{ "episodeId": "SLP711", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "dave_lund": { "name": "Dave Lund", "role": "guest", "tag": "DAVE" } }, "segments": [ { "speaker": "stephan", "time": "00:00", "start": 0.14, "text": "I see Lightning as the new telecom industry, actually. This is the new telecom industry, and the telecom industry today is dead. The main metric for Treasuries is the yield per deployed sat on Lightning. So how much yield could you generate as a Treasury on an operating basis with as least risk exposure on a hot wallet? That is like the literal, like how you can measure performance on an operating standard. The sooner you start operating on Lightning as a Treasury, let's say, the better the compounding effect will be long term. And I think long term, as like a very bold prediction That the liquidity leasing kind of business model will replace the entire bond market long term." }, { "speaker": "dave_lund", "time": "00:36", "start": 36.21, "text": "Hi, everyone, and welcome back to Stephan Livera podcast. Today we're gonna be talking about yield in the Lightning Network. Joining me today is Dave Lund. Dave is the CEO of Flowrate. Dave, welcome to the show. Thank you so much. Happy to be here. So, the Treasury Company, conversation is really, coming back. obviously, Lightning is also growing at the same time. I know what you're doing is related to this. so maybe just give, just a very quick background on yourself in, you know, Bitcoin and Lightning world, just give us a quick overview and then we'll get into, some other ideas." }, { "speaker": "stephan", "time": "01:15", "start": 75.07, "text": "Sure. well, I'm quite a new face to the industry Treasury in space, startup, ex-startup founder, built companies in the fiat space, I guess you could say, and I've been eager to start something in, in the Bitcoin space for quite some time, but I was looking for, you know, ventures that made sense from a native strategy perspective, and I think, what we're doing at Florid really It makes sense, you know, and it's about native yield on Lightning, and we're targeting-- on a high level explanation, I guess, I'm trying to connect the two worlds of the treasury play and the Lightning space, you know, that's the kind of high level, very short explanation, and I think those two worlds are very, very far apart today if you look at from a, you know. Experience perspective from the people that are in both ends, and I think our, our job is essentially to co-connect those two." }, { "speaker": "dave_lund", "time": "02:02", "start": 122.23, "text": "Yeah, I see. And, I guess while we're on this topic, I did an interview with, Sean from LQWD. That seems probably the most Probably similar thing that's related, right? They are a Canadian Bitcoin trading company who are also doing Lightning yield as part of their business model. so, and I guess also, obviously things like Amboss and, maybe Lightning, like their pool and loop servers are s-sort of in a similar-ish category here, but I suppose- Can you explain a bit about flow rate? Like, are you a competitor with those, or a collaborator with those, or just sort of a similar kind of product, or what are you?" }, { "speaker": "stephan", "time": "02:45", "start": 164.56, "text": "No, I, I think that's a very good question to just set the stage, because if-- this is kind of like the internet, getting started era of, of, of a new industry. I, I see Lightning as the new telecom industry actually. So, I mean, this is the new telecom industry, and the telecom industry today is dead. I mean, nothing happens, you have 5 To, to put that off. That means that it's very, very, you know, maybe chaotic in a, in a way of like who is who and who does what and, and what's the purpose of this entity and whatnot. Just to comment on LQWD, they're, I think they're very early in their understanding of this kind of strategy and, and they are. I mean, they're one of the few native Bitcoin treasury companies that, that operate as, on Lightning as, as, as their business. so I think the Flore's, positioning" }, { "speaker": "stephan", "time": "03:32", "start": 212.15, "text": "All the treasuries, in some way or another, so not all of them are gonna have like a fully operational business in-house like LQWD, but I think all of them will essentially deploy in, in some shape or form on Lightning to earn yield and to build infrastructure. And in terms of AMBOs, I think they're super early movers in proving that there's a market for liquidity leasing, that works on a, on a retail level and that can scale to the, you know, B2B level, which we're kind of targeting, and institutional level. And I know they're also working in that arena now as well, which makes a lot of sense. And in terms of, you know, pool and, and other, you know, liquidity adds, you know, they're all different types of sort of implementation of how to perform liquidity leasing, But of course, I mean, you have different levels of customers in any industry, and you have different expectations, and, and we're kind of targeting the institutional level and maybe, you know, on how to onboard exchanges in a way that's a turnkey solution, which you don't have today." }, { "speaker": "dave_lund", "time": "04:31", "start": 271.35, "text": "Yeah. Okay. And similarly, I guess I forgot to mention also, there's Beehodl, right, which is the UK Bitcoin treasury company also doing, because they're partnering with like the Coin Corner guys, and they're doing, part of their idea is to get lightning yield, similar kind of" }, { "speaker": "dave_lund", "time": "04:48", "start": 287.62, "text": "This kind of points people might raise, I guess, actually, you know what, just for listeners who are new, if you're like learning about Bitcoin and you're maybe a layman, I'll just offer a very quick kind of overview of just kind of the key points to understand, and then we can sort of go further into it, right? So in Bitcoin, you might be familiar when you send Bitcoin on chain, you know, you just scan and you pay, it's on chain, it just, you know, you can be offline, there's no liquidity requirements, et cetera. But And then as part of Lightning, you can think of it like beads on an abacus, and you've got to move those beads back and forth, and there's a professional skill, let's say, to doing this, to managing that liquidity, managing this inbound liquidity. There are costs associated with that, like a capital cost and so on. And so, when you are, let's say, just an everyday end user, retail guy, you know, you might not have to think about these things, but they're happening in the background. and then when you are a merchant Give you that liquidity. And so this is kind of, sort of what we're getting at, this idea that in Lightning, you can make a yield by either selling a channel to somebody or the other big way would just be routing fees, right? So when you route a, you know, Lightning network, it is a payment network. It's using source-based routing, meaning you, the payer, calculate a route and then you are saying, \"I'm gonna route across these, you know, nodes to get my payment to the destination, and I'll pay them a small routing fee for that.