, their vendors, without having to think
about the payment system so much. I think where we're at right now today is that merchants are
paying payment processors quite a lot, over 3% often. And they also have to bear this risk of
chargebacks. And here I come in telling them about, you know, all of the magic that Bitcoin
payments can offer. And then they simply asked me the question of, well, can I, like, how do I sell
it? I'm like, why would you want to sell it? And I have to put my morals aside, but, and really
get down to the heart of it. And the reality is that they have a whole bunch of expenses that are
denominated in dollars that they need to pay and they need to pay simply so that they can just
continue to operate their business and not be caught up in all the magic and the excitement
of the technology. But it's really just brass tacks. I need to pay my people and I need to do
so reliably. It's very interesting and not to draw it away from the business use case you mentioned,
But I'm currently in the middle of having purchased a house, working on a renovation.
And I'm looking at potential quotes and different capex coming up in the relatively near term, like three to six months.
And my wife's like, well, where's Bitcoin going to be?
And I'm like, anyone's guess.
She's like, make a prediction.
I'm like, well, it'll be wrong.
And in a very small way, that's similar to what you're talking about.
because it's like the short-term volatility is such that you don't know.
And in my instance, I think the most comfortable position
is just to simply DCA out when you need the cash.
But you do run the risk of a drawdown.
And what does that mean?
And maybe you're better off to take 50% off the table now
and use that and set it aside.
And then if you get some upside,
then that 50% is not as expensive as you thought it was.
With a business that every single month has CapEx,
that would be even more acute as a problem when it comes to funding.
So yeah, really interesting to think that through.
And so another angle to this that strikes me as cool as well is
I've studied before and I really resonate with this.
Like the wider crypto market is generally speaking,
highly speculative software projects and very different to Bitcoin.
And any Bitcoin maxi will bang on about what is money and blah, blah, blah.
And I love all that.
But I also like this idea that actually the crypto market is a testing ground for everything that might one day end up on top of Bitcoin.
And what you're describing is exactly that, because stable coins, like them or not, have found product market fit because they are flying in terms of capacity adoption and different ones coming to market.
So is that just this process playing out, do you think?
i really like that uh kind of framing of this that we have watched stable coins proliferate
on crypto generally but it's not happening on bitcoin and seeing the numbers coming from tether
that you know 20 trillion dollars was transacted in stable coins last year um and 10 of those were
on Tether. But then you look deeper and you see that the biggest blockchain that these stablecoins
operate on is Tron, which is basically as centralized as you could get. And I also looked
at the transaction fees and I see that the transaction fees on Tron are rising exponentially,
where it's $3 to $6 per transaction. And that's more than you would pay on Bitcoin.
that's certainly more than you would pay on the lighting network so it was really kind of asking
this question of like why isn't this happening on bitcoin like what's what's being preferred about
these more centralized uh less robust less reliable blockchains that all of these stable
coin all the stable coin activities happening on those other blockchains and basically you know
So me being kind of a Bitcoin maxi, I'm thinking, why do we need a second blockchain?
What purpose does it actually serve?
So recognizing that Bitcoin is capable and would actually be very good at serving these stablecoin use cases because of some of the innovations done by Lightning Labs through Taproot assets.
so you can actually create these other tokens and really remove the blockchain out of the
conversation it's not there's no tech advancement it's just a separate token
and you do have a trusted issuer so bitcoin is now capable of doing stable coins and stable coins
at scale using lightning and so are there any examples of that available in the market today
no there's not so not a single one so that's what makes me most excited about it because
i'm going around and communicating this opportunity come on jesse let's go yeah like
here's here's a golden opportunity for you to move 20 trillion dollars worth of activity per year
onto Bitcoin and have it be extremely reliable.
And you don't have to worry about Justin Sun behind Tron doing something weird
or the government shutting it down.
Now you've just got a token that's moving on Bitcoin,
which is extremely reliable.
It's globally available.
It's easy to access.
You're benefiting from the scalability of the Lightning Network.
We're kind of at the center of everything.
Um, and it makes me very excited to communicate the first mover advantage that is available
to anybody that wants to kick this into high gear.
Cool.
And so one of the big parts of the last like five years plus for me has been going down
the Austrian economics rabbit hole and having done a business management degree, you know,
never asked the question, what is money?
And suddenly it's like, oh, sound money is actually a really useful tool.
and low time preference thinking is really useful and actually it's about human action and
praxeology i had um hubertus the austrian on the podcast gosh i can't remember what episode number
now but he had some excellent points around how free banking works in an austrian environment
and having been extremely like radicalized by the concept of a fixed monetary supply
I spoke with Hubertus and actually he completely opened my eyes to what's possible in terms of some of the bottlenecks of a truly fixed money supply.
And so anyone listening, go and check out Hubertus's content.
There's a couple of YouTube videos, very, very good.
And equally the episode I did.
But why is it bad if someone has access to a fixed money supply?
They can say, OK, I'm going to give you exposure to a bunch of things I print with this in the background.
and you can go and use it as you wish.
