{ "episodeId": "SLP554", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "philipp_hoenisch_of_10101": { "name": "Philipp Hoenisch of 10101", "role": "guest", "tag": "PHILIPP" } }, "segments": [ { "speaker": "stephan", "time": "00:00", "start": 0.36, "text": "Hi, you're watching Stephan Livera podcast, brought to you by Swan Dot Com. Today we're talking about Bitcoin self-custodial finance using DLCs with Philipp Hoenisch from 10101. So what are we getting at here? This idea is people are able to use DLCs, discrete log contracts, to set up self-custodial finance. And so this is for people who are interested in things like trading or potentially having, some kind of synthetic stable value. Now, I'm personally not a trader. As you, many of you know, I'm more about hodling and stacking and not your keys, not your coins, but actually this is an interesting application, for people who are interested in the trading aspect of it or potentially the stable value aspect, which might be interesting for businesses, and also individuals, certain individuals. So, I think there's some interesting applications here, and, I think you might find this conversation interesting with Philipp." }, { "speaker": "stephan", "time": "01:06", "start": 65.85, "text": "Philip, welcome to the show." }, { "speaker": "philipp_hoenisch_of_10101", "time": "01:07", "start": 67.35, "text": "Hey, Stefan, thanks for having me." }, { "speaker": "stephan", "time": "01:09", "start": 69.05, "text": "So, Philip, I know you're building and you're the founder of this app, which I think the first thing is people get confused about how to pronounce it, right? It's ten ten one, but it actually looks like one zero one zero one. So, well, again, let's, let's start there. Why, why the name ten ten one?" }, { "speaker": "philipp_hoenisch_of_10101", "time": "01:25", "start": 84.88, "text": "ten to one, it's a quite a nerdy name actually. It's binary, it's one zero one zero one zero one, which is the binary representation of twenty-one, and we all know twenty-one isn't twenty-one million bitcoins. We picked that name because it's, it's our philosophy, it's in our blood." }, { "speaker": "stephan", "time": "01:40", "start": 100.4, "text": "Great, awesome. And let's hear a little bit about yourself, in terms of how you got into Bitcoin and why you're starting, you know, why you're working on this, particular app." }, { "speaker": "philipp_hoenisch_of_10101", "time": "01:49", "start": 108.64, "text": "Sure. about myself, so I got a software engineering background and I studied software engineering master, and later on I did a PhD as well. But in around two thousand and twelve, I got an email from my brother with the subject \"The Future\" and in the body was just one line, and it was the link to the Bitcoin wiki. was it-- the article was about autonomous agents paying each other with a new digital currency, and I was studying distributed system technologies. Back then, and I was like thinking, \"This is pretty cool, distributed agents paying each other for tasks. This sounds really cool. What is this thing?\" well, I got into Bitcoin, and then I lost everything in twenty fourteen, which branded me a bit, it marked me. And actually, I lost track of Bitcoin for a few years because I thought it's a gigantic scam. I mean, it's, it has this promise of self-custody, but if you wanna trade, you have to trust someone else, you have to- To deposit your hard-earned monies in someone else's wallet and just hope that at the end of the day you get it back. And I thought this-- it's not holding up the promise. I didn't do my research obviously, that was my-- it was my own fault. but in twenty seventeen I got back, and in twenty eighteen I started a company with the focus on removing counterparty risk of, for trading." }, { "speaker": "stephan", "time": "03:13", "start": 193.16, "text": "Okay, so that was ten ten one, you started in twenty eighteen? Oh, that was another company." }, { "speaker": "philipp_hoenisch_of_10101", "time": "03:18", "start": 197.66, "text": "It was another company. It's actually Coreblocks. We started as a research lab, and we did research in the cross-chain space. So we did cross-chain atomic swaps between, I think we were the first one or allegedly the first one doing Ethereum to Bitcoin and USDT to Lightning, and later on we did like Grin to Bitcoin and Monero to Bitcoin. But all of this, it was just a, a research product, it wasn't a, a user facing product. Finally, our Monero Bitcoin atomic swap POC, let's call it POC, was picked up by Samurai Wallet, and they integrated in their wallet now. So it's still alive after we left it, to the community over two years ago." }, { "speaker": "stephan", "time": "04:01", "start": 241.2, "text": "And then, so when did ten ten one start?" }, { "speaker": "philipp_hoenisch_of_10101", "time": "04:04", "start": 243.54, "text": "Yeah, so we had the problem that most Bitcoiners don't wanna leave their, hey, the safe haven. They don't wanna trade from one coin into another. They just wanna increase their Bitcoin stack and reduce the amount of time they hold any other asset. And around that time, I learned about derivatives trading and BitMEX and found that this is actually pretty cool. We should build derivatives trading on BitMEX. Bitcoin, and since we learned about adaptive signatures and more complex cryptographic protocols through our cross-chain atomic swaps, we came across DSCs and thought, \"Hey, cool, with DSCs, we can build derivatives trading on Bitcoin without counterparty risk.\" And that I think we started like two and a half years ago with Itchy Sats. So our first product was Itchy Sats, which was this application you had to download for your Umbrel, your Respite, Blitz, your Cloudnine. So for the self-sovereign Bitcoiners, but it was an application you had to run twenty-four seven. And it's, it never really took off that much because it's, it's a very niche, like running on Umbrel, running on Resplits. So I think it was just before Christmas two years ago, was yeah, two years ago, we joined the Legends of Lightning Hackathon, which is this online tournament where we said, \"You know what? We're gonna give it eight weeks time to pivot from our, custom layer two protocol where you could trade, perpetual futures to trade it on Lightning.\" And we wrote it, we managed to pivot within eight weeks. We had a POC running at the end of those eight weeks, and it really, we realized people love it. They wanna trade on the phone, they wanna use Lightning. And that's when we s-called, when we pivoted and rebranded as Taproot, and started everything from scratch." }, { "speaker": "stephan", "time": "05:58", "start": 357.85, "text": "I see, I see. so as I'm understanding then, the idea here is you wanna create this non-custodial trading vision. I guess that's broadly speaking, that's what you're trying to achieve here, and That's where, you know, DLC stuff. Obviously, DLC stuff has been around for a few years. So for listeners who aren't familiar, DLC stands for Discrete Log Contract. I believe it was invented, or at least- You know, research early was done by Tadz Dreja, who was also one of the authors of the Lightning white paper, so funnily enough, he's had impact in a bunch, in a bunch of places. and, I have some earlier episodes for listeners with, Chris Stewart from Shortbit, although I believe Shortbit's is no longer, operating sadly, and, I did an episode with Nadav Cohen and Ben Karmel used to be there as well, so, and I also, so listeners might also Also working on DLCs, but everyone's got their different vision of what they're working on. So do you wanna just give us a little bit from your perspective, just set the background for people, what are some of the basics of DLCs that we need to understand before we can sort of go further on this conversation?" }, { "speaker": "philipp_hoenisch_of_10101", "time": "07:06", "start": 425.87, "text": "Maybe we even take one step back. What is the problem we try to solve? And the problem we try to solve is remove counterparty risk from trading, because I mean, FTX is still in everyone's mind, Monogix is a bit longer ago, but there were several other exchange hacks in the past, and counterparty risk is a real problem in trading. And in the altcoin world, they have more complex smart contracts with solidity and all kind of stuff where they can remove the counterparty risk You risk and then trade directly with each other. On Bitcoin, we don't have such a powerful scripting language, so we had to come up with something Smarter, something, something cool. And Tap came up with DLCs, Discrete Lock Contracts, which is a way to have smart contracts on Bitcoin But without having to put all the data of the contract on chain, so the contracts are discrete in a way that only the two parties who are transacting in this contract know about it. And in a, in a very simple, in a nutshell, broken down the way how it works is, let's say you and me, we wanna, transact on a coin flip or any kind of