\" That. So I guess these are kind of just some of the basic, let's say, building blocks of this, and then sort of we can take it further. So I guess just with, just kind of zooming out a little bit on the treasury companies, they're I believe there is a growing number of Bitcoin treasury companies, but what's your take on this? Like, was it just a twenty twenty-five hype thing, or do you think they're coming back? They're coming back bigger and bigger and stronger?" }, { "speaker": "stephan", "time": "06:44", "start": 403.68, "text": "Yeah, it's a great question. I mean, I have a very, bold and frankly like, \"maxi\" take on this, and it's essentially that they have a very good purpose, and, and, and specific purpose in the Bitcoin, let's say if we, if we, if we forward, fast forward a hundred years and we look back and, and what their point was, my argument is that the point of the treasuries is to deploy their capital on Lightning to enable, you know, this Making Bitcoin into a medium of, of ex- of, of exchange that actually scales, right? Because, if we just start at first principles, so if you and I are individuals holding Bitcoin, our incentive to actually deploy on Lightning is quite low to begin with, because number go up. And If we look at the two different types of yields you just mentioned, you have routing fees and you have liquidity fees. the liquidity aspect is quite hard to do if you're an individual. you can do it as a, as a private person, you can open a channel or, or node and you can be a routing node and you could sell channels on Telegram or whatever, and you could do it in marketplaces, and that works fine. But I think businesses are much more incentivized to do that long term, and they have this kind of like moat that they could build around their brand" }, { "speaker": "stephan", "time": "07:52", "start": 472.44, "text": "Stuff, but just on like the fundamental level, I think Treasuries are perfectly positioned if you look at like the different holders of Bitcoin, they're perfectly positioned to operate on this yield strategy, whereas I'm as an individual or you or whoever, you know We're, we're happy with the number go up thing, a-and, you know, y-y-There's a lot of headaches involving, you know, actually operating infrastructure. So I think Lightning is, is very important to do these comparisons, you know, to other types of infrastructure. So plumbing, for example, works, you don't have to think about it, and as, as soon as it stops working, you really notice it, right? And there are other analogies to do, I just wanna comment on the liquidity leasing question. I, I think, you know, there's, there's, we could get into that maybe later, but just to, just to, to finalize, the thought on, on, their purpose, my, my, my essential, expectation is that, Treasuries will understand this sooner or later. For companies like LQWD, the yield aspect of Lightning isn't priced in yet, I think. I don't think the So, the metric that we're trying to like push is, I mean, I'm very incentivized to call it flow rate, but I call it flow rate essentially, and it's from, from physics. It's essentially, the word that means the, the throughput of a fluid, for example, through a pipe, that's flow rate, right? And what we're saying is that the only metric that will matter for, for, the, the main metric for treasuries is the yield per deployed sat on Lightning. So how much yield could you generate as a Wallet. That is the, that is like the literal, like how you can measure performance on an operating standard. And then the other metric would be like maybe what you can call lightning deployment rate or whatever, like how much of your treasury is currently on lightning and how much is just idle and, you know, pro- not producing value for the, you know, network itself, because you could argue that you could do, you do, you do a lot of yield stuff on, in the fiat, you know, universe, you could say, you could do a lot of, you know- People call it, you know, financial engineering, financial gymnastics or whatever, but, my argument is that we should all, you know, focus on how we can create value in the Bitcoin ecosystem, mainly, and I think that's gonna drive, value long term. so that, that's my, my take on it. so I, I believe in-- I believe they have a purpose, and I believe their purpose is to make Lightning scale, and I think that makes a lot of sense on from an incentive perspective, essentially. Okay." }, { "speaker": "dave_lund", "time": "10:23", "start": 623.37, "text": "So just That are public and out there that people have put out. So Miles Sooda from Cash App at the Vegas conference in, I think this is in around May of twenty twenty-five, he announced that Cash App's Lightning node was achieving nine point seven percent annual yield. Now that's in Bitcoin terms. Shon, CEO of LQWD, I think they announced something in the range of like nine percent-ish. So this is kind of, that's what, let's say a pretty good level is. Now, to be fair, that is also, you know, a, a Lightning- Channel isn't a lightning channel, right? Like one Bitcoin is one Bitcoin, but one, you know, it matters where the direction of travel is, obviously. and the other context point, that's interesting for listeners is the total capacity, you know, as we speak, in public channels, five thousand two hundred and fifty-six BTC-ish, which is about half a billion dollars worth of lightning that is in public channels. So can you comment a little bit on that in terms of the yield and how big this is? Because some of these treasure companies, like obviously MSTR, they've got Maybe seven hundred thousand coins, right? but there are other, there are other smaller ones. can you comment a little bit on the lightning yield and how big you see this going?" }, { "speaker": "stephan", "time": "11:37", "start": 697.44, "text": "Yeah, no, it's, it's a very interesting, topic. in terms of the type of yield, we mentioned leasing and the routing fees, and mainly what's being, you know, in the news, let's say, is, is the routing fee yield, which is kind of like the operating model today, and what we're essentially saying is that, one, I In terms of what they should do with their Bitcoin, right? So that's the-- But I'm also saying that even the ones who do operate routing, fee business, let's say, are, are actually also getting it wrong, not because they're, you know, bad or anything, but it's ju- just because, you know, somebody has to push the mes-message and the market has to be created. And what I'm essentially saying is that the liquidity leasing aspect is the one where you're gonna actually get reliable, you know, numbers, because if, if you report," }, { "speaker": "stephan", "time": "12:26", "start": 746.43, "text": "could be on an annual basis for a company like, or a business like Block or Cash App, because they have, you know, both ends of the spectrum. They have both Bitcoin on the balance sheet and they have a huge user base. And, I'm gonna come, we're gonna get back to that as well because we're gonna talk about maybe payment processors and, you know, how are they gonna solve it? Are they just gonna copy that? Is, is that easy to copy? I don't think so. but, What, what