And in one sense, it could be just one business to another saying,
okay, you're supposed to be supplying me some raw materials,
some logs, some iron ore, some whatever.
I don't have the money for it right now.
Here's an IOU.
Once I've created the product and sold it, you'll get paid.
And that debt contract is, in a sense, a form of money.
And you can build them on top of the limited fixed supply at the very base.
and it's this idea of moving away from what currently exists which is a totally debt-based
credit circulating economy where basically someone just prints it calls it debt sticks it on an asset
balance sheet and you know you're off to the races it's like well hang on that isn't anything when you
really get down to the base of it and hence we've got this crazy scenario of having to print more
money just to pay the interest and it's fine except for the fact that anyone trying to save
in that currency is getting absolutely screwed.
And so the idea of stable coins on top of Bitcoin actually to me
is something I'm completely open to because, yes,
the short-term volatility problem is completely real,
as we've discussed, but actually it still fits
within that Austrian lens of base case or base money is fixed.
And so if you go and give away too many extra tokens
on top of that to someone else who then fails
and you don't get them returned and you're exposed
to the base layer, you're swimming naked, essentially. And so your due diligence on who
you might loan to or who you might give your stablecoin to goes up because you want to get
them back. Otherwise, you don't get your Bitcoin. And so there's a really interesting play here where
that kind of all comes together. Anything resonate there, Jesse? And have you looked at that kind of
stuff from Hubertus? Absolutely. I love talking at Hubertus. So we've been... What a legend.
Yeah, we got connected through the Riga Baltic Honey Badger Conference.
But he makes a great point.
Because right now, the system that we're operating in is completely addicted to debt.
There's far more dollar-denominated debt than there are dollars in existence, which doesn't really make sense.
that means that the dollar could die not in inflation but could die in deflation
if you know we basically don't have enough dollars to pay back all that debt so okay we
need a different system that actually has that's more honest and so this is where we would introduce
a Bitcoin standard. But on top of that solid foundation of Bitcoin, of trustlessness,
well, we can build a debt-based system and a credit system on top of it.
But at the base of it, it still remains truth. So if you're going to do loans, for example,
well, you're going to want to do loans and things that are not Bitcoin. Because one,
Well, you really can't afford to lose your Bitcoin if someone doesn't pay you back.
I don't think any of us Bitcoiners are willing to put up with that risk.
But also, we don't want our debt denominated in Bitcoin either because I may never be able to repay that.
So what we're left with is, you know, I actually want dollar denominated or some other currency denominated debt when talking about a credit system.
And that's actually consistent with, I believe it's called Gresham's Law, which is saying the best money is actually kept in stores, kept in your vault.
But the worst money is actually circulating much more rapidly.
And we're seeing that is very consistent with the stablecoin adoption that we're seeing today.
It is worse money than Bitcoin, but we're seeing it circulate much more. And so when we're looking at Bitcoin as a medium of exchange, we want Bitcoin to be that store of value, be a medium of exchange, and be open to the idea that anybody will receive whatever currency they want and be able to cater to that massive market.
um i don't want bitcoin to miss out on the opportunity of being the medium of exchange
for the world um and in order to serve that we're going to have to bring in other tokens
and it immediately gets me thinking jesse so you know there was a reason that you had gold coins silver coins bronze coins you know that tiered feature set essentially where like you know on the gold end
really good at store of value, but not so great at moving across space. Whereas actually,
you could use different commodity monies to perform the smaller transactions at a lower
cost per payment, essentially. And maybe that's what we're seeing here, being built out as like
a blended set of tools on top of Bitcoin that's replaced gold.
And so, yeah, it strikes me then,
do you think if Bitcoin's the base case blockchain
and then you've got Lightning on top of that as a layer two,
which is using Bitcoin as collateral
and we can run through what the Lightning Network does,
but then there's going to be another set of tokens on top of that,
do you think that if those tokens,
let's say that's the equivalent of bronze,
are they still as a medium of exchange it's still bitcoin performing medium of exchange as a as a
feature of money do you think or is that more of like a suite of products how best do we think about
it do you think yeah um some of this is is not intuitive actually most of this is not intuitive
but but basically very few people get what bitcoin is right it's not intuitive initially it's it's
it's hard, but once you see it, you can't unsee it.
Yeah. Bitcoin is trustless, and that's the main piece.
So when you're talking about creating infrastructure,
which is the Lightning Network,
instead of just making a single Bitcoin transaction,
I'm going to create a Lightning channel,
which allows me to actually move value
across this trustless channel.
And once I have that set up,
then when we introduce new tokens into this,
What Taproot Assets enables us to do over the Lightning Network is in-flight currency exchange.