smart contract We lock up money in a multisig, which is a two out of two multisig, and then from that multisig, we generate output transactions, actually CETs, contract execution transactions, and one CET is represents one possible outcome. So if you do a coin flip, there are two possible outcomes And then we need an independent third party, an oracle, and the oracle attests to the outcome. And then if the, the oracle says okay, heads up, then It signs, it attests to that, it creates a signature, and with this signature, one of the CTS becomes valid, and we can publish that CTS unilateral on chain and get our money. So it's ZTS are a way to have smart contracts on chain, but without the footprint. So on foot-- on chain footprint is just a two out of two multisig." }, { "speaker": "stephan", "time": "09:15", "start": 554.61, "text": "Gotcha. Yeah. So I think for listeners familiar with Lightning, there's some, there's some similarities there. It's kind of like if you think, like if you think from a Lightning context, oh, my channel open or funding transaction, right? We're sort of creating this two out of two multisig, and then we sort of keep this off-chain closure transaction, and that's like the commitment transaction in In the D L C context, it's a contract execution transaction, as you said. So it's kind of like we create this two of two multisig and we sort of pre-sign all of these States, kind of like, sort of like channel states, and depending on what the oracle does, it will make one of those states valid when we actually go to close it. Is that sort of high level what's going on or roughly?" }, { "speaker": "philipp_hoenisch_of_10101", "time": "09:58", "start": 598.42, "text": "Yeah, exactly. The one, one important thing to emphasize though is that the oracle is also not aware of our bet. So if you take a, a bet on the Bitcoin price, we take an oracle which just stupidly attests to the Bitcoin price every minute, every second, every hour or whatever. And it doesn't even know that we exist. We just go to their website and grab the signature from this website, and then we, we know what to do with this. But the oracle is completely independent of this." }, { "speaker": "stephan", "time": "10:27", "start": 626.96, "text": "Right. Yeah. Because that's also to take away some of the risk of the oracle trying to bias towards me or to you to sort of help us win the bet in that case. And I recall that in some of the earlier years of DLC, people were talking about it in this sense of like, \"Oh, doing a bet with somebody, like, is Trump gonna win or is I'm starting to see is more like, not just kind of like a binary, is this person winning or losing, but more like there are, let's say, different gradations or different possible states. And I guess that's where you're getting into this idea of non-custodial trading. So do you wanna explain a little bit about the differences there?" }, { "speaker": "philipp_hoenisch_of_10101", "time": "11:02", "start": 661.86, "text": "So there are two different ways of, of out possible outcomes in the Cet, in the DLC space. The, the first one would be talk about the, the concrete outcomes where you have did Biden win? Yes or no. Is it gonna rain? Yes or no. these, these very simple questions, but the more complex one are the numerical outcomes, and then you have a certain payout curve. For example, we, if you wanna bet on the Bitcoin price, we don't say is the price tomorrow above, what is it? it's seventy K? No, we're gonna say like, if the price is tomorrow at seventy K, then you get amount, this amount, and I get this amount. If the price is at seventy one, you get This amount and I get this amount. If it's at fifty nine, you get this and that. So you need to really plot every possible price on this curve and then create a CET. Now, the, the problem here is, or the challenge here is that you are generating hundreds or even thousands of possible transactions. let's say, again, the Bitcoin price. We in a, the naive way, we would need to plot every possible price from zero to a hundred K or two hundred K or whatever, and depending on how long your contract is, you can do more educated guesses and then reduce the amount of CTS. For example, if you do a twenty-four hour bet, I guess it's very likely to say the price won't go above a hundred fifty K and it won't go to zero neither, or it won't go to twenty K, so we just can cut this off and we can say everything below this price You get everything and everything above this price, I get everything. And then in between, we have one possible outcome for each, one possible CET for each possible outcome." }, { "speaker": "stephan", "time": "12:45", "start": 765.19, "text": "Let's walk through the app as well. Now, I had a chance to just kind of play around as well, but just for the benefit of the listeners, can you just walk through what does it look like when people are trying to play around with the app? And I, I guess just while we're here, I just wanna make it clear, I'm sort of interested in discussing mainly from like the technical perspective and also just sort of what Trading, I'm not necessarily saying people should go out and trade, to be clear, I'm, I'm saying, you know, stack and hoddle. I'm not really a trader myself, but just for the sake of understanding how the app works, can you explain, how does it work there?" }, { "speaker": "philipp_hoenisch_of_10101", "time": "13:17", "start": 796.65, "text": "I'm, I'm totally with you. I don't wanna bring people to trading. I don't wanna say, \"Hey, guys, gamble your life savings.\" I wanna make it safer for people who are trading already. That's the important thing. So our app is, is a trading app, so people can trade peer to peer. And the way how it works is, it is, it is a, it is a wallet. So it's an on-chain wallet, it's a fully self-custodial on-chain wallet, and you deposit money into this wallet, you get your twelve seed words, and with those seed words, you can always recover your money. And the, what's happening is when you trade for the very first time, you lock up money parts of this on-chain balance into a channel. So we took actually the concept of the on-chain, the vanilla DLCs from Tap, invented in, in twenty seventeen, and built something we call DLC channels And that allows us to then later on settle trades off chain for free, but for that, to that a little bit later probably. So when you onboard, you deposit money and then you open up your first trade and you select the channel size. And right now the way how it works is that you and 10101 are funding that on chain, funding transaction, so we both put in money, and then we have it off chain, and from there on we create our C, our DCS. If we wanna settle our, our DLC, then one CET will become valid, but we don't go on chain and spend on chain transactions, transaction fee, no, we settle into the channel so that you can open up another trade basically for free. And the, there's an, it's a technical and a financial reason why you have a direct channel with us. Most listeners will think, \"Oh, so you are always the counterpart of the trade,\" but we are just the direct partner of each trade, but we forward the trade to someone else, meaning we have another channel open with, A mar-- a market maker, someone is constantly offering trades of orders to you, and they trade through us and to you. Meaning, if you go long, we go short against you, and then we go long against the other party. And the cool thing about this setup, so we call this guy the coordinator, is that we, we removed the free option problem. And the free option problem in DLCs is that the party who signs last has the possibility to hold back the signature and wait how the price, evolves. And with our setup, what we do is we just wait for both parties to sign because we are in the middle, and then we hand over the final transactions to each party, and then they trade against each other." }, { "speaker": "stephan", "time": "16:02", "start": 961.94, "text": "And so as an example, let's say the user is depositing some Bitcoin into his ten ten one app, it's- starts in the on-chain component of it, and then you have to actually open a channel or you start a trade, and that, in that process, you're opening your first, let's call it DLC channel, I think that's the term you use. And so then At that point, the user has the choice of, okay, what price or how much, you know, how much in USD as an example, are you going long or going short? What level of margin? And you can see things like, what's your liquidation point and so on. And so then, let's say the user, you know, just to make an example simple, let's say, you know, half a million sats, they're going long, at, you know, two x leverage, they can see the liquidation price, et cetera, and Can you just walk us through what, you know, what's going on there?" }, { "speaker": "philipp_hoenisch_of_10101", "time": "16:54", "start": 1014.36, "text": "Yeah, sure. So as I said, you first see what you wanna put in there, right now the