{ "episodeId": "SLP716", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "matt_black_jay_patel": { "name": "Matt Black & Jay Patel", "role": "guest", "tag": "MATT" }, "guest_2": { "name": "Guest 2", "role": "guest", "tag": "GUEST" } }, "segments": [ { "speaker": "stephan", "time": "00:00", "start": 0.16, "text": "If you are a borrower at a custodial platform, if there is some regulatory action against the lender, your assets might get frozen, completely independent of you or the lender doing anything wrong." }, { "speaker": "matt_black_jay_patel", "time": "00:11", "start": 10.66, "text": "Hi, everyone, and welcome back to Stephan Livera podcast. Today, I'm joined by some of the team from Lygos Finance, Jay and Matt. Now, long-time listeners, you might know I spoke previously with Matt back in the Atomic Finance days, and now, what's happened is, Ligos has rolled in, or has acquired, I believe, Atomic Finance, so, we're gonna be chatting a little bit about DLC lending. so, first off, welcome to the show, guys, and, yeah, maybe you wanna start with just a little bit of how, you know, the, the merger happened or the acquisition happened, between Atomic Finance and Ligos." }, { "speaker": "guest_2", "time": "00:46", "start": 45.54, "text": "Yeah, absolutely. Great to be back, Stefan. you know, as your listeners might know, we were previously working on Atomic Finance, which allowed for folks to be able or options contracts using DLCs. I think one of the things that we learned through that whole process is that, you know, derivatives on Bitcoin are great, but it's really, really challenging to build on Bitcoin, on native Bitcoin in a way that's easy for folks, especially traders, to be able to get the tools that they need in an on-chain environment, and we were able to grow it to a, you know, a really good size, but we felt that we weren't really able to expand it And scale it to the, to the level that we really wanted to. around this time, a good, good friend of mine, Francis, was, was actually reaching out to me and, 'cause he was really interested in the tech that we had built. So, you know, DLCs allow for smart contracts directly on native Bitcoin itself, and he, he thought that the idea of using this type of technology for loans is something that could be really, really exciting. and, you know, you know, him and Jay, who's joining us today as well, they built up a, a great lending book at Anchorage back in the day, and we're trying to figure out, well, how can we actually make this non-custodial? And so it was kind of the perfect marriage of, you know, we brought the tech, they brought the industry experience, and that's, you know, was the, the genesis of Lagoes." }, { "speaker": "matt_black_jay_patel", "time": "02:22", "start": 141.96, "text": "Excellent. Yeah. Jay, do you wanna just tell us a little bit from your side?" }, { "speaker": "stephan", "time": "02:26", "start": 145.75, "text": "Yeah, I think, you know, Matt definitely covered the backstory perfectly, which was just that, you know, the, the tech that they had build-building at Atomic was perfectly suited for, for lending purposes. you know, in terms of mine and Frances's backstory, we had built up the lending business at Anchorage, you know, prior to the FTX collapse, and, you know, we had built it in a kind of like, conservative and- You know, risk minded approach, but obviously post FTX, there was kind of like a freeze in lending markets overall. And what we saw on the back end of that was basically like the institutional lending market folks got a lot smarter about just handing over their Bitcoin to their lender or their counterparty. They started using things like tri party agreements or holding it kind of in escrow at a custodian. But for everyday Bitcoiners, the options were still a little bit limited in terms of if you wanted to get liquidity against your Bitcoin, you still kind of had to give up a decent amount of control or just- Just hand over the keys entirely to the lender. and so it seemed like a perfect opportunity to basically combine the kind of battle-tested tech that Atomic had built with the lending business model, which is much more suited to this kind of like bilateral relationship than something like options trading, you know? I think lending, folks do like to have a relationship with their lender, know who's on the other side, you know, if you wanna do collaborative movements of the assets or modify the loan terms, you can still do that in DLC, but you still benefit from all the trust-minimized architecture That, you know, Atomic was building from the" }, { "speaker": "matt_black_jay_patel", "time": "03:54", "start": 233.87, "text": "beginning. Got it. And so just so people can kind of place this, there's, I mean, there's a lot of different lending products and services out there, and I guess maybe just talk a little bit about the size of this market, because as I understand, like every person I talk to in the Bitcoin lending world is telling me that, like, you know, it's-- the numbers have gone up a lot over the last, call it, twelve to eighteen months ish, something like that. do you guys wanna" }, { "speaker": "stephan", "time": "04:21", "start": 261.44, "text": "I'd say, you know, overall, the, the market's grown significantly. You know, if you're thinking purely Bitcoin collateralized, I think it'd be excess of twenty-five to thirty billion at this point. Obviously, it's a little murky because there's platforms that don't fully disclose their balances or their loan book or, you know, even what kind of collateral requirements they require, but there's a significant amount of collateral, you know, well in excess of twenty or thirty billion dollars that's being used to borrow, you know, primarily US dollars against today. and that's only growing over time. I think that's independent of all the stuff you see on exchanges, like this is purely focused on people who are looking for the liquidity against their