I, what I think these operating, Lightning Network treasuries should, should do is that they should build good topology, because you mentioned the connection and where you are on the, on the Lightning map, let's say. So the topology is like the bread and butters to make sure that you actually have a routable node and that you're well connected. the capacity itself doesn't really mean much. I mean, you have to have Bitcoin, right? But the actual topology and where you're placed is the real value that you're building, and that takes time. So that means that it's a compounding effect. So the, the sooner you start operating on Lightning as a treasury, let's say, the better the compounding effect will be long-term. And that's really the hard part of my job is this, you know, to explain this because it's so far away from what they're doing today, right? Most of them." }, { "speaker": "stephan", "time": "13:36", "start": 816.1, "text": "But I think long term what a treasury would like to have, if I was a treasury, is to have this reliable kind of return that comes from maybe a more certain source. So in the liquidity leasing model, you're actually getting paid from one or more businesses to earn that yield rather than just having random payments come through, right? Because that is the routing fee operating model where you're kind of like affected by the general, general state of the network, whereas if you build a channel for someone or you put a channel up, that you wouldn't have done orga- Organically, because, you know, there is an, there is a country now that has billions of dollars, they have no tourism, for example, or they wanna build this, you know, airport hub. you know, they could just build this airport with a huge, you know, huge landing strips and, you know, bunch of terminals and then just hope that, you know, European airports or the, you know, American airports would, would open, you know, paths to them. But that's the organic approach. The leasing approach is saying, hey, I have a bunch of money here" }, { "speaker": "stephan", "time": "14:35", "start": 874.9, "text": "This inbound capacity so that I can start receiving payments and maybe I could also become one of you guys. But that's also like a tiered model. So if you look at the internet, you have like tier ones, tier twos, tier three ISPs, and I think it's like only seven tier ones in the world, right? So, I mean, I'm from Sweden, you have a company called Teleia Carrier, I believe they changed name to Aurelion or something like that, but they have seventy-five thousand kilometers of cable, right? And it's very hard to, you know, replicate that Tier one, because it's too late essentially. So what happens over time is that you basically, you know, if you wanna be a tier one, you have to start now. That's essentially the, the pitch here. yeah, I'm gonna stop there because I can't go on. Gotcha. Okay. Yeah. Okay." }, { "speaker": "dave_lund", "time": "15:18", "start": 917.91, "text": "So yeah, it's an interesting point about starting before, you know, the ramp up comes. But I guess the challenge might come that, is it early, right? Like, how much should people put into it? Like, are they, as an example, On this before, let's say the lightning volume can sustain like the demand for either the routing fees or the liquidity fees, the liquidity leasing fee, to be clear, that, you know, yes, hey, where Bitcoin Max is, I, I believe lightning number is going up, but How, how much, you know, is it possible that you overbuild, like that you build out the, you know, you put in all this capacity that is simply not going to be used for another five to ten years?" }, { "speaker": "stephan", "time": "16:03", "start": 962.85, "text": "No, that's, that's ex-exact, it is early. So I'm gonna be completely honest with that. I mean, this is like a Google moment, I would say. I mean, Bitcoin is in general like, you know, a big step for humanity, but this is, you know, another one, because if you just ask, you know, anybody in the street, like, probably they've heard about Bitcoin and, you know, but, but Lightning, I mean, still like the, the common person hasn't heard about it even. So, and that's If you're, if you wanna be on Lightning as an exchange or any business, you could go with an LSP model, right? You could have a single, LSP Lightning service provider that provides you liquidity, but for, for larger businesses and for exchanges, that usually doesn't work because you're really relying on one entity for your whole, you know, Lightning part of the business. And that might only, you know, touch maybe ten to twenty percent of your customers, but it's still like a very, you know, business critical thing and it's kind of embarrassing if it stops working and" }, { "speaker": "stephan", "time": "17:02", "start": 1022.43, "text": "Didn't go through. Why can I only withdraw this much? Like, what, what's going on? So from my UX perspective, what we're targeting now is to essentially act as a broker between, I mean, not a broker in the like, it's a very high-tech broker, let me put it like that, but it, it can be very simple. I mean, just the, the, the, I think the hardest part here is capital finding its home essentially. So you have these, you know, big routing nodes currently, and most of them aren't actually actual businesses A change in, and I think the Treasuries make a lot of sense in being that kind of business, right? And th-this kind of like leasing capital has to find its customers, and that's the question you're asking, like, is there a market for it? And the thing here is that even though maybe you, you, the total payment volume is low, right? I mean, there were some new reports, I think, Lightning Labs said something about ten billion dollars of being crossed on an annual basis, I think Ambo also said that, and I, we're definitely in the Tiny if you compare to other payment systems, right? And stable coins and all that, which will eventually all fall into Lightning, you know, as the base layer anyway, so we could use that in, in the pitch, right? But, but essentially, what we're selling here is the, you know, capacity to get started. I, I think, yeah, definitely in the beginning, you will see liquidity leasing, in, in a way where there will be a lot of unused capacity, but if the capacity comes from a treasury that said, you know, we're gonna keep this money forever Then, you know, what's the, what's the drawback there? I mean, I think that's, you know, that's the whole point of saying that there's a few things I mean, obviously they don't have to think" }, { "speaker": "dave_lund", "time": "18:41", "start": 1121.01, "text": "about, yeah, what's the technical risk of that, what is the, you know, et cetera. But can you just explain for people like- Where, what specific service or product Flowrate is offering? Like, are you going to custody any of the coins or are you merely, sort of like a bridge? Or like how would it work? Like, let's say somebody has a stack of coins, whether they're a treasury company or not, like they, they wanna come to you, they're like, \"Hey, I wanna sign up with you.