input has to happen in US dollar terms for the amount of contracts you wanna go long, and this is a perpetual future, and a perpetual future is meant to have, to not have an expiry. Now we can't have DLCS without expiry, we need to have an expiry, and our DLCS always expire on Sunday at fifteen hundred CETs. That's when the, I forgot the index. There's an index which is always announced at fifteen hundred. anyway, so you say you wanna go a hundred contracts, which equals a hundred dollars worth of Bitcoin long. You pick your leverage, if you say leverage of two, then it calculates how much margin you have to put up. And if you click confirm, what happens is you send a market order. So right now in the app we only support market orders, no limit orders, to the order. Order book, and the order book is trying to find you a match because behind ten ten one there might be multiple makers, and we try to find you the best of all of them, meaning the best price for you, and then we connect you with the other guy together, the cryptographic protocol is executed, the CTS are being created, and when everything is done, you have your open position." }, { "speaker": "stephan", "time": "18:15", "start": 1094.73, "text": "And so then at that point you're sort of moderate, you're monitoring your position, and you can sort of see, okay, this is how much you're in profit or loss, whatever. And so crucially, that's also where you get your fee, right? Like ten ten one is taking a fee at that point." }, { "speaker": "philipp_hoenisch_of_10101", "time": "18:27", "start": 1107.3, "text": "Yeah, so we call it a maker taker fee, just same as on every exchange, we charge a percentage based fee for every ex- for every executed trade." }, { "speaker": "stephan", "time": "18:37", "start": 1117.25, "text": "And so then when it comes to closing down, that's where you are winning back an amount in Bitcoin terms, right? Because that's really, you know, there's no USD here, it is all synthetic and it is just Bitcoin here. So that- That's where the CET is, you know, I guess, because in this case we're talking about a DLC channel, right? It's not actually an on-chain DLC. So can you just walk us through what's happening there?" }, { "speaker": "philipp_hoenisch_of_10101", "time": "19:00", "start": 1140.02, "text": "Yeah, exactly. So maybe to finish what I started earlier, I didn't say, but it's, we want to represent perpetual futures which don't have expiries, but since DLCs have expiries, what we do is we roll over your position automatically if you come online on Fri-- between Friday fifteen hundred and Sunday, fifteen hundred. Okay, so you've got like a two-day" }, { "speaker": "stephan", "time": "19:23", "start": 1162.58, "text": "window to come online to kind of refresh it if you want to." }, { "speaker": "philipp_hoenisch_of_10101", "time": "19:26", "start": 1165.7, "text": "Exactly, and then your position automatically extends for another week. But in between, you can close your position unilaterally, not unilaterally, but you can close your position collaboratively into the channel with us at any point of time. Now, the interesting thing is, most people now think, okay, what if you're in profit but the other party is not in profit? Obviously, right? You go long, the other party goes short, so he has no incentive to close his position right now. Why would he collaborate closing the position with you? Meaning, if you decide to close your position, what happens is you again have to send an order to the order book and find someone else basically taking over your trade. So you're selling your position to someone else. And that allows us to have, for one party long running positions, while for someone else they can do short running day trading or, hundred x, not yet hundred x, but very short running trades. I see. So your question was, what happens? same as on Lightning, we take an optimistic approach of settling in the channel. So on, on Lightning, when you do a payment, you have an HTLC attached, and then at the end of the day, when you receive the payment, you say, \"Hey, look, I know the secret.\" I could go on chain now and execute that contract and get the money out of the HDLC on chain, or we save transaction fees and we just settle into the channel, meaning we update, commitment transactions which then reflects the new amounts. And the same thing is what we do. We say, \"Um, look, the oracle says the price is at sixty K. we-- I could go on chain now and get the money, but that's gonna be very costly. So what we do is we settle off chain into our DLC channel.\" And until, just until a month ago, end of January, we actually had Lightning channels, so it used to be Lightning channels, and then you could send out the money over Lightning. now it's just vanilla DTC channels, and they aren't connected to the Lightning network yet." }, { "speaker": "stephan", "time": "21:31", "start": 1291.19, "text": "One other question just around expiry, you mentioned this earlier that, you know, if you come back online within that two-day window, and is it like an action you have to take to refresh it or to stay in that, or is it more like, You, you are just opt-- it's more like an opt-out system." }, { "speaker": "philipp_hoenisch_of_10101", "time": "21:48", "start": 1308.02, "text": "It is an opt-out system. So if you come online in this window, we actually even send you a push notification and say, \"Hey, the rollover window is open now,\" and if you come online, it automatically extends for another week." }, { "speaker": "stephan", "time": "22:00", "start": 1319.69, "text": "And so at that point, do you have to pay another round of fees at that point, or how does that work?" }, { "speaker": "philipp_hoenisch_of_10101", "time": "22:04", "start": 1324.23, "text": "So right now there is no fee involved, but eventually we're gonna have something called a funding rate, which- Probably let's let's know from the other participants. Yeah, that's it, because that's actually" }, { "speaker": "stephan", "time": "22:12", "start": 1332.2, "text": "what-- that, that was gonna be my question, like on the centralized exchanges where people are, you know, custodial, they're paying a funding rate, and at a certain time period, as I understand It's, you know, they're paying a certain rate, whether, whatever that rate is, in, you know, do-- and that actually depends on like what's the balance of shorts and longs and things like that. I, I don't know the details of it, I'm not gonna pretend to explain that part, but, my understanding is there'll be, there'll be times where, you know, the longs are paying the shorts, et cetera, right? And that's kind of-- I think that's typical, actually. But anyway, the point is" }, { "speaker": "stephan", "time": "22:52", "start": 1371.9, "text": "That work in the ten ten one context?" }, { "speaker": "philipp_hoenisch_of_10101", "time": "22:54", "start": 1374.48, "text": "Yeah, totally. So the, the idea of the funding rate is actually to ensure that the prices of the derivatives don't diverge too much from the spot price. And on central centralized exchanges like BitMEX, they have an index price, which is a basket of different spot exchanges weighted according, I think, their volume or something. And The, if the funding rate is positive, it usually means that the market is more bullish and people, the, if the, the funding rate is positive, then a lot of people wanna" }, { "speaker": "stephan", "time": "23:27", "start": 1406.72, "text": "go long, and so that's why the longs are paying the shorts, right? Yeah, exactly. Exactly." }, { "speaker": "philipp_hoenisch_of_10101", "time": "23:30", "start": 1409.96, "text": "And then the longs are paying the shorts, and if you look at historical numbers, as you said, it's most of the time the numbers is positive, it's very rare that it's negative, and that means if you are short in Bitcoin, you are actually receiving some form of interest rate. And we, we launched a product called USDP, P4 Perpetuals, which is a synthetic stablecoin on, built on top of this, which could earn you then interest rates for being stable in US dollar terms. And we, that's how we joined the second Legend of Lightning tournament last year, where we connected that to a Lightning network, and then you had a hot wallet where you were stable in US dollar terms, and this was basically a short position in- In Bitcoin, and there's no token, no issuer, and you could send it around on the Lightning Network in satz. And that's just pretty cool. Interesting. So I" }, { "speaker": "stephan", "time": "24:23", "start": 1463.1, "text": "couldn't see that in the ten ten one app. Is that in a separate app or what happened there?" }, { "speaker": "philipp_hoenisch_of_10101", "time": "24:28", "start": 1468.14, "text": "we did a technology pivot again, so you had that, but" }, { "speaker": "stephan", "time": "24:32", "start": 1472.44, "text": "now you've had to take that away. Yeah. Okay. Yeah," }, { "speaker": "philipp_hoenisch_of_10101", "time": "24:35", "start": 