So the payment may begin as one currency, move over trustless rails through Bitcoin, and then exchange at the end that last hop into another currency of whatever someone wants to receive.
and it allows us to have a completely trustless payment system and then still be compatible with
all of the currencies that we want at the edges interesting and so
to be very clear trustless is essentially the ability to transact whether you are
receiving sending or saving and no one getting in the way that's that's right uh you're keeping
self-custody you know basically nobody can stop you from doing this uh there aren't people taking
exorbitant fees um you can participate however you would like to do and not have to worry about
you know someone taking the value that you've saved brilliant and there are a whole number of
reasons why that's important it's not a direction i want to go in right now necessarily but um where
I am keen to learn more. And this is where I thought the thrust of today's conversation would
be, would be around like the economics of a lightning node. And it's to frame where I'm at,
which is the very, very start of this process. Investment background, managing my own capital
over a multi, well, over 10 years of trying different things essentially landed at Bitcoin
is the thing for long term, multi generational store of value. And it's then a case of trying
to ignore absolutely everything that you see come up because the shiny different objects that appear
and you're like oh that might beat bitcoin the hurdle rate or this might be a good bet and
before you know it you've put some money into something that's called a treasury company and
it's trading terribly versus what bitcoin actually did and you're like well that was that was a mistake
but a good lesson so in terms of the lightning network and running a node i have recently become
I'm an Albi Hub subscriber.
And so I'm using Albi and I have a couple of nodes and channels.
I have a node with a couple of channels open.
And I'm really interested in the Lightning Network
from a perspective of capital allocation.
So, okay, I don't have Bitcoin the hurdle rate as an exposure
when I'm earning in sats.
That's a brilliant start.
You know, when you're buying an equity at a fiat-denominated number,
you're making a bet that that fiat number is going to be higher
at some point in the future when you can actually get liquidity for it. Whereas earning in sats is
like magic. Great. I don't have that problem any longer. But then it's like, what custody risk am
I taking? Am I having to give the Bitcoin to someone else that's apparently going to give it
back to me? Like some of these loan products, for example, you're having to give them a whole Bitcoin
to only get 50% loan to value in fiat. It's like, well, hang on, what happens if the Bitcoin price
rockets and I just never get the Bitcoin pie? But that's a difficult trade to make in some senses.
So yeah, just run me through the Lightning Network itself and how it's developed over time and what the economics of it are.
Because when you're like stable coins coming to Lightning, I'm like, wow, massive volume, capital required, can be done in self-custody and potentially a yield in sats, which is maybe where this is all going.
But yeah, fascinating.
Yeah.
So when you're thinking about Bitcoin, I think everybody knows that there's a limit.
seven transactions per second is really what Bitcoin is capable of doing.
But when you actually go to pay, it's going to take at least 10 minutes on average just to get
one confirmation to actually make a payment happen. So we need Bitcoin to be more scalable
and we need it to be faster. So that was really the genesis of the Lightning Network.
How can we make Bitcoin more scalable, faster to transact, cheaper to transact,
And also not disrupt the decentralization that Bitcoin has, not introduce trust into the system.
So that's really where Lightning Network fits.
And what actually happens is that you're taking your Bitcoin and you're connecting it to someone else and creating a joint account is how I like to think about it.
So I'm putting Bitcoin into a channel.
I share it with someone else, and we're both signing the payout with every transaction that happens over this channel, this side ledger to Bitcoin's blockchain.
So if both of us sign, well, we can each leave without the other's permission and take it to the Bitcoin blockchain and leave this relationship and get our Bitcoin back.
I don't need to talk to you in order to exit this channel.
which is really nice.
So I have unilateral exit power with lightning.
But when I'm creating this lightning channel,
it actually provides a benefit to you
because it allows you as well as me
to actually transact in a very seamless way
and faster and cheaper.
And so there's situations where you might actually pay me
to open a lightning channel to you just because it creates useful infrastructure. Just like
if you're running a store, well, you might pay someone to build a road to your store
so that customers can access it. So that's a situation. So there's economics where with every
payment that goes through this lightning channel, I can earn a fee. And I can also earn a fee if
someone is paying me to open a lightning channel to them. So that's two ways that you can earn
sats by using your Bitcoin as infrastructure for payments.
It's a really cool picture to start painting because there's that whole anarcho-capitalist
well it's like you know the pushback is who will build the roads you know and it's like well we will
and this is the example um yeah and it immediately makes me think you know the the the piece of real
estate that is not connected to the road network versus the piece of real estate that is connected
to the road network they're different capital propositions and it's very clear that the second
of those two is more valuable because of the trade that can then be done. So how many Lightning nodes
exist? How many Lightning channels exist? And how is that market growing? Because if there's $20
trillion worth of stablecoin that could end up being transacted using this infrastructure,
like where are we? There's not even a stablecoin on Lightning yet, right? So this is the very start.
I'm debating pulling up the actual figures
but I know some of them off the top of my head
well, do take a second if you want
no problem
okay, right now
on Amboss.space
I can see that there are
15,139
nodes active
And those are just public nodes.
You can have a private node as well.
Now, you asked about channels.
There's 46,000 channels that are active.
So these are the individual connections, and that's what's public.
But you can also have private channels.
And then what we don't know completely is how much payment activity is happening.
But we've been running Lightning nodes with our Rails product for other people, for customers that don't give up custody.
They keep self-custody, but we get to see the actual transaction volume that is going through that.