\" What exactly does that look like? Does that say, \"Hey, I'm gonna give you X number of BTC and you go deploy that in Lightning channels for me?\" And then You know, I take the yield, we get a yield out of that, and like, what's your fee and what does the customer get?" }, { "speaker": "stephan", "time": "19:24", "start": 1164.06, "text": "Yeah, no, that's a great question. We have different products, right? And I think the main thing to start out with is security, and I think Lightning definitely, isn't ready for institutional treasury deployment, anyways, because you don't have multisig for Lightning, and I think that's definitely a huge, problem, and that's what we're working on that with, VLS actually. So validating Lightning signers, That also became later Greenlight as a, you know, in Blockstream they used, that for, for that product. And, what, what it does is essentially, you know, separate keys from, from the node itself, but then you just separate the physical attack vector to some other location. So there's still like one point of failure in terms of physical attack on the node. and what we're working on now is essentially introducing like a distributed system for that, so you could have multiple signers. this can get very high tech, so I'm just Some, workarounds we have to do to get, multisig to work, and to get true multisig, you actually might have to do some like a new channel type for Lightning. But this is too high, high end for, I think, this, this time kind of talk. but essentially we're, we're, we're basically improving the standard of how to deploy in a secure way, and I think that's a big requirement for Treasuries because even if they report this immense yield or whatever, let's best case scenario, and then they lose it all because" }, { "speaker": "stephan", "time": "20:47", "start": 1247.14, "text": "Will not deploy, right? And that is the, I think, the biggest hurdle for Treasuries to one, understand, and two, know how to deploy. So we help Treasuries with that. We're also working with, Tropic Square, which is a sister company you could say of Trezor, and they have this new super cool, auditable, secure element, which basically means that you can have a kind of a mini HSM, hardware signing module that kind of like the banks use, but this is a different type of product, that you could audit yourself, so you Any, any, you know, government backdoors or whatever, because, you know, Bitcoin is the most crucial information on the planet. I mean, you could argue there's like a billion x requirement on the security from a, from a hot signer perspective than it would be on any government data or whatnot. So, so definitely having like these implementations on, on top of a lightning node is crucial. So that's one part of it. And just to, to keep it short, we act as a liquidity aggregator, so we build relationships with routing nodes. Preferably businesses, so that are actually legal entities as well, because that's where I think the, the demand will come from, where you can actually have SLA policies from the customer side. And then instead of you going into like a marketplace which exist, you know, you could go into a marketplace and buy liquidity and, and, you know, buy channels from other nodes. Y- you know, we think that there are a lot, a lot of people that don't wanna even touch that, so we just wanna simplify it so the product is having multiple stable, large nodes with good- Topology open to you and, and offer you inbound capacity, so that you can, you know, have a kind of turnkey onboarding on Lightning as a company. So our customers are not consumers or- Yeah, I see." }, { "speaker": "dave_lund", "time": "22:29", "start": 1349.2, "text": "So that would be if the company intends to actually make and take Lightning payments themselves. Yeah. Gotcha. So I guess that's on one side of it, and on the other side, like if they just don't intend to take Lightning, make or take Lightning payments themselves, but they have some Bitcoin and they just wanna earn some yield? Can you talk to us about that also?" }, { "speaker": "stephan", "time": "22:48", "start": 1368.31, "text": "So you mean the, the treasury or like the kind of like the yield perspective on things? Yeah. Right. so, we, we approach this problem of saying, hey, we could work in a perspective where we have thousands of suppliers. So we work with like a, a, a big network of suppliers either through like a marketplace or whatever, but, but we kind of tackle it from saying, hey, we would rather work with maybe a few very, very well-established routing nodes and give them like bespoke, let's say, offers. So rather than having like these short-term relationships, thirty to ninety days, and then let's see what happens, you know, I'll keep this channel alive if it makes sense, if there's fees or routing or transactions going through, then I may, might keep it open. That's kind of like the sentiment today. Switching that over to like saying, \"This is a company that's expecting these sales, and they're willing to pay you upfront this amount,\" kind of like that. I mean, there's not a-- We, we're, we're in pilot phase, right? But there's" }, { "speaker": "stephan", "time": "23:46", "start": 1425.5, "text": "Infrastructure in general, like we're gonna build this bridge, you know, you're probably not gonna contract five, architects. I mean, you might, you know, check the market for, you know, different ideas, but then you're gonna decide on something and you're gonna go for that and then you're gonna build that architecture. And I think, here as well, I, I don't think it makes sense for larger entities, larger corporate entities to work and, and become like an ISP just to receive payments for twenty percent of their user base. I think they would much rather- You know, trust in citation, like trust, a, a partner to do that work for them to source that inbound. Because, you know, if you're a company today and you wanna get reliable inbound that matches your expectations of payments flowing in and then of, of course, out as well, because it's, you know, a symbiotic relationship with inbound and outbound. You're, you're not gonna, you know, wanna hope that you're gonna get that inbound, 'cause today you kinda have to hire somebody or use an existing engineer to, you know, be a routing node operator internally, and then, you know, become closer to the central part of the, of the ecosystem. we, we are actually, so the product in a very, very simplified way is enabling businesses to remain leaf nodes forever, so they should just use their cash flow from the fiat space, if you, if you might say, or if they have native Bitcoin revenue. And pay the network to get access without having to become a routing node. I think that's-- and I, I think that's the point of the internet. I mean, you don't wanna become an ISP just to have internet. You, you wanna pay. So the ideal scenario is just having one supplier, but Flowrate sees it from a perspective of redundancy, so you might wanna have, you know, at least a few stable inbound, channels and not just rely on one LSP. You can have one LSP if you're an end user, but if you're a company, you would I think this is the, is the main issue, I say, I see. Yeah. And