1474.51, "text": "we removed Lightning because we had quite some problems, with random force closures and high transaction fees, and we are reduced The whole complexity to the vanilla light, DLC channel, DLC" }, { "speaker": "stephan", "time": "24:48", "start": 1488.43, "text": "channel concept as opposed to the Lightning DLC idea. And so, and we" }, { "speaker": "philipp_hoenisch_of_10101", "time": "24:52", "start": 1492.0, "text": "will, but we will re-add that in the future in a different way so that you can then send it again over Lightning." }, { "speaker": "stephan", "time": "24:58", "start": 1497.76, "text": "Yeah. And so I guess just on that, was that mainly due to, you know, the fee spikes of last year with all the ordinal stuff and that was causing forced closures, or was that, was it some other technical reason related to Lightning that you had to sort of de-risk it there and take that off?" }, { "speaker": "philipp_hoenisch_of_10101", "time": "25:13", "start": 1513.49, "text": "Both, so- So from a protocol level, what we had was actually six or seven transactions you had to keep off-chain around. Now, you'd only have to pay if you have to go on-chain, right? But if the fees are really, really high, let's say two hundred satz per byte or something, then this really stacks up and a trade for ten dollars, which people do on Lightning, they just wanna trade small amounts, it's just not feasible anymore because you suddenly have to pay fifty dollars transaction fees. I mean, you, you don't pay for it, but you- You have to reserve it in the transactions. So we said, okay, this doesn't make sense, this is getting too expensive. Also, if you have to go on chain, it doesn't make sense because now you have a CET with a ten, ten dollar output pending somewhere, and it's just not worth it to get the money out." }, { "speaker": "stephan", "time": "26:01", "start": 1561.26, "text": "Back to the show in a moment. This show is brought to you by nomadcapitalist dot com. Nomad capitalist can help you with strategizing in terms of offshore citizenship, residency, tax planning, overseas investing, and a range of these things. Thanks. Now, as many of you know, I left Australia because I thought, well, from one part, the taxes were just really high, but also it was a freedom aspect for me. But you could have different reasons as to where you are going and, what, why you were leaving as well. And so, as many of you know, I'm in Dubai, in the UAE, but Dubai isn't necessarily the-- it's not necessarily for everybody. P-- you have to figure out what's the right, what's really right for you, for your family, and for your business." }, { "speaker": "stephan", "time": "26:44", "start": 1604.35, "text": "Pull together the pieces for you, because you, you might be looking to purchase a citizenship by investment, or you may be looking to move somewhere and get resident rights, or you may be able to get, citizenship, or resident rights through your, heritage, through your, descendency. And so there's different aspects to consider, and Nomad Capitalist are experts in this, they are leaders, they've been doing this for over ten years now, and they've helped people, for over dozens of countries in terms of getting resident- Rights, in terms of helping people get a citizenship permit and also strategizing. So if you're interested in this, go to nomadcapitalist dot com slash apply. They aren't necessarily the cheapest in, in this world, but they will help you in terms of strategizing and for people with a net worth above one million dollars, they'll generally make it worth your while, i-i-from a financial ROI perspective or potentially from a personal ROI perspective, maybe that would be worth it for you. I think nomadcapitalist dot com, is a great service Listen, you can go and check them out at the link in description. This show also brought to you by CoinKite. CoinKite is the leader in Bitcoin security hardware. I use the Coldcard myself in various setups of my own. The Coldcard is a really great device. It's reliable, it's ultra secure, it has so many features, it is very versatile. And the important thing with Bitcoin private keys is you want to generate them offline and interact as much offline as you can. So the cool thing with the Coldcard is it doesn't have to phone home in order to set up a Really cool part with the Coldcard, and they've got the new device coming soon, which is the Coldcard Q. I've got my pre-orders in for the Q device, but, they have a range of devices, whether you're looking at the top end for the Coldcard Q or the Coldcard device, or you're looking for something a little cheaper, the Tapsigner might be an option for you. You could also look at the metal backup seed products they have, like the Seedplate. The Seedplate can help you backup your private keys in a way that gives you some extra peace If we're talking ten, twenty, thirty years down the line, this is something that could matter to you. So to get your cold card and your Bitcoin security gear, go to coinkite dot com, use code Laverre for a discount there. And now back to the show with Phillip. Yeah, it's like an uneconomical output basically, but given the high fees. And so I guess, I mean, and this is gonna be maybe a criticism or another angle that people might be thinking is, \"Hey, is it really even...\" Feasible to do these things at small amounts. Like maybe this is something that realistically, like if we think fees are gonna rise over time, and I'd be open to arguments on whether they are going to fall in Satoshi terms, but in real purchasing power terms, they're gonna rise. I, I think it's clearly, I think most people accept that idea. And so if that's the context, then this product and this app and all these things are really only gonna work for people who are, let's say, richer, right? Like you kinda need to be Dealing with larger amounts to kind of be able to say, \"Oh, I can handle that, that on-chain fee risk, right?\" Or what do you think?" }, { "speaker": "philipp_hoenisch_of_10101", "time": "29:47", "start": 1786.74, "text": "Yeah, no, totally. Unless something changes, unless we get a different soft fork, we-- if we are stuck with what we have today, then this trading will be more for high-value trades, ten dollars trades, it's, it's just not economical, right? Yeah. I mean, same for UTXOs, right? You don't wanna have a ten dollars or a, a ten thousand sat UTX Yeah, exactly. In the future to spend again." }, { "speaker": "stephan", "time": "30:12", "start": 1811.89, "text": "Because I mean, when you're talking about UTXO sizes nowadays, I ca- I, I think it's fair to say like, in terms of long-term UTXOs, you probably, I would say the lower threshol-threshold is probably one million sats, right? Like realistically, you wanna have bigger than that just in case fees are rising, so that way you don't end up in this situation where you have uneconomical UTXOs or at least very high fees. So, it, you know, someone might be in a" }, { "speaker": "stephan", "time": "30:39", "start": 1839.23, "text": "dollars in a fee, and that's, you know, that's not gonna be, that's not gonna be a nice experience for people. So, I mean, maybe that means longer term people have to be to-dealing with larger values here. Maybe it needs to be like five million sats in a trade or something like that. Before they are realistically, able to kind of stomach the on-chain fee risk." }, { "speaker": "philipp_hoenisch_of_10101", "time": "31:00", "start": 1859.79, "text": "We, we actually came, we, we solved this problem very, very smoothly, like Lucas from my team had a really cool idea. So we, in a, in a DLC, usually what you do is, as you said, for each possible outcome, we have the, CET. And so if you do a one dollar trade, and let's say, price stays the same as it is, you get fifty percent and I get fifty percent. So that would be a fifty cent outcome. what we do is we say, okay, the minimum channel size is two hundred fifty k sats. Now you still are able to do a one dollar trade, but we add the remaining of the amount just to your output. So if you do the one dollar trade, you get your, two hundred fifty k sats back plus, fifty cents worth of Bitcoin on top of this, and that gets rid of the very small amounts. Now if you, you still have those edge cases where you go all All in, and then at some point you basically win a-- almost everything, and we have like a little bit left, that might then be dust value, but everything in between, you can trade all kinds of amounts." }, { "speaker": "stephan", "time": "32:05", "start": 1925.12, "text": "So with that then, does that create limitations on the way the user can trade? Because obviously they're trying to do this, you know, you're trying to structure this in a non-custodial way, but does that mean like funny thing, like you were saying, funny things will happen at very extreme valuations, right? Like if there's a big- Price rise or a big price drop, how big does it have to be for, you know, edge case, edge