Bitcoin, and it's generally not people seeking excessive leverage. you know, I, I wouldn't try to conflate the Bitcoin lending market with folks doing like margin loans on exchanges and things of that sort. I think that's very different." }, { "speaker": "matt_black_jay_patel", "time": "05:15", "start": 314.8, "text": "Yeah, gotcha. And so the other maybe interesting point, as I understand, is you guys are- To my knowledge, you guys tell me, the last standing DLC lending product or one of the last standing, because of just kind of how things evolved in this space. Do you wanna comment a little bit on that?" }, { "speaker": "guest_2", "time": "05:34", "start": 333.85, "text": "Yeah, I mean, I think I remember when I started in DLCs back in the day, there was lots of folks, there was us, there was Sherdex, there was Crypto Garage, all building DLCs. Lava joined the scene shortly after. and I think what we learned through the process was that, you know, there's all these really interesting applications that you can build with DLCs, but if we really want those other applications, like derivatives, we're gonna need covenants. DLCs today on Bitcoin are perfectly suited for loans. and obviously there is, you know, I think Glava is an example of a company that did do DLCs very recently, and made the decision to go custodial, which I think was, you know, I guess I, I was very sad to see that, that's kind of the direction that they went. We still believe very much that non-custodial is the way to go, that, that's the best way to protect, like, our users and to protect our lenders. but, a-and, and I think the other thing too is, Out a very unique way to be able to allow for DLCs to scale even more, and for it to be used by even more people. One of the challenges with DLCs in the past was it was only available on a, you know, on a, on an application, on an app, like an iOS app, or it's only available on desktop. but for the first time, very soon, it's coming to hardware wallets, it's coming to custodians, and so the ability for us to, to, to scale, I think, is maybe something that was missing for Oh," }, { "speaker": "matt_black_jay_patel", "time": "07:05", "start": 425.03, "text": "interesting. So what change that allows it now on hardware wallets?" }, { "speaker": "guest_2", "time": "07:09", "start": 428.69, "text": "So it was always, you know what's funny, if you look at the, if you look at the actual, libraries or code associated with many of the hardware wallets, you know, Ledger, Trezor, et cetera. the requirement for DLCs comes down to a very specific type of signature. It's called an adapter signature, and it's what's used to allow for the, you know, encryption and decryption of, you know, the unique signatures that are used that allows for the oracle to unlock one of the pathways for the DLC. And the, the code for that is actually inside of the libraries. We just have to build applications around it that makes it possible to use. So, for example- For example, Ledger's been working on Vanadium recently, Vanadium OS, which is a Rust-based operating system where you can actually build apps on top of it. so really like the code was there all along, someone just needed to come and build the, you know, the, the framework around it to be able to access it." }, { "speaker": "matt_black_jay_patel", "time": "08:11", "start": 491.16, "text": "Got it. Okay. And just, I guess, high level overview just for people who are new with like DLCs, like, I guess, I'll give kind of an ADIQ understanding and you can kind of elaborate a bit. So the idea is if Into a DLC contract with, let's say, I'm entering into a contract with you, it's like we are kind of pre-agreeing certain conditions and we're going in like signing all these different states, but only one of them will be valid at the end of that contract based on what the oracle puts out, and the oracle is-- can be like a different, you know, party who is attesting to, let's say, the price of Bitcoin as of one year from now or, or whatever, and then that makes the new, like, kind of almost like closing the lightning channel Well, that's like the way that you end out the contract to either send the sats back to me or the sats back to you, and that's sort of loosely how I understand that. Can you just elaborate a bit on how the DLC part works in a loan context?" }, { "speaker": "guest_2", "time": "09:06", "start": 546.16, "text": "Yeah, exactly. so for a loan context, you're pre-signing what the possible outcomes are going to be. So for example, you know, for a loan, what's gonna happen to the collateral? Well, either you're going to repay the loan and you're gonna get that collateral back. you're gonna be liquidated by the price going down, too far such that, you know, the lender needs to reprocess that collateral, or, you know, it's, upon expiry of the loan or upon maturity of the loan The lender's also gonna repossess, re-repossess that collateral in order to cover the, the cost of the, of the debt, to cover the loan that was given out. And so if you think about it, like these are three very simple outcomes. in the past, what folks had done, and we did this at Atomic as well, is, you know, there's kind of two versions of DLCs. There's numeric ones where you try to create like this very complicated payout curve, and you create all of these signatures in the background to represent every- Every possible outcome that you could possibly imagine. And so we took it a step back and we said, \"Hey, what, you know, why don't we simplify this? why don't we make it easier for the user to verify, number one, and why don't we make it easier for ourselves, by instead of having this complicated payout curve, we'll just have those three outcomes: repaid, liquidated by maturity, liquidated by price, and then allow for, you know, the DLC, in the DLC, both parties, the lender and the borrower. They basically pre-sign for those possible outcomes ahead of time, and, we just keep it super