And we're seeing out of the 29 Bitcoin that we've deployed, to date, we've routed 62 Bitcoin.
so really there's not that much bitcoin that is actually required to move an incredible amount of
value you know since we launched it in july wow and just just talk me through what that actually
means then so the capital position i that's uh that was a metric of okay here's the pool of capital
and then here's the amount of payment value that was supplied by that pool of capital
which is almost 3x the deployed capital yeah you you could think of it in terms of velocity
so the the forwards volume that we've done in this cluster of nodes is twice the value
of the capital that is in there wow and that's in about six months time so that tells me the
velocity is about four and and it's just these are the kind of things just blow your mind don't
they we are living through history being written you know what i mean like this is a new money and
it's being built in ways that no one envisaged even five years ago and it's like this is what
happens if you give people an aligned incentive a base network through which everyone shares and
the value accrued to that network.
Let's build it.
And it takes time and things don't work,
but that's okay because what comes out of it is more robust.
Like how many Bitcoin did you say that you guys have helped deploy?
15?
30 Bitcoin is about what we've deployed.
30 deployed and 60 something moved.
Yeah.
Okay.
Wow.
Yes.
30 Bitcoin doesn't sound like all that much,
but when you think about the fiat number,
it's quite big.
And I'm then wondering about the total market size.
How many other people are actually actively doing this at this point?
Well, given that there's 15,000 nodes, there's not that many that are actually participating.
It's relatively small, but it still is highly decentralized.
And what we've done is made it very easy for people to start to participate.
but we also have to balance how much demand is there for payment volume on the Lightning network.
I don't want to deploy a ton of capital because then the rewards would dwindle.
So I really have to balance the supply of Bitcoin versus the demand for payments on Bitcoin.
And I guess this is where the point about building stable coins on Lightning is cool
because it's like, okay, if we did have all this extra demand,
then this is how it would function on the back end.
And this is how that piece of economics actually fits into it.
Okay. And I love this.
It's taken kind of half an hour to get to this point.
So what would it look like to actually build a stable coin?
And why would I use your stable coin built on Bitcoin and Lightning
instead of a Tether token USDT with Tron in the background?
yeah well the nice thing about it is it's completely permissionless so you can create
your own token i can create my own token we can all have our own stable coin but
i think with recent legislation uh the genius act specifically it's really opened the floodgates
So all of these regulated institutions, basically every fintech is issuing their own stablecoin.
We're seeing it happen live.
You know, Stripe just released their Tempo blockchain that's going to be focused on stablecoins.
You know, we've got Tether in the mix.
We've got USDC.
Revolut just announced a stablecoin.
Wow.
It seems like this is all happening at once.
but it's all happening because we've witnessed what is happening with tether where tether buys
u.s treasuries to fix our debt problem in the u.s and they're getting the rest of the world
to buy u.s treasuries via these usct tokens so the rest of the world gets dollar stability
and the U.S. gets more people to buy its debt
and Tether and stable coins are the vehicle
to distribute it to the world.
But with all of these different stable coins
coming to market,
we're introducing an interoperability problem
because the blockchains that are being introduced
don't talk well to each other,
which is necessary to...
How do we link them all together?
And how do we form a network of value that can transact seamlessly?
So that is really what's being done.
I think which stablecoin are you going to choose is really about the reputability of the issuer.
Have they built a brand of trust and reputability?
Have they built the transparency tools?
and a lot of the custodians within the space actually have built that.
They have that trust.
They have the transparency.
They've survived audits.
So I can see a lot of people navigate and gravitate towards those custodian-issued stablecoins.
We'll see if governments start issuing and CBDCs.
Do we trust a government more than we trust a custodian?
That's an open question.
But what I do know for sure is that there so many stable coins out there that there going to be a need to interoperate between these If you want your stablecoin to actually be used well plug it into the Lightning Network so that I can have in currency exchange
and you can get paid in whatever token you prefer.
And so is the product, Jesse, actually more of a B2B play
rather than B2C and build infrastructure
for the likes of Revolut and Stripe
to have their own blockchains with their own stablecoin,
but then this is how they're going to talk to each other?
Yeah, this is very much B2B focus. But, you know, my goal is to really bring the Lightning Network to everybody. So that everybody is just using the Bitcoin system. We're building on a Bitcoin standard. We've got this neutral currency that is interfacing between all these currencies at the edges.
and that Bitcoin is at the center of all of this activity
and that all of that is going through the Lightning Network
and it's rewarding savers to create payments infrastructure
in a decentralized way that's different from Visa, MasterCard, PayPal.
Yeah, hell yeah.
And that's exactly what I would like to see built as well.
Just from a shared vision perspective,
I would use a product that was built like that.