cases to happen here?" }, { "speaker": "philipp_hoenisch_of_10101", "time": "32:30", "start": 1950.21, "text": "I think right now corners are like a hundred K, but since we've renewed the CTS every Sunday or on the rollover weekend, we can actually adjust this point, every time, every weekend. But if in between the price would jump too far, it would mean that one party would lose everything and, basically it's, it's a liquidation price Right? And if you are, if you're leveraged, you would lose your money way before that, anyways." }, { "speaker": "stephan", "time": "32:59", "start": 1978.67, "text": "I see, yeah. Well, interesting. I, I guess, here I'm thinking of, Samson Mau's, Omega Candle, where he's talking about this, you know, hundred thousand dollar candle in one day. people say God Candle is ten K, in one day. And so, I guess if an Omega Candle happens, y-you better be hoping you're long." }, { "speaker": "philipp_hoenisch_of_10101", "time": "33:17", "start": 1996.64, "text": "Always, always." }, { "speaker": "stephan", "time": "33:20", "start": 1999.55, "text": "Yeah. So then, how On the market maker side, I presume they have some connections in with the likes of, you know, Bitfin- Bitfinex and Bitmex and so on, and then that's how they're kind of having the other side of the trade for your ten ten one customers." }, { "speaker": "philipp_hoenisch_of_10101", "time": "33:37", "start": 2016.54, "text": "I totally depend on them, so we are aware of one market maker who just- Really makes a price depending on how they feel like, but they don't offer price twenty four seven. And then the, the easiest approach is they hedge their position and just add a margin." }, { "speaker": "stephan", "time": "33:52", "start": 2031.92, "text": "Oh, I see, right, right. And they use that to sort of keep their position neutral. Interesting. Okay. And then in terms of sizes, so we're, we're talking a little bit about Bitcoin, like trade sizing and channel sizing here. If we're thinking about on-chain fees, and okay, as we speak today, it's actually relatively low, it's maybe like two, two or You know, we all, we all, we all know that, you know, the fees could spike again and it could be ten, twenty, thirty dollars to hit the chain. So is there like a recommended minimum size? I mean, you said two hundred and fifty thousand sat, so is that basically just the, that's the minimum you would operate with, and then people can go, how high can they go?" }, { "speaker": "philipp_hoenisch_of_10101", "time": "34:27", "start": 2067.3, "text": "I think so we have a, a limit right now because we are technically still in beta, and I think the, the limit is at around three million satz or something. Gotcha. And the minimum amount is two hundred and fifty k satz, exactly because of the, the transaction fees." }, { "speaker": "stephan", "time": "34:46", "start": 2086.09, "text": "I see, interesting. Okay. And so, do you see that in the longer term that you, you're gonna start raising that limit so then, let's say, maybe not whales can come to play, but let's say medium-sized traders can sort of play on the app? Is that, is that what your goal is?" }, { "speaker": "philipp_hoenisch_of_10101", "time": "35:01", "start": 2101.02, "text": "Exactly. So for the retail users in the app, we, we're gonna keep an upper bound forever because, I mean, there's some level there, but A separate line of products which we call DLC Connect, and that is targeted more for the, the bigger traders, the institutional traders, and there there is no limit. And if, if we aren't In its position anymore to, to always, have the channel open to the other party because it's just too big. Let's say they wanna trade a hundred Bitcoin, we can't just keep that channel open to it. To the other trader and to the market maker, that would just be too much Bitcoin for us. Then we connect the two traders with each other, and then they open up a channel with each other, and then can, they can trade directly. So for, for the big people, there shouldn't be a limit depending on what they wanna trade, but for the retail users, they get a limit, yeah." }, { "speaker": "stephan", "time": "35:55", "start": 2154.7, "text": "That also raises, and this also was a question I had for, the Atomic Finance guys, which is around hot wallets, right? Because if you- Have serious amount of coin, you might also have a concern about keeping a lot of money on a phone hot wallet. Do you have any thoughts around that? Do you think that's just something that, you know, the user will just have to get comfortable with, or is there something that can be done to improve the security there?" }, { "speaker": "philipp_hoenisch_of_10101", "time": "36:20", "start": 2180.07, "text": "Yeah, no, I totally agree. I mean, having a certain amount of your phone is questionable, like all the Lightning wallets, you just wanna keep it as a spending wallet. You're not gonna put your millions dollars trades into that thing. So for that kind, we again think of the DLC Connect solution, which is a desktop application, and we're currently also working on bringing that to the browser, thanks to the Mutiny guys pivoting the way they're, paving their way there. The idea there is that the user can plug in the hardware wallets actually and then sign the transactions with the hardware wallet. Now for the CETS, that would be a really painful process, right? Because you're signing like hundreds" }, { "speaker": "stephan", "time": "37:01", "start": 2221.35, "text": "or thousands of CETS, and some of these hardware wallets are like maybe not fast, but maybe some of the newer ones are a bit faster." }, { "speaker": "philipp_hoenisch_of_10101", "time": "37:08", "start": 2227.95, "text": "Yeah, I'm not sure if they have batch signing. I'm not sure if that is the thing for hardware wallets, but, the, the simple solution is that we, for the CETS, we use Use ephemeral keys, which are one-time keys, we only keep them around for the time of generating those CTS, and then the outputs of the CTS again go into your hardware wallet. So you basically have to fund the channel once, then you sign the C-- you generate ephemeral keys for the CTS, sign it again with your hardware wallet, and you get all of those transactions." }, { "speaker": "stephan", "time": "37:41", "start": 2260.96, "text": "Oh, I see. So that's-- you're trying to get an efficiency there on the signing, okay. So I guess some of the stuff we've been talking about is This kind of like going long, going short. Are there, are there non-DGen uses, for ten ten one? Like, is it, yeah, basically, are there non-DGen uses?" }, { "speaker": "philipp_hoenisch_of_10101", "time": "37:57", "start": 2276.77, "text": "Yeah, totally. Like the, the USDP part is a hedging use case, and I'm super pumped about that because on a company level, this allows you to be stable in US dollar terms without having to rely on a bank account or anything. And some employees, even if they are in the Bitcoin space, they want to have a A certain US dollar amount as a salary, and as a company, it would be just too risky to have everything in Bitcoin. So what a com- as a company, you can then basically hedge a certain amount of your assets into USD, beyond Bitcoin, send Bitcoin around, but you are stable in US dollars. And then I can pay my employees over Lightning in Bitcoins, but fixed in US dollar terms. That's a real cool use case, and we have, one company who is looking to hedge. bigger amounts, exactly for that reason." }, { "speaker": "stephan", "time": "38:50", "start": 2329.64, "text": "Yeah, that's interesting. As you said, the USDP, stable channel case, I guess. So to be clear, this again, because of the on-chain fees, it sort of m-makes more sense for bigger players or business level size, right? Because if you're just co-trying to do this with like ten dollars, twenty dollars, you're gonna get eaten away by on-chain fees. But if we're talking like thousands of dollars, millions of sats or higher, or, you know, fraction, you Bitcoin, now it starts to make more sense because now the on-chain fee is small relative to how much you're keeping stable, and then at the same time, depending on, you know, that funding rate we were talking about, is there, you know, they might earn something out of that too, right? A small amount? Yeah." }, { "speaker": "philipp_hoenisch_of_10101", "time": "39:34", "start": 2373.57, "text": "Exactly. They, they are earning interest on top of that." }, { "speaker": "stephan", "time": "39:36", "start": 2376.35, "text": "Right. So that could be really interesting then for a, a, a b-- like a B2B use case here, because the business could have a small, you know, they could have Storage, maybe they'd keep a smaller amount in like a, in this stable channel concept, and so they're getting a little bit of Bitcoin return, but keeping the, the rest, in, USD stable value to pay out for staff, right? Because there may be staff that they need to pay out. So then that would be in the concept where you're, you're