then, gotcha. We have other products on top of this essentially." }, { "speaker": "dave_lund", "time": "25:37", "start": 1537.02, "text": "So let's talk a little bit about the cost of this then, because one other aspect, okay, you know, it's easy to talk about the yield aspect of it. What are the actual costs involved? And let's, I guess, it would be, you know, thinking about this if you were a lightning business or some kind of Bitcoin business, your alternative, like, what's your alternative is to hire some kind of lightning expert" }, { "speaker": "dave_lund", "time": "26:01", "start": 1560.75, "text": "manages that node, opening and closing the channels, managing the liquidity, et cetera. and then you have to think about, well, and then any other security costs that you would be paying as part of that to kind of make it a secure setup? That's one way of doing it, and then the other is obviously to go to you. So can you just talk to us a bit about the costs associated, what should people expect in order to- To, you know, to operate this, you know, profitably." }, { "speaker": "stephan", "time": "26:28", "start": 1587.64, "text": "Yeah. I think, since it's an early market, like any early market, the pricing will change, and I think, just saying, so if you look at, like, from a very high level perspective, routing fees as a, as a operating business and, and profit, opportunities like point five percent, maybe one percent, but I've, I've talked to people that have up to three, four percent on an annualized basis, and don't, they don't even optimize They get that, but maybe they're in the top fifty then or top, top hundred nodes. From a, from the liquidity leasing standpoint, what are you paying for? So you're paying for, so Ambos has talked about this, it's called Max Flow. So you wanna basically increase the payment success rate of any payments going in and out from your, from your company, right? And that's basically the quality of the liquidity lease. All channels and all nodes aren't created equal on Lightning, and our job is to price that for the customer. So, you know How do you know which kind of mix you should have for your business? I mean, it's about geography, it's about, you know, payment size. There's a lot of questions to be answered. So there isn't no, and there's no fixed price, but in terms of yield, which, I mean, the payment from the businesses become the yield for the treasuries, right? Or for any supplier of liquidity. So, we're ex- we're looking at like one to four percent, I would say, you know, above two percent is definitely feasible to look And I think that's kind of like a sweet spot of, of like, yield that makes sense for both parties, that can be reliable. Because I, I-- Again, this is a very hard discussion to have because it's like two different universes connecting at the same time, and it's about incentives and why I think that two to four percent makes sense for treasuries, because that's a compounding effect long term, and the, the value for the suppliers here is to have that compounding forever, right? Not to have ten percent yield in You know, one quarter and then next quarter you report, you know, for your investors and it's less. So I think, and, and if, if you look at like platforms like Amboss in terms of, liquidity marketplaces, two percent is kind of like a number you, you see quite often in terms of what the, what it costs to, to buy, and that, that" }, { "speaker": "dave_lund", "time": "28:38", "start": 1717.93, "text": "two percent, that's an annual, you're saying?" }, { "speaker": "stephan", "time": "28:40", "start": 1720.23, "text": "Yeah, so it's basically on an annualized basis and then the lease might be shorter or, you know, revolving" }, { "speaker": "dave_lund", "time": "28:50", "start": 1729.56, "text": "So some treasury companies that may be seen as like, \"That's not really enough.\" Now, to be clear, it could also be, \"Hey, this isn't an all-or-nothing thing.\" They may say, \"Hey, we're gonna carve off a small percent of our stack and get some lightning yield out of that, and elsewhere, go and do, you know, financial engineering, digital credit, insurance, banking, whatever else they're doing to actually generate Bitcoin yield, but maybe this is like a portion of what they're doing.\"" }, { "speaker": "stephan", "time": "29:15", "start": 1754.59, "text": "I mean, I, I get that, and I think there is no fixed number that's like in stone. Like if I say two to four percent, like where do I take that number from, really? I mean, I take it from the existing data from like the, the peer-to-peer kind of like individual marketplaces where most of the entities are, are individuals. But if you, if you think about it, when you, when you involve like the corporate approach on Lightning, there is definitely a premium to be paid on that. I mean, reliability, I mean, if you, if you look Lightning for longer, they, they're, they have capacity, they have good topology, so I think there is no final answer on like what it should cost. I think that's definitely depending on the situation, and I also think that there will be situations where it's definitely a, a question of sales, like, okay, our business or is expecting this kind of payment volume, well, you might wanna have, you know, double the capacity just to make sure for, for Christmas or for any, you know, event or Black Friday or any, anything. So I think that's, definitely something to take, keep in mind, and that's why you see like the routing fee reports of like up to ten percent. I mean, there's no, you know, I, I think we, we can't really know yet. I think that's the, the, the grown-up answer of, of where this will end. But, you know, any-- I would argue this is the only existing, you know, actual yield, strategy that makes sense long-term for Treasuries. You could argue that they could act as kind of like liquidity providers for, for ARC The ASPs, but, for now, it's definitely this that makes sense. Any other type of, of yield strategy that you're not just being honest, it" }, { "speaker": "dave_lund", "time": "30:52", "start": 1851.51, "text": "might not be, it might not be interesting enough for some of these guys, right? If it's only two to four percent, it may not be, they may see that as, \"Hey, I can get way more doing other operations,\" right? So, but to be fair, maybe it makes sense for, let's say, if you are a Bitcoin treasury company who's not doing financial engineering, right? Like you're just So your business is something outside of Bitcoin, you're just earning and stacking, and maybe out of that portion of some Bitcoin, you're putting some of those up just to get an extra two to four percent, but that does come with, they have to think about, okay, what are the risks involved? and, on getting that." }, { "speaker": "stephan", "time": "31:31", "start": 1891.47, "text": "I, I think, you know, if you look at like how Saylor communicates, it's very like, you know, direct and like, \"This is how it is,\" and I think that's kind of like what's missing from the Lightning space a bit, because this is really like, \"This is it.