And the likes of Stripe, for example,
obviously an absolute mammoth business that is the back end of a huge payments layer on the
traditional internet the likes of shopify like for sure they'll bring something out right shop pay
alibaba they'll all get involved but what will they do well their incentive will be to
to actually be the complete opposite like it'll be a centralized blockchain it'll be a way to
monitor exactly who does what when and to it'll probably be as i think about it packaged up as
some kind of safety thing it's like oh you should use our blockchain because we can ensure that you
don't have any scammers or do you know what i mean and it'll actually be a surveillance tool
and that's not what the world needs is more financial surveillance it's the complete opposite
so in some ways i could see a situation actually where bitcoin is the ultimate
example of a bottom-up, viral, organic adoption in terms of a technology. And it's how many people
even 10 years ago described, like, if there was a new type of money, this is probably how it would
look. And it's happening. I wouldn't be surprised if a stablecoin went through a similar process.
Do you think that's kind of a likely outcome? And it might take 10 years to have the most
successful stable coin but the point is is from the very very start like because tether for example
you're still trusting tether i've never seen tether's open book balance sheet to say how many
u.s treasuries they've got no one's ever seen that it's a private company apparently they made
20 fucking trillion or whatever i don't even know what the number is what i must want to look that
up they're the most profitable business per person in the world according to them um and i don't know
a lot about the business but it's still that process isn't it it's like if you started now
and built something truly transparent from the start with bitcoin and lightning underneath it
that's a much better fit yeah i think there's a lot of news actually happening around tether the
company and looking at their balance sheet how many u.s treasuries do they actually have whereas
the genius act requires one to one so for every token you've got the u.s treasuries to back it up
so that's happening um but of course there's open questions about you know should they only
hold u.s treasuries because tether the company actually holds bitcoin and gold um in significant
quantities uh they really keep u.s treasuries necessary to meet their obligations um because
they're hedging their bets on interest rates declining which would have a direct impact
on Tether's revenues. For the evolution of things, we've watched Tether issue on many
different blockchains and having to invest a lot of resources in how those blockchains interoperate
and how you can have Tether zero on how these tokens can move from one blockchain to another,
because that's been a major sticking point for them.
And we've watched Tether hop from blockchain to blockchain
looking for cheaper and cheaper transactions.
And the reality is that even Solana,
which touts its scalability,
is only doing 17,000 transactions per second.
And if we want to serve the economy of the future,
which is a machine economy and using AI,
where you're having one payment per AI query,
we have to think about the scalability that that will require.
And what we saw from Stripe and their Tempo blockchain
is they're promising 100,000 transactions per second.
And if we compare that, just to benchmark it a bit,
to Google search queries,
how many Google searches are done per second?
It's 189,000.
Wow.
So Tempo needs to scale double that.
Solana cannot do it.
No blockchain can actually serve one payment per Google search,
but the Lightning Network can
because it can do 40 million transactions per second.
Can it?
That's my next question.
So what kind of volume can the Lightning Network do?
So, yeah, this is easily 10,000 times
what the next best blockchain can do.
I've never heard this metric before.
It's not like 100x faster, 10,000 times faster.
That's right.
Fuck, that's a game changer.
And so why have I not heard that information before?
I don't know.
Anyway, please teach me why the Lightning Network
is able to do that volume of payments per second.
well there's a couple of different reasons one is there's no central database that holds all of
the globe's transactions so why is bitcoin slow it's because it takes 10 minutes for
the entire globe to arrive at a like a source of truth and have a shared history like that's why
there's a block time delay. But the Lightning Network doesn't have a shared ledger of all the
transactions. It's side ledgers. It's a network of side ledgers called payment channels. It's a
payment channel network. And that technology allows it to scale horizontally, instead of
doing a bigger and bigger and more centralized blockchain. Now you've got, what was it, 46,000
micro ledgers that are all happening at once. So this payment channel network behind the Lightning
Network is actually what makes it capable of reaching this massive scale and not having to
rely on proof of work in order to get the entire globe aligned. Really cool. And it makes me think
about the traditional banking system and how historically this became about the the growth of
the telecommunications infrastructure was such that you could suddenly make a phone call and if
you could make a phone call to someone on the other side of the world that you trusted and you
said listen mate you keep this money for this person and i'll keep this money for this person
and let's not actually physically send gold to each other because that's way too expensive and
And it threw petrol on the fire of, you know, why should we have a paper currency on top of gold?
Well, that's precisely why.
What does that result in?
Well, we've got these big commercial banks, also the payments companies, and they are collecting together lots of IOUs every single day.
And at the end of the day, they do an interbank transfer.
And that's essentially what Lightning is doing on top of Bitcoin.
as and when people close their channels,
they say, okay, look, I'm ready to get out of here.
And as you've already described,
you can do so by your own choice.
You don't have to go to your channel providing partner
and go, oh, by the way, I'm finished with this.
Can we agree to like, you know,
annul the contract or whatever?
You can just leave.
Would that be a fair analogy, do you think,
in terms of that kind of,
the payment layer that we currently use
and is considered like the status quo
is already abstracted away from the real value.
And so that's really what Lightning is doing on top of Bitcoin.
Yeah, the current system is relying on all of the assessments that...
All the trust.
Do I trust you as a consumer?
Will you pay me back at the end of the month?
And also it's relying on trust in the banks that are transferring this money.