bringing back the Lightning channel DLC, right? Exactly, yes. Yeah. So that's kind of like the future." }, { "speaker": "philipp_hoenisch_of_10101", "time": "40:12", "start": 2412.14, "text": "You could still do it, yeah. Sorry, you could still do it on-chain, Five, ten thousands, whatever, every month, it still makes sense to do this little on-chain transaction, and in this case, they could then again go into this stable channel with us and be stable in US dollar terms. but we have a, a crazy idea is we could offer an US dollar or euro terms interest product to normies out there, because if you look at the funding rates on, perpetuals, they're actually crazy high over the year, like they speak about ten to fifteen percent Where do you get ten to fifteen percent interest rates in the normal world today?" }, { "speaker": "stephan", "time": "40:53", "start": 2452.73, "text": "But hang on, is that during like bull cycles or you're saying just like in even in non bull cycle years?" }, { "speaker": "philipp_hoenisch_of_10101", "time": "40:59", "start": 2458.65, "text": "On average, I think it's around between five and fifteen probably, but, I see. So I presume-- I mean, you" }, { "speaker": "stephan", "time": "41:06", "start": 2466.5, "text": "correct me if I'm wrong, but my presumption would be like that fifteen percent would be like in a crazy bull year when they're, when so many people wanna go long, so they're, they're, they're paying a lot for that, you know, privilege, Very high funding rate on those centralized exchanges, and in some sense, the market makers are sort of helping you facilitate some of that get, some of that for your own customers on the stable channel product. Is that right?" }, { "speaker": "philipp_hoenisch_of_10101", "time": "41:33", "start": 2492.6, "text": "Yeah, yeah, exactly, yeah. And then we could build on top of this, we could build a, a Bitcoin bank which offers really banking features to normal users, and they put in USD in fiat terms in there, we basically buy Bitcoin with the fiat They are stable in the US dollar terms and earned high interest amounts compared of any other thing, any other bank or bonds or whatever." }, { "speaker": "stephan", "time": "41:57", "start": 2516.6, "text": "I see, yeah. So it, it, it kind of is coming, hearkening back to more like a, I guess it, it's maybe like wildcat banking kind of thing, but I guess some people will obviously be skeptical of that and be like, \"Hang on, can you really offer ten, fifteen percent?\" I guess the main risk here is cust-- there's custodial risk, there's a technical kind of, you know, Sure. You have to trust that, you know, the contract execution stuff is done correctly. You have to trust that the oracle is, you know, correctly attesting to the price as well. so I guess it's, it's not like it's a risk-free thing, but, you know, there, there could be an interest rate, yeah, to be fair, that could be offered, right?" }, { "speaker": "philipp_hoenisch_of_10101", "time": "42:38", "start": 2558.3, "text": "N-Nothing is, is risk-free, right? I mean, we in the Bitcoin world know that, and there is no such thing as a free lunch, neither. You can't have fifteen percent without any risk. Somewhere, yeah. You gotta be taking something somewhere." }, { "speaker": "stephan", "time": "42:51", "start": 2571.37, "text": "Yeah." }, { "speaker": "philipp_hoenisch_of_10101", "time": "42:52", "start": 2571.63, "text": "So as you said, there's obviously technol-technology risk which we hope to get rid of Yes, and that is you could get liquidated or your counterparty could get liquidated. Now, if you are short Bitcoin and you have a leverage of one, if the price keeps moving up, you never get liquidated. Basically there is no liquidation price, but if the price goes down and your counterparty has, leverage of two, then the price, if the price drops by over fifty percent You are, right, he gets wrecked," }, { "speaker": "stephan", "time": "43:27", "start": 2607.16, "text": "and then you might be out. He gets wrecked." }, { "speaker": "philipp_hoenisch_of_10101", "time": "43:29", "start": 2609.04, "text": "Yeah. Yeah, and then the total amount in the contract isn't worth the amount in US dollars anymore." }, { "speaker": "stephan", "time": "43:35", "start": 2614.65, "text": "I see, because you would get, you would get the full amount of the Bitcoin for that contract, but you might still be out per se, on what you thought you were gonna get basically. Yeah. Yeah, interesting. Yeah," }, { "speaker": "philipp_hoenisch_of_10101", "time": "43:45", "start": 2625.49, "text": "so we could do an ab initio math example if you want. So let's say the price is at fifty K right now, and we" }, { "speaker": "philipp_hoenisch_of_10101", "time": "43:55", "start": 2634.88, "text": "We put in one Bitcoin, I put in one Bitcoin, you put in one Bitcoin. Price drops to fe- twenty five K. Now there are two Bitcoins in there, but you went fifty dol- fifty K short, so the two Bitcoins are currently worth fifty K. If the price goes further below twenty five K," }, { "speaker": "stephan", "time": "44:12", "start": 2651.51, "text": "then I'm losing out on the Bitcoin, and then I thought I was gonna be stable in USD terms, but I'm actually not, and I've sort of lost out in that way. Yeah, interesting. And that, yeah," }, { "speaker": "philipp_hoenisch_of_10101", "time": "44:22", "start": 2661.52, "text": "that always happens when you don't expect it to happen and And the so-called stablecoin is not stable at all after, after all." }, { "speaker": "stephan", "time": "44:29", "start": 2669.24, "text": "Yeah, right. So that could be maybe just a insurmountable risk here that, and, you know, it doesn't happen all the time, but I've been in Bitcoin long enough to have been through multiple eighty percent drawdowns, and I've seen, you know, I've seen that happen. I guess it's not that it would just go eighty percent drop in one day, but it might be over the course of, you know, a few months. So if it would happen in a sort of a slower" }, { "speaker": "stephan", "time": "44:55", "start": 2694.9, "text": "Or, you know, or is it just sort of like you're just SOL at that point?" }, { "speaker": "philipp_hoenisch_of_10101", "time": "44:58", "start": 2698.1, "text": "Nah, totally. So we, we have a, an early marching call, so we don't just let the price go down and say, \"Hey, sorry, you got liquidated, you lost everything.\" We say, \"Hey, the, you're in the risk of getting liquidated soon. Maybe you put some more, load more collateral in, put some more Bitcoin in, or in the worst case, we actually liquidate them before they actually get liquidated.\" So let's say, again" }, { "speaker": "philipp_hoenisch_of_10101", "time": "45:25", "start": 2724.88, "text": "By fifty percent, but we say by twenty-five percent, say, \"Hey, sorry, it is getting too risky already. We're gonna sell your position at the market for, a, a better price. Someone else is going to take that and then is taking over the risk with more capital.\"" }, { "speaker": "stephan", "time": "45:41", "start": 2740.57, "text": "Yeah, that's interesting. And I-- this is something I've seen traders talk about as well, because When they're looking at an exchange, to some extent, they're looking at the technology team, the IT team of that exchange, and how good they are at deleveraging and like automating and having that really, that engine work correctly. Because if it doesn't, that's where these kinds of scenarios can happen and someone gets wrecked or multi-many people get wrecked. And if the exchange doesn't deal with that correctly, you know, you're so well, you're out of luck at that point. So, yeah, interesting. But then, I guess- Do you think that would represent a, a showstopper then, because like B2-- at the B2B customer level, they might be sort of like, \"Oh, I, I'm a bit worried that, you know, your liquidation engine won't work correctly,\" or not liquidation engine, in this case, in your case, it's more like the CETs don't sort of work correctly or that you don't-- it doesn't happen fast enough for them to sort of get their money back?" }, { "speaker": "philipp_hoenisch_of_10101", "time": "46:38", "start": 2798.28, "text": "Yeah, I mean, it is, it is a risk, and we have to build Those big traders in. So we're building slowly this up, people can trust the technology, can trust us, and, yeah, I mean, it's like everything in the world, don't just put in your life savings, trade with smaller amounts until you get comfortable with it." }, { "speaker": "stephan", "time": "46:57", "start": 2817.33, "text": "Yeah, so I guess that, those are probably, yeah, that's gonna be probably some of the main hang-ups. So yeah, it's like, so the security aspect of it, but you said that, I guess there's the hardware wallet or desktop, component of that. also, I know," }, { "speaker": "stephan", "time": "47:15", "start": 2834.56, "text": "So do you want to just explain a bit of your thoughts on that, you know, whether you would like to see CTV, what