\" I mean, i-if you look at like, as for example, when I talk to these companies that have no operating business, they just hold Bitcoin and they're publicly listed, and that's the whole idea, just to 0.1% annually on your holdings. Like, what is that? You can't have 1M now. I mean, just mathematically doesn't make sense because you're, you're giving up some of your stack to keep it safe, safe, quote unquote. I mean, it, it depends on which custodian you" }, { "speaker": "dave_lund", "time": "32:09", "start": 1929.42, "text": "choose." }, { "speaker": "stephan", "time": "32:11", "start": 1930.76, "text": "So from just a native strategy perspective, you have to have some level of native yield to not be a sinking coin. you, you could be even harsher in this description, right? But I'm gonna be nice here. Yeah. Yeah. I, I, I" }, { "speaker": "dave_lund", "time": "32:24", "start": 1943.89, "text": "think, and that's, I mean, it's fair to point out, yes, they have costs, they've got employees, they've got custodian fees and legal and accounting and whatever else, but I think the challenge, like, if I'm putting myself in their shoes, they're probably gonna think, It's probably not in, like, yes, they have these costs, but they would rather go out and do something that can earn them more yield, right? So that's probably, you know, that, that's probably how I'm thinking about that, but it, it could make sense in certain scenarios, right? Like, not for everything, maybe as a fraction or things like this. now, another thing that would be really good to talk about is this whole topology po-point, right? Just to elaborate a little bit on this idea, right? So as we were saying, a Lightning channel isn't the same as every other Lightning channel. It matters your centrality on the network when, you know, if you are a node that other people want to pay to, or you, you know, you have, a lot of people wanting to route through you, that's very valuable from a Lightning perspective. So can you just elaborate a bit on that and explain, you know, this topology point?" }, { "speaker": "stephan", "time": "33:28", "start": 2007.88, "text": "Yeah, I mean, I think, we could just do it on a very basic level. I mean, if, if, if I wanna operate on Lightning and I wanna have, you know, cust—custody myself of my own, coins, I don't wanna use like, LSP or whatever or a wallet that's a custodial wallet. I open an node and I wanna have a payment channel with you. You know, there, there's a balance on each side, of that, it could be all, all the money on my side, some money on, on your side, and if you and I just have a channel that's then connected to the blockchain through a multisig arrangement, I mean, that doesn't make sense if it's just you and me, right? it could, but usually doesn't make sense. So Lightning makes sense when there's a network of, of more connections, and if I have another connection over here, and you could pay that guy through me," }, { "speaker": "stephan", "time": "34:15", "start": 2055.18, "text": "Any network in the universe, they all end up with the same situation. So you could take a tree, for example. Tree, it's very hard to convince a tree to, you know, let's, let's, let's rearrange this. You know, you're gonna just change your roots and you put them over here instead. Like the tree's gonna say, \"Here's my base. When we climb up to this, you know, the higher we go, it's gonna bran-branch out, and then you're gonna have these leaves on the end, and that's the solar panels. People start paying to access, you know, the water from the roots of the tree. It's a very basic example, but that's like the typical network effect. If you look at the air, like aviation industry, any roads, I mean, all the, all roads lead to Rome kind of vibe. so, what I'm trying to say with this on Lightning, this is being represented in- In the fact that today you have a lot of concentration of capital in the top nodes. So I don't know the exact figure, but a lot of the capital is today in the maybe top ten nodes of, of this, of the system. And that is because, you know, if you're in a network And you wanna connect, you wanna, you know, get connected as soon as possible, you don't wanna, you know, wait, then you're probably gonna want to connect to some large node to get connectivity so that you can reach the other nodes. It doesn't matter which network we're talking about, if it's a railway system, if it's a highway system, whatever. so there's definitely a preference for the larger entities always on any network, and that has pros and cons. the pros is that if we try to have a perfect mesh, Lightning wouldn't work, and we, we can go into detail on that, but that's just a basic explanation. I mean, we can't have a perfectly distributed system where everybody on the planet is connected to everybody, because if you have the example of like a thousand nodes on a network, and they all connect to each other, each other, and they have one channel to each other party, that's five You know, the problem with Lightning, which is harder than the telecom industry had, is that you can't solve pathfinding algorithmically. It has to be like manually wired. It's like cellular intelligence almost, that we, we kind of manually wired the internet. And, and, and, you know, the problem that Lightning has on top of the pathfinding is the liquidity capacity problem. so you mentioned the back, because example, like if you pay me, then you have moved liquidity over to the other side of the channel, and, you know, in order to get that back, a payment has to go your way next time, or you could do other things, you know, that we might not get into now, but that's the basic premise. So that-- this essentially makes the problem much, much harder, and it's definitely shows that this really has to be orchestrated and, and, doesn't, doesn't mean, you know, doesn't mean that Lightning has failed in terms of being this, you know, a payment system on top of a decentralized money. I think that from a time preference perspective, we have to understand that we're putting a very, very high requirement on Bitcoin in terms of what we expect from it. I mean, if we want instant clearing, that's a high time preference demand on a digital money, and then we're gonna, we're gonna, we're not gonna have the same situation Now with Visa, Mastercard, Swift, where you can like get cancelled from the system and you can never get invited back, right? But you're definitely gonna have something, yeah. Yeah, you're gonna have a different pathway and you're gonna have something in between where you might get, you know, a channel closed to you, but I mean, you could find another way. on the fiat system, you know, you're out for good, so, or you start bricks or something, I don't know." }, { "speaker": "dave_lund", "time": "37:39", "start": 2259.05, "text": "Yeah. Okay, so one other point, like you were making this You are doing, you're being a good routing node, people want to connect to you, you start to become one of the bigger guys, and then they connect to you or they route through you, so you earn money or you have like a valuable position. Customers of Flowrate, are they going to end up having their own node? Like, 'cause I guess if the premise is, hey, you should