You know, I've authorized this transaction and now I'm going to debit your account at another bank and I'll pay a fee for this and have to rely on that other bank to actually maintain solvency.
Which is a massive question because, of course, the bank has a tiny reserve ratio and they've loaned out all of their money.
You know, we're at a point in the system where the global liquidity is extremely low. And so many banks are at risk for bank runs, where you could withdraw all your funds and the bank may not have the cash on hand to actually meet its obligations, because most of it is loaned out.
And so this kind of sets up an entirely trusted system. And it's more important than ever that we move away from that, especially because we've got additional geopolitical upset that could really just throw the whole thing into chaos.
and you know bitcoin its heart beats every 10 minutes and will continue to do so reliably it's
more reliable than aws at this point so we need that firm infrastructure on which to build our
future society and prepare us for the future it's so cool jesse you're filling me with optimism and
also ideas it as i was listening to you i thought back to my last comment about abstracting the
payment layer away from the real value. And actually, that's not true. That's not what
Lightning is doing. Bitcoin is the real value. And Lightning is a representation of Bitcoin built in
such a way that there isn't any requirement for trust. So it's not an abstraction of Bitcoin.
It's actually just another form of Bitcoin. It is Bitcoin. Lightning does not introduce a new
token itself. Yes, you can move other tokens over Lightning, as it described. But Lightning itself
is a contract between two people about how their Bitcoin, their shared Bitcoin in this contract
should actually be managed. Really, that's all it is. And it also provides a protocol of how those
contracts can interact. And so one payment can hop from party to party to party in a way that
nobody has complete knowledge of all of the payments. This is our escape out of the panopticon.
And it's also a bet on the future of efficiency and decentralized power,
because this is a network and networks are powerful.
they're so powerful um oh okay jesse a few questions i'd love to get to now where
i you've been building a business for a number of years now what's that process been like for you
it's it's been such a journey i never thought that i would be capable of you know running a business
and uh it was it was a humbling experience because you know i went into this knowing
nothing really. And, you know, my future co-founder, you know, asking me, have you ever
thought of starting a business? And it hadn't even crossed my mind. But like, you know, working in
the fiat system, you know, people would, you know, trust me, give me more responsibility. And, you
know, so of course, you know, you're kind of working your way up. But when you're starting a
company, you're the top. There's no one really that you can delegate it to at the beginning.
So you have to do everything. And being a generalist, I may not have had the best grades
all through school, but what I've learned is that I'm actually a good operator. That generalist
skill set that we've done from doing little things here and there can actually all be applied
and you can run a solid organization, you know, without having to be really rich or be super smart.
But really, you can kind of put together your skill set to be empathetic and be able to understand other people's pain and suffering and be able to design a product that addresses it.
So really starting a business was the start of it, putting together a presentation.
I never realized how valuable a presentation could be on being able to communicate your ideas.
But we went to El Salvador shortly after the legal tender law.
And so this was our first AMBOSS presentation.
And that's when the venture capitalists approached us, be like, what is this AMBOS thing? And I think we had a lot of excitement and we've carried that momentum. And now into a state where we're ready to scale. And we're looking for the next investor partners to take us that next leg of the journey.
But thankfully, we had phenomenal backers in our early stages with Stillmark to help us make sense of all the data of payment channel networks, be able to apply it, bring AI into the picture, to have fully automated operations doing very complex tasks in order to make this payment system work.
Wow. Yeah. Early stage capital in some ways is a runway to product market fit.
but the more efficient you can be with that early stage money which is an idea it's people it's like
cool idea this is exactly what i invest in go but then how long can you make that money last
what do you find along the way it's a bet basically so so can you share any just any
moments where you're like oh this is really hard um i think for early stage um
just meeting with folks and figuring out what in the heck is the venture capital process
how do i actually raise an investment round um what do i put in my pitch deck and who do i talk to
um and there's really no good information to say how to do it um you know i spent you know
countless hours watching youtube videos and reading uh venture deals in order to get some
sense of how this process goes, but it wasn't really until I did it that became to understand
that it is relationship building and the early stage venture, the most valuable ones really
become part of your team.
It's if you can use them right, if you get the right strategic investor, it's giving
you a leg up because it's not just a check.
It is them being involved and being supportive.
And I think I was really afraid to have my first board meeting I think I can share that I thought that this is where investors come to grill you
on all of the mistakes that you've made
as you're learning this process.
Sweating.
And what even goes into a board deck?
But what I know now is a board meeting
is where you get the smartest minds together
to work on the hardest problem.
And your job as a founder is surface the information,
the information that you are seeing in your day-to-day
that makes this the hardest problem
and equips your board with enough information
to be informed and be strategic to you
to help you devise a plan and devise a strategy.
And so it's been an incredible journey on that, just to get to that stage, to realize all these people are here to support me, not here to tear me down.
Because we're all part of a team here.
We've all got money and time invested in this, and we want it to be successful.