implications that would have for DLT products?" }, { "speaker": "philipp_hoenisch_of_10101", "time": "47:23", "start": 2843.41, "text": "Yeah, actually we- Before we were building, iteasats on Bitcoin, we were building something on Liquid where we already have some more powerful opcodes and we could build covenant scripts which were enforcing certain things on chain already. And that because of like" }, { "speaker": "stephan", "time": "47:42", "start": 2861.68, "text": "that's like the introspection aspect." }, { "speaker": "philipp_hoenisch_of_10101", "time": "47:44", "start": 2863.84, "text": "Exactly. Yes. Yeah. And there is a, product called Fuchimoney. I'm not sure if you know. Oh, yeah, yeah, I know the guys," }, { "speaker": "stephan", "time": "47:50", "start": 2869.63, "text": "yeah, yeah." }, { "speaker": "philipp_hoenisch_of_10101", "time": "47:50", "start": 2870.37, "text": "Yeah, yeah. So they picked up that idea exactly where you could, you use color- decentralized lending and it is, I wouldn't call it a DLT, but it uses the same kind of concept where they have an oracle which attests to the price, and then depending on the price, you have to put in a certain amount and pay back a certain amount, and then you get back your money. And with, CTV We can build something similar like that or more powerful DLCS on chain, which then removes or reduces the on-chain footprint, which reduces the potentially the need to recreate CTS on every week. So there's, there's so much we can do with, more powerful outputs." }, { "speaker": "stephan", "time": "48:34", "start": 2913.97, "text": "Back to the show in a moment. The lead sponsor of this show is Swan Bitcoin, and as many of you know, I work at Swan. I'm head of education there. So over at Swan, you can buy Bitcoin and you can learn about Bitcoin. You can send your- Your fiat in using ACH if you're in the US, or you can send in your dirty fiat using an international wire if you're overseas, or of course, you can send a wire locally also in the, in the United States. Now, Swan makes it easy for you to buy Bitcoin. You can either do what's called a smash buy, just take a lump sum, or you can set up an automated Bitcoin savings plan, or think of it like an automated recurring purchase. 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And now back to the show with Philipp. Yeah, interesting to see. and For some people, they might be interested to talk about a comparison of some of the different stable coin or stable channel concepts, right? So you could either, I guess, okay, on one side you got fully, you know, status-regulated KYC banking, you know, using a US dollar bank account, that's one, obviously, you know, there's, that's one thing. Not everybody can access that, that's certain risks there. There's Tether, right? People have Tether on Liquid and ERC20 Tether and TRC20 Tether and this kind of thing, You know, you're using, let's say, Liquid or Ethereum or Tron or whatever chain to really move the stablecoins around, but you're ultimately trusting Tether and the bank accounts that they hold their dollars in, basically, and you're kind of trusting that, you know, Tether doesn't get robbed in themselves as well at the government level, maybe. Then, I guess, on the other side, you've got maybe, I'm thinking of, Blink. So Blink from Galloy, right? They've got this, this concept of stable sats, and that's It for their end users. That's maybe another way to, you know, sort of have a quote-unquote stable value, and it, it is again custodial, and then this DLC style. So this DLC style, I guess maybe the main, like, you could argue it has certain elements of more self-custodialism because it is in Bitcoin terms. But maybe the downside would be, okay, you might have to hit the chain, which means on-chain fees, and maybe a little more tech, you know, you're dealing with the oracle as well. You have to deal with like, is the oracle correct? so I'm curious, like, as I sort of lay out the options there, what do you think? Do you agree, disagree, or do you have any, anything you wanna sort of elaborate there on this idea of having stable value but using Bitcoin and Bitcoin adjacent technology?" }, { "speaker": "philipp_hoenisch_of_10101", "time": "52:33", "start": 3152.83, "text": "Yeah, no, what you said was beautiful description of the- Different spectrum of, stable coins. And in fiat, you, you just, you pick your poison, right? If you wanna be fully in the fiat world, use a bank account. If you wanna be in the crypto world, but fully always or as closely packed as possible, use a stable coin like Tether or USDC. if you trust Blink because you already, banking, Bitcoin banking with them, you can trust Blink. But if you don't wanna trust anyone and you wanna think of- This, this risk of, hey, what if Tether isn't there tomorrow anymore? Then all the Tethers around are just nothing worth anymore. And with this zero counterparty risk approach of using DLCs, if we disappear, at the end of the day, you still have your sets. And it's that, if you believe in Bitcoin, it's always worth something." }, { "speaker": "stephan", "time": "53:25", "start": 3205.17, "text": "Yeah, that's an interesting point, as you said. So it's kind of that self-custodial nature, there are downsides and trade-offs to that, right? You said, like we said, like on-chain fees, but the, what you get for that trade-off is that you can get your money back even if the counterparty goes down. So I think that's probably the key, differentiator, it seems. so when it comes to this concept of stable channels and ideally having it in a Lightning stable channel Do you see more adoption of that idea coming, or is it sort of like an idea that people have been talking about this for years and years, but, you know, it doesn't seem to have really come to very much fruition yet? I'm curious why you think that is." }, { "speaker": "philipp_hoenisch_of_10101", "time": "54:10", "start": 3250.11, "text": "Yeah, it is. It's an interesting topic. I used to be really, really bullish on this approach of having a stablecoin on Lightning, but from a financial perspective, I think the amounts there are just way too small. And if you compare it to traders, they, they usually trade a hundred or thousands or whatever amounts, they don't wanna transact in one dollar worth of stablecoin. But if you have a hot wallet, you wanna pay for your coffee, and your coffee is worth three dollars or whatever, so you send around three dollars dollars worth of Sats in, in this, more complicated technology. And I mean, it's still super fast, but you still have to generate a few thousand transactions and collaboratively sign this, and it is an overhead I think it has an advantage because it is censorship resistant, it has no token, no issue on other blockchain, but I'm not that bullish on this use case for, for end user product. If you think of the big players, again, like, business doing staff payroll payouts, yeah, exactly. Then again, I think it makes more sense because you have big amounts, you hold it for a longer time period, it, it just makes more sense." }, { "speaker": "stephan", "time": "55:26", "start": 3325.97, "text": "Yeah, I see. Or even just B2B payments, right? If both sides actually are comfortable with doing- Lightning payments, but they want some USD stability. You know, I've heard of cases where, you know, people in like Africa are paying their suppliers in China with Bitcoin, right? Again, that could be another example where if both sides of that transaction want some USD stability, then maybe that's a case there. one other area, I guess I forgot to mention this, is like the RGB and, Taro or formerly Taro, now called Taproot assets. Where would you sort of put that into the-- Would you say that just kind of in the same sort of Tether stablecoin, category or where you, where would you put that?" }, { "speaker": "philipp_hoenisch_of_10101", "time": "56:06", "start": 3365.95, "text": "It, it might be a complete mix, right? I mean, Tether could easily issue tokens on RGP or Taproot assets. but you might also be able to build something like Dai on Ethereum, or Fuchimani on Liquid, where you collateralize your loan, you get a stablecoin for putting in Bitcoin. Which is basically nothing else as a, a trade, you go leverage long or short on, certain, on Bitcoin in this case, and the difference though is that you get an actual token. And it might be fungible, it might be non-fungible, and this token then can be sent around with Taproot assets on the Lightning Network." }, { "speaker": "stephan", "time": "56:48", "start": 3408.34, "text": "Yeah, interesting. And so that could also get interesting because with Taproot assets, obviously it's by the Lightning Labs team, they are making LND, which is obviously one of the leading Lightning implementations. So it might be sort of very easy to get support for that across the network, let's say, to, you know, now I understand there's a lot of technical details that go into this, but my understanding is with the- Taproot assets, the idea is they wanna make it so that they can just present a Lightning QR to users, and the user doesn't really know whether they're dealing, you know, they're just paying a Lightning invoice as far as they're concerned, it's that many sat paid in the invoice. So there may be opportunities there for like interaction, like maybe somebody wants to be a Taproot assets like swap server, and maybe they wanna connect with your market maker or, you know, somebody else who's got a Lightning DLC channel, and maybe they can sort of- Interact using Lightning as the layer to interact." }, { "speaker": "philipp_hoenisch_of_10101", "time": "57:44", "start": 3464.16, "text": "Yeah, totally. Like I, I think there is a need for actual tokens because a token can be held differently than a DLT. 