start early because you need to build up your own-- Like, does that mean they're all gonna have their own node, or is it more like Flowrate is gonna run your own node and it's building up your, you know, your Flowrate node is gonna be topologically really good, but the treasury company or whoever isn't, you know?" }, { "speaker": "stephan", "time": "38:26", "start": 2306.3, "text": "Yeah, actually, I forgot to answer that earlier. I mean, we're not a custodian, right Being a custodian in terms of, brand and trust risk if we ever would lose customers or- And all the regulatory stuff" }, { "speaker": "dave_lund", "time": "38:38", "start": 2317.75, "text": "too, yeah." }, { "speaker": "stephan", "time": "38:39", "start": 2318.73, "text": "Yeah, and the regulatory stuff, we wanna, you know, we push that to the, to the customers and suppliers, I guess, but we, we can help them on that and we can advise them because we have, you know, seen that before. but yeah, we kind of, we act as an orchestrator and we, on the treasury side, we help them to get started and then there are ways to actually control nodes for us through So from the treasury perspective, I think there's a lot of treasuries that just wanna, you know, have, you know, be on the beach, drink a piña colada or whatever, and, you know, not have to worry about their node, has to be secure, right? But from an operating perspective, I think that's what kind of where we target to, to actually, run the nodes for them, but they keep custody either in their own premise or with a custodian or multiple custodians if we look at the multisig. And And, and, and, and we help them in, in the best way we can, but we're limited in what we can do for our cli-clients. We're trying to solve the major problems, and that is not, you know, setting up a, a node. The major problem is the topology, that's the, you know, the headache here. definitely. So" }, { "speaker": "dave_lund", "time": "39:50", "start": 2390.08, "text": "you kind of, you would work with someone on the treasury company side or whoever, let's say it's a big custodian or whoever who has a lot of coins and they wanna do this, you would Some on the topology component of this, but they would still need somebody on their side to actually manage the node. Now, I guess it doesn't have to be like physical, you know, you know, bare metal in their office, like they could be running a cloud node, but you would be helping them facilitate that." }, { "speaker": "stephan", "time": "40:21", "start": 2421.18, "text": "Businesses can definitely run a lot of interesting setups, and maybe security is not their top priority, maybe their outbound capacity is like very minimal and they're, they're fine with, you know, any, any risks involved with that. But from a trea- Treasury node perspective, I mean, we have to think about treasuries are afraid of losing one Satoshi, right? So they're very, very keen on having like full custody. so that's definitely more like" }, { "speaker": "dave_lund", "time": "40:43", "start": 2443.23, "text": "they would have bare metal, they would have like a, a box in their office or something to actually run it out of." }, { "speaker": "stephan", "time": "40:49", "start": 2449.42, "text": "Yeah, so they're different, you know, requirements and, and I think, I think actually this is the main-- So you wanna really push on the security aspect here. Like if I was a treasury and I would be like, \"Hey I'm, I'm done for. It's like, yeah, that's the situation today. Not exactly like that, but, but kinda, kinda. You could also use HSMs on the current setup, that's definitely very, very hard to get into. But I think getting that multisig working is, you know, that then you have the gold standard, I would say, of, of, of enterprise level security, because then you would have to have two attacks physically in two separate data centers, minimum two, at the same" }, { "speaker": "dave_lund", "time": "41:28", "start": 2487.86, "text": "time. Right. To pon you. Like grapple with this trade-off, right? So, for example, Asyn, I think they have one, you know, the creators of Phoenix Wallet, they are known for having like one of the biggest Lightning nodes, and they do like a very complicated security, I think they've written some blog posts and stuff about that, and maybe even Cash App, of course, have a big node, and Bitfinex and some of these other guys, they've got big nodes, and so they have to like really put in a lot of- You know, work on the security side of things to keep it secure, obviously." }, { "speaker": "stephan", "time": "42:00", "start": 2520.3, "text": "Yeah, and it's not really talked about, and usually when, when a topic isn't really discussed, that usually means something. And I'm, I'm, so, so, but the, so the, the conclusion we have when looking at this problem is that it's very, very bad today. It's looking very bad from a security perspective, and, and maybe not if you're, you know, if you can accept one guy in your company being in full control, like the CEO for example, like main shareholder Fine, right? But if you're a treasury, you really don't usually accept like single point of failure from one individual, like one guy's house or whatever. So, so, I think the problem for treasuries is a lot, is a lot more tough to solve than from a regular like exchange or, or, you know, any operating company on Lightning. So, that's the difference. They really wanna have this distributed signing authority because, you know, that's why they use custodians, right? They don't wanna be blamed, for, for any fund" }, { "speaker": "dave_lund", "time": "42:55", "start": 2575.33, "text": "Yeah, interesting. Yeah, so the security, yeah, question is going to be, let's say heating up a bit further over time. a-and as you mentioned, VLS, I've done an episode years back with V-L- actually, I'm thinking of, I should probably get an update episode with the VLS guys because, I'm sure there's been some progress since then. but basically, I guess for listeners who want like a simple explanation, you can think of it as- Loosely like a hardware wallet for Lightning, kind of like they've, they've built in certain policy rules to help secure the coins, such that it only signs if certain policy rules are met. And, you know, that's part of, you know, the, let's say the maturation or the increasing maturity of Lightning and Lightning security as this thing grows, as some of the Lightning nodes get bigger, what are we gonna, what are they gonna do to make sure, obviously, it, it all stays secure?" }, { "speaker": "stephan", "time": "43:48", "start": 2627.68, "text": "Yeah, we, when we spoke to, to them initially about our project and, and, and multisig, I mean, they were like, \"This is, you know, Flore is--\" I mean, I'm quoting them now, I think was Jack at, at VLS, he was like, \"This is exactly what we were looking forward to when we started working on VLS, like companies like this that actually bring, lightning, you know?