Really cool.
because people don't often talk about those like smaller moments where it's actually quite a big
deal to you but oh my god i've got to do a board meeting like what even happens
you're the ceo mate what's going on here yeah uh but you know i think we've we've attracted
investors that are uh that like the fact that you know we're we're humble founders um we do
have to figure things out but we're here to learn open to feedback um and yeah we're here to fix the
world financial system um and what an exciting project to work on so absolutely that's the reward
and so jesse to to are you actively doing a financing round now or soon to be in the future
uh let's see i'll i'll probably answer that after the call but but overall that's okay
No pressure, no pressure.
Because it can be kind of sensitive as well.
And that's what I'm conscious of.
I'll keep it very, very simple.
How does Amboss make money?
Yeah, Amboss is a liquidity coordinator.
So we've got all of these, this decentralized network,
all of these different nodes, and they each have Bitcoin.
But who do they connect to?
And solving that problem, we solved it using a marketplace.
and that marketplace is called Magma.
It's a liquidity marketplace.
It was really the first one that was out there
that anybody could access.
And it's been active for about five years now.
And through Magma, that liquidity marketplace,
Amboss earns a fee,
which is 0.05% of the infrastructure
that is being created.
But at scale, that becomes a massive, massive number.
if we're looking at replacing the foreign exchange market through this decentralized coordination,
that's really where we're focused. So Ambos makes money from coordinating liquidity.
And we also have other business lines, but that is the key.
Awesome. So it's the Magma liquidity marketplace for the Lightning Network. So if you're running
a lightning node and you want to add some liquidity and open a channel then magma is one
of the places you can do that yep if you want to get connected you basically go to the marketplace
you could buy it from you know any other participant on the network and pay the they're
asking prices yeah this is where i've been playing around with lb hub lately and looking at opening
channels and i saw emboss pop up and i'm like oh my god look all these different names and
I just had no idea like this even existed essentially.
So I'm at the very start of this journey,
but it's really catching my attention.
And something you just said then as a venture investor
is like big idea.
So how do you disrupt the foreign currency markets?
Well, one piece is actually bringing other assets
into the Lightning Network.
and that's why I'm excited about pitching people on bringing their stablecoin onto Bitcoin and
accelerating it using the Lightning Network because what it enables is in-flight currency
exchange. Why do I need to be managing all of these foreign currencies if I can just choose
which currency I want to receive and the exchange happens automatically with every payment?
that's that's what this tech enables and i'm so excited to be able to deliver that
as soon as there are multiple currencies in this um the floodgates are open yeah and in that sense
that's why networks are interesting isn't it because you know each phone that is added to
the network the network as a whole grows in value more so than necessarily that one user
and the same would apply with the more currencies that are going through this technology the better
and it makes me think about my brother-in-law Shada he works for a business that does a lot of
it's a travel business a stocklisted Australian travel business that is a flight aggregating
platform and they have another line of business which was hotels in Europe and they basically
they have a huge Aussie dollar exposure to different geographic locations.
And he's got relationships from his finance department as a finance director with Citigroup, a big bank, and they're doing FX stuff all day long.
It's like, well, I'll have to share this episode with him and see what he thinks.
Like, how would this actually work in that real use case scenario?
And I know that he owns some Bitcoin, but it's not necessarily something that the business has taken seriously yet.
and such is the nature of where we're at in the adoption curve.
It's like the leaders of the company are obviously looking
at short-term volatility.
That's a no, like we touched on already.
And equally, we're functioning as a company,
so what's the problem?
How would you catch someone's attention that's working
in that more traditional world with FX exposure,
like real FX exposure that they need to get rid of?
And they're using swaps and options and all sorts
of different stuff to do that.
I think it might be a bit awkward to say that that pain is going to go away.
That full-time management of all of these different currencies may go away.
What we have right now is $9.5 trillion that is transacted every single day.
That's daily volume that is happening in foreign exchange markets.
and that we actually have a shot at meaningfully disrupting that
because we've got better technology that is faster, is more reliable,
that doesn't have two-day rolling settlement around the world
where you're at risk of holding all of these different currencies
for too long than you want to
just because a bank is not going to be open on the weekends
and that weekend is going to roll around the world.
Yeah, and the duration between Friday 5pm and Monday 9am, there could have been some macroeconomic issue or geopolitical instability that means that your Aussie dollar euro rate has drastically shifted since you received payment 48 hours before at no fault of your own.
and that problem for example that exposure would go wow and it's also that thing isn't it where
we live in a world where the status quo is fiat central banks and each country kind of has its
own and they issue their own currency and as a result like i follow fx rates you know i'm
originally from the uk but i'm looking at us dollars i'm looking at euros i'm looking at pounds
aussie dollar and just i'm always following right i now actually started pricing my assets in gold
and in bitcoin just as metrics so that i've started it's really interesting you know you
move away from just the one fiat denominator and start looking on different metrics um
but that whole fx market is as a result of all these different countries having different forms
of money it's like well if everyone was just using bitcoin you don't have an fx market
no like you're telling me that the 9.5 trillion dollars per day that is being transacted on fx
can't operate during the weekends in the age of the internet yeah i mean that's that's asking for
disruption wow um when i can actually have in-flight currency exchange that happens with
instant payments where i don't need to trust any of the intermediate hops like like that's that's
the future where I can do micropayments and I can pay AI systems.