'Cause for the DLT, if I wanna be stable in US dollars, again, and hold the, the synthetic stablecoin, I have to remember all those contracts, see all the C E Ts, but if you have a token, then you don't have to keep so much information around, you just have one U T X O output and you can send this around. So the way how to combine those two worlds is exactly as you said, in a, the most simplistic naive approach, you take a trusted setup where one party, goes short And is stable in US dollar terms, and then issues tokens on RGP or Taproot assets, and then hands this out to other users who can then buy it or trade it or whatever. And then these Taproot assets can then be sent around over Lightning or even on chain. Right now they are more on chain, right?" }, { "speaker": "stephan", "time": "58:41", "start": 3521.41, "text": "One other question, so with 10101 as it is now, as I'm sure, I'm sure you're familiar, you're thinking about this also, is that if the user has to sort of switch around between lots of different apps, they end up kind of Move, you know, money from left pocket into the right pocket, but each time they're paying on-chain fees. So I'm curious if you have any thoughts on what the future of these apps looks like. Is it gonna be more like kind of one app to sort of deal with a bunch of things to kind of have your Lightning stuff and your DLC stuff? Or what are you thinking there?" }, { "speaker": "philipp_hoenisch_of_10101", "time": "59:10", "start": 3550.18, "text": "That is a good question. I never thought about this being a big problem because, I mean, I have like seven different Lightning wallets on my phone probably." }, { "speaker": "stephan", "time": "59:17", "start": 3557.22, "text": "I mean, many of us, like people like you and me and listeners of, you know, this show probably do are in that situation. But let's say a more normie person might be like, \"I just want one app that just does everything, \" you know? Maybe, maybe that's where for them, you know, they might look at apps that kind of do one thing, do everything for one," }, { "speaker": "philipp_hoenisch_of_10101", "time": "59:38", "start": 3578.5, "text": "Maybe our initial vision of Bitcoin, our slogan was one app, all things Bitcoin, and the idea was you have a combination of different wallets in there from your on-chain wallet to your Lightning wallet to your stable assets wallet to your trading wallet, and you can seamlessly transact in between for a certain fee. at some point we said, okay, we show a unified amount, so we don't even split the amounts, you-- where you have it on-chain or not, we just say, okay, you can Like, like Moon, you can't transact wherever, and then the app decides whether you do a Lightning payment or you do an on-chain payment." }, { "speaker": "stephan", "time": "01:00:14", "start": 3614.96, "text": "Yeah, I see. And" }, { "speaker": "philipp_hoenisch_of_10101", "time": "01:00:16", "start": 3616.01, "text": "we, I think we're going to pick that idea up more in the future. Right now, we reduced All of the overhead towards a, a simple trading wallet." }, { "speaker": "stephan", "time": "01:00:26", "start": 3626.38, "text": "I see. Yeah. And part of that is, as you mentioned, the technical complexity, right? Because it sounds great to have it all, but there's, there's actually a lot of technical complexity under the hood to achieve that. And so I think that's probably, that's probably the reality of it. And so I guess let's zoom out a bit, you know, we've kind of been in the, you know, technical and sort of details, but if we zoom out a little bit, would you say the Finance on Bitcoin is because centralized custodian apps and platforms and websites are just easier, more convenient, or is there some other reason?" }, { "speaker": "philipp_hoenisch_of_10101", "time": "01:01:02", "start": 3662.38, "text": "Yeah, I, I think that's one big part, UX/UI. It is way harder to build good UX in a self-custodial way than having a, a fancy UI on top of a database. So it is, it's way harder to achieve the same level of UX, but also on the educational level, people don't realize it yet that they actually need it, and there are a few service providers out there who aren't really transparent on the risk model. It looks like you're actually, actually transacting on Lightning and you're trading on Lightning, but it is still a fully- custodial approach, and those users then ask us, \"Hey, why should I trade with 10101 and not with this provider?\" And the, the simple answer we say is, \"Um, can you-- do you have a seed phrase? Can you get your money out?\" and then they suddenly start thinking, \"Oh, yeah, okay, this is fully custodial.\" So it's on the educational level that most people don't actually realize that there is such a high level risk, high risk involved in the tools they're using, but it's also on the UX, it's just way harder to build good tools." }, { "speaker": "stephan", "time": "01:02:11", "start": 3731.27, "text": "Yeah, I'm, I'm reminded here of, this is actually a book Peter McCormack mentions on his show sometimes, it says, \"Don't make me think,\" right? And it's like this idea of, you know, obviously people Sort of the, the audience, let's say, right? The, because it's a smaller group of people who are, let's say, intellectually interested about Bitcoin and technical things and economic things. But what you're, what people are building is sort of apps for the people who don't really wanna get into the detail of that. Because, and in fairness, maybe it's 'cause they got a family, they've got other hobbies, they've other, you know, they don't wanna make, Bitcoin and, you know, Bitcoin their life. And so for that reason" }, { "speaker": "philipp_hoenisch_of_10101", "time": "01:02:52", "start": 3772.76, "text": "Like an insurance, right? You only need that when you actually need it. And we are in, in a normal world, where people start thinking of having an insurance for your car before problems happen, but in the Bitcoin space, we aren't there yet. Not everyone is thinking about this, and most traders who are coming to us are actually those who got burned in the past and then they learned their lessons. They have been trading on FTX and lost some money there, they've been trading on Mt. Gox and lost some money there, and usually it doesn't happen And twice to them. So I really don't hope it's gonna happen to everyone, but I think we will see those kinda exchanges going down again in the future, might not because of fraud, but maybe because of governments shutting down the exchange and then You just can't get your money out, or like maybe a, a wallet provider just says, \"Okay, sorry, we're not gonna serve customers in your country anymore because of regulations.\" And you're like, \"Wait a minute, I still have money on your wallet.\" And that's then when you realize, \"Hey, actually, self-custodial is not that bad. Maybe I should look into that again.\"" }, { "speaker": "stephan", "time": "01:03:56", "start": 3836.42, "text": "Yeah, I see. So, yeah, it just comes down to what price are people willing to pay, because it's one of those things where, you know, sometimes people will say It's kind of the, the difference between what somebody will say and what they'll actually do when it, you know, comes time to do things. but nevertheless, it's an interesting, area. any, any closing thoughts on, you know, the future of DLCs, self-custodial finance?" }, { "speaker": "philipp_hoenisch_of_10101", "time": "01:04:19", "start": 3859.94, "text": "Yeah, I think we're just getting started. I mean, you can try out 10101 today already. We have the public beta on Android, iOS, and you can also download an APK. But there is so much more to come, and there are Way more efficient, way better, reduce the on-chain footprint and remove UX, but just, just follow us and you will learn about this." }, { "speaker": "stephan", "time": "01:04:42", "start": 3882.65, "text": "Great. Okay, well, thanks for joining me, Philipp. Thanks for having me, Stefan. I hope you enjoyed the show. Get the show notes at stephanlivera dot com. Subscribe to the newsletter at stephanlivera dot substack dot com, and I will see you in the citadels." } ] }