\" Forward from the hobbyist kind of approach that you've had before up to the institutional level, and if you look at our, roadmap, actually multisig and secure elements was-- I think both of those things were like on the roadmap, so then when we came in, it was like, you know, perfect timing. So, so, this is definitely something we're, we're starting working on it, now essentially with the multisig stuff, and it's very exciting. it's gonna take some time, and there, you'll probably need to have Fully and truly, because it's about the revocation stuff that kind of messes things up. But, you can get something that's much, much better today than the existing, security setups that we've seen. If you go Google online like, \"What's the best security setup?\" We can make something better today, and that's what we're working on, on doing. And, you know, can't say any, any dates right now, but it's definitely something that we're working on, and, and, and you're gonna have a lot of this gonna be" }, { "speaker": "dave_lund", "time": "45:05", "start": 2705.44, "text": "Yeah." }, { "speaker": "stephan", "time": "45:06", "start": 2705.84, "text": "Now" }, { "speaker": "dave_lund", "time": "45:06", "start": 2706.06, "text": "we've been talking about this mainly from the perspective of treasury companies, but who else could this make sense for? Like, if you are, you know, just a whale who wants to put up some Bitcoin, does it make sense for you? Or if you are a, a merchant, or if you are an exchange or a, you know, who else could this service, who else does it make sense for?" }, { "speaker": "stephan", "time": "45:26", "start": 2726.06, "text": "Yeah, again, I think again it's like back to the question of incentive, because when I discuss with like Lightning devs on these Telegram chats, they're like, \"Why do you bother doing all this? I mean, just put up a group of twenty Bitcoiners, you know, whales, and they'll just supply the liquidity. I mean, there's enough Bitcoin to go around in those spaces.\" but again, I mean, if, if you have a ten x in the Bitcoin price at any time or five x or whatever, two x, you name it. You know, the person who's gonna get that one to four percent yield, if that's an individual, is gonna probably, you know, at some point force close some channel, be like, \"Hey, I, I can't bother, like, I, I think the security issue is a--\" You know, any, any, you know, they could come up with any problem to say that I'm not gonna, you know, commit to this, you know, agreement of this, having this channel up for a year or whatever. So imagine like being, a large enterprise," }, { "speaker": "stephan", "time": "46:22", "start": 2781.82, "text": "Does it make sense? it's like re-reliability on the, on the, companies, customer side that's a, a, an issue, but then also on the supplier side is an incentive issue. But I'm not saying that it's like- Of course, you're gonna have a market of that. so I'm, I'm not, I'm not gonna grill that too much, but I'm saying just for our kind of customer types, which are larger companies, I don't think that's gonna work, to have individuals as liquidity suppliers. But, definitely we might make some exceptions, but, but that, that's, that's not on our radar. If you look at the liquidity marketplaces, that's what you can see. You can see that there's a lot of, you know, i-individuals Or a small company, brick and mortar, whatever, that makes a lot of sense. so there's, again, there's different tiers and, and different markets for, for everybody." }, { "speaker": "dave_lund", "time": "47:16", "start": 2836.36, "text": "Yeah, so I'm reading that then as Sometimes it matters that you can pay and have a professional contract, and, and service level agreement and so on, whereas, maybe in the early days of Lightning, or, in more informal environments, maybe that's not enough to cut the, to sort of cut, that's not gonna cut it. okay. Yeah, interesting. Okay, so, yeah, I guess, I guess zooming out and summarizing 'cause we've kind of, we've covered a lot of things, but the idea with Lightning is obviously topology matters, your centrality and your routing position matters, and- Over time, as Bitcoin grows, as the Lightning payment volume grows, the professionalism around Lightning nodes and Lightning node operation, and thus the yield, whether that's the routing yield, as in the payment yield, or the liquidity leasing yield, is going to, also mature. And so, I guess what you're talking about here is this, is, you know, is this idea of, is there a business case for large treasury companies or custodians to put up some of their stack to earn some yield? On it, even if it's not massive yield, it's something and it's Bitcoin denominated, with different trade-offs, compared to, you know, other ways that they might go about getting some yield, So that's kind of how I'm understanding it. Any closing thoughts from your side?" }, { "speaker": "stephan", "time": "48:42", "start": 2922.01, "text": "Yeah, I think, when we talk to treasuries, they're, they're very eager. I think, the, the, security aspect is number one, that's what we put that as a top priority. And if you look at the, like I'm saying, like aim for leasing, that's your operating model long term to make that, you know, fixed income kind of, yield as a, as a treasury. but you can't just, you know" }, { "speaker": "stephan", "time": "49:06", "start": 2945.65, "text": "And if you have good topology, you can't just, you know, close all of those channels that you use for routing and just put all your capacity to leasing, right? So it's like an airport or like a train station, you know, that's very well positioned, you know, starting o-building tracks to small towns that just bribe them to open, open those, railroads and then they stop or, or, you know, use the rails from the actual big cities and like remove them and, and then the, you know, the routing node, the purpose is" }, { "speaker": "stephan", "time": "49:36", "start": 2975.85, "text": "Story perspective, what I'm expecting here for the market is that more and more treasuries will look at what, LQWD is doing, Beehodle, those companies, I think will start doing liquidity leasing more and more, they will start reporting, more about that, and, and I think long term, as like a very bold prediction, is that the liquidity leasing kind of business model will replace the entire bond market long term, because this is like actual fixed income on, Bitcoin, right? And the equivalent to the, the market of bonds is that this This is like a corporate bond, and the equivalent of routing fees is the, is the government bond, right? So, that's the future, and it's like if, if you, like, you can vet this whole idea, throw it into an LLM and just ask it, you know, does this make sense? And it does. So, so that's the short story, and I think the sooner you start, the better, and it's very hard to see this early if you don't understand all the ins and outs. And if, to be honest, like, if Or it's, selling your, your idea, it's very hard to know all these things as well, and that's where we were here essentially." }, { "speaker": "dave_lund", "time": "50:43", "start": 3043.23, "text": "Alright. Okay, well listeners, check it out. if you found the episode interesting, make sure to share it and find the, website for Dave and the team over at flowrate dot com. Dave, thanks for joining me. Thank you so much." } ] }