Like what's, what's holding us back from that?
We have the technology.
Now let's go serve that market because it sorely needs it.
If you're holding a currency for too long during these geopolitical upsets, well, it's
going to cause massive disruption and, you know, businesses shouldn't be in trouble because
of something that's happening in another part of the world.
just because they're stuck holding a currency that they don't want to hold.
And so, Jesse, I'm conscious of time.
Another 10 minutes, okay?
Sure.
Yeah, cool. Thank you.
Just to come back to the economics of running a node and managing channels,
what we're talking through here is, okay, well, that's potentially an error for disruption.
That's potentially an error for disruption.
all of it should it go the way that you're you're you're envisaging equals more volume on lightning
so to me very clear green light like learn more that would be the first step right how does this
stuff work um but you know the headline grabbing yield number that was thrown around earlier on
this year about like 10 percent yield is possible for a lightning year a lightning node what are
those numbers like in reality? And you already mentioned the fact that if you put too much
capital into the system, you don't need that much right now. So it's obviously a balancing act
between actual demand and capital deployment. So just, yeah, if we could go back to that,
I'd love to understand what kind of yields could you expect and what might compress those over
time and how big might it become? Yeah. The big number that got thrown around was 9.7%
coming from cash app you know miles suitor at you know bitcoin vegas he announced that number
and it's a bit misleading because overall cash app itself does you know five five hundred million
dollars worth withdrawals from with from cash app over the lightning network so incredible volume
and it's all going through blocks, node,
which gives them an opportunity
to capture a lot of routing fees that happen,
not just on the withdrawals
or maybe not on the withdrawals, whatever,
but actually on the reversal.
So because Lightning payments can flow both ways
and they're capturing that flow.
So it really has very little to do
with the amount of capital
that they've added to their node.
So I have to separate those two things in my mind.
It's not about how much capital you're bringing to the table.
It is about how big of pipes you're creating on the lightning network,
because once you created a large pipe,
well,
now you can send large payments through there.
So if we want to talk about enterprise settlement disruption,
we're going to have to bring more capital to the lightning network to build
those bigger pipes for those payments to flow.
but at the end of the day it's about payment volume that is where the yield comes from
and so we're very focused on bringing more businesses to the lightning network to access
cheaper payments faster payments avoiding all of the foreign exchange that they may currently have
to deal with and that can go away through a payments api integration and so okay if if you
have bitcoin to allocate which you're looking to earn a yield on in a non-custodial fashion this is
really cool but you don't bring cash out volume i for example i don't have a payments business to
bring to the table um but there's a symbiosis there because one assumes that the payment processor
actually doesn't necessarily want to deploy the capital that's necessary to run all the payments.
And perhaps it is, as you've already clearly shown, it's about providing marketplaces to batch the two together.
Yeah, wow. Okay. What a journey, Jesse.
Did you ever expect, this will be my final question, I think, roughly.
It's like, when you set a vision and you have a direction that you're going in,
sometimes it's hard to distinguish the difference between the destination and the journey and so like
did you ever expect to be in the position you're in today and like how how's that kind of played out
i i never expected this i studied wastewater treatment um in college you're kidding me and
which actually taught me concepts of liquidity and kind of the plumbing of the wastewater
treatment system you're kidding me wow uh i'm not kidding um and then i've also i've also done
like asset management for highways but it's like it's yeah sorry to interrupt jesse you don't know
when a piece of information you receive is going to be useful so it's this concept of non-linear
productivity and intuition like something took you there you don't know what and suddenly you're
starting wastewater management and it turns out that the liquidity you learned there is useful
building your business however many that's wild wow it's it's uh a very unpredictable journey
you know we're doing our best to see as far in the future as we can um and we've got the you know
praxeology kind of looks at the incentives of the system to devise what the future will look like
but we can't predict everything um and so at every stage we're playing our hands the best
you know we can't really control which cards were dealt uh but we can be strategic about when to
play those yeah cool well i'm wishing you the very best of luck for the next phase jesse
i want to make one final shout out which is to phil from 21and communications putting us in touch
Very briefly, Jesse, what's it been like working with Phil?
And why would you recommend him?
Shout out, Phil.
Thank you so much for having me, Jake.
And also for Phil, I get to chat with him once a week.
It's an incredible experience.
I get signal about what's happening in the Bitcoin and crypto worlds.
What are news agencies focused on?
and also Phil gets me connected with all the people that can help carry my message
and deliver my message through their networks and reach as many people as possible.
Awesome. Well, Jesse, you painted a picture today that I have to learn more, as I said to you just
now. It's like, what is going on here and how might I be part of it? So I will let you know
how the process goes. I signed up for the wait list with Rails, I think it is. So if there's any
way of like bumping an email address further up the list, then I'd appreciate that. Otherwise,
thank you so much for your time today and very best of luck with everything in the future.
Love it. Thank you so much, Jake.
Cheers, Jesse.