simple, which makes it really easy for us to do integrations, and also makes it really easy for the user to be able to verify those outcomes as well." }, { "speaker": "matt_black_jay_patel", "time": "10:51", "start": 650.56, "text": "I see. So instead of like the, the atomic finance model where you were signing like, I don't know, thousands of states or maybe more, now it's more like you're pre-signing three things. Is that roughly right?" }, { "speaker": "guest_2", "time": "11:02", "start": 662.33, "text": "Exactly. And then it's really easy for the user to just double-check, okay, in this specific scenario, where is my Bitcoin going? And it makes it even easier too to be able to verify, okay, well, what is the oracle doing? Is the oracle acting correctly or are they not? and, and so when the DLC- And the, and the other thing with the DLC as well is typically what you do is you, you know, deposit your, the collateral that you're gonna use for the contract, you pre-sign the outcomes, and then you also create a refund transaction as well. So in the case that we completely disappear or the oracle completely disappears, there's still a pathway for you to be able to get your Bitcoin- the break glass" }, { "speaker": "matt_black_jay_patel", "time": "11:40", "start": 700.03, "text": "kind of emergency sort of thing. So I guess in practice it's four signatures, and I guess that's also a bit faster on the signing side of things because I guess historically it took a Phase of this stuff because it was like literally signing all these transactions." }, { "speaker": "guest_2", "time": "11:55", "start": 715.12, "text": "Yeah, well, you probably remember Stefan like trying the atomic app out and it would take like one or two minutes to be able to enter the contract. Now, now it takes like five seconds. So, and it's gonna be the same thing on hardware, devices and with custodians as well. You know, adapter signatures are very computationally intensive, but, you know, when you only have three of them, it's not a big deal." }, { "speaker": "matt_black_jay_patel", "time": "12:18", "start": 738.28, "text": "Interesting, yeah, okay, that's cool. So So that's an interesting innovation then, because as I read you then, it's like, it's a lot faster than it used to be, and now there's a possibility of having hardware wallets, which makes it more interesting because I think, especially for larger loan amounts, you might not be comfortable like walking around with the private keys to that much Bitcoin just like on your phone, on like an internet connected device. Now you can kind of have it out on a hardware devices or hardware wallet, et cetera. So that definitely, is more appealing. and then I guess- Yes. How are you guys different from, like, say, some of the, like, if I think about what's, what's already out there, right? Like some of the well-known people, like Letin is out there, Strike is out there, There's a few others out there like Arch and so on, and they're kind of in the, the custodial lending sort of side of things. And then in the, you know, you either hold part of a key or, you know, some form of that. Obviously, there's you guys, there is, Debuffy, there's Firefish, there's, you know, there's probably some others out there and maybe like, or maybe the Lendersat guys as well. So how, how does Lygos compare with some of these other, types" }, { "speaker": "stephan", "time": "13:34", "start": 813.82, "text": "I, I, you know, I think that, that categorization's pretty good in terms of like, there's the existing custodial lenders, which we all know, and then there is like this crop of non-custodial lenders. I think the differentiation between us and the custodial lenders is obviously that, as Matt alluded to, the Bitcoin can only move under predefined circumstances, so you don't have to worry about any sort of financial failure of the lender or operational failure of the lender. You're not relying on them securing your assets or, you know, their cybersecurity practices or maybe rogue ops person at, at the lender or anything like that, or, you know, something worse and, you know, potentially non-malicious, which is, you know, one thing that we've thought about, which is that if you are a borrower at a custodial platform, you know, if there's some regulatory action against the lender, your assets might get frozen completely independent of you or the lender doing anything wrong, right? Like we've seen many examples of the SEC and other regulatory agencies in other countries basically saying, \"Hey, we don't know what's going We don't like it, you're not allowed to do anything, and then all of a sudden, you as the borrower, you know, might end up in a tough situation. I'll say on the non-custodial side, when you think of DLCs versus a two of three multisig, and Matt can definitely get more into the, you know, the hundred and fifty IQ very technical part of it, but for, for the layperson, I think the, the, the interesting nuance here is basically, in a two of three multisig, that third key is the most important thing, right" }, { "speaker": "stephan", "time": "15:03", "start": 903.16, "text": "back to the borrower, does it go to the lender? What are we signing for? And I think in general, there's two kind of compromises there. One is that the lender generally has a better relationship with that third party than you as the borrower. you know, they're, you know, in a contract with the lending platform, right? So obviously, you know, there's a tendency for them to side with the platform, and, you know, the oracle per se, who's actually saying, you know, when things occur, is generally going to side with the lender, in The other piece is obviously on, on, on the privacy side. So the benefit for DLCs is they're basically like a two of two multisig. So the oracle isn't like a third party arbiter. They don't know that Jay and Matt are the parties to this loan. They don't know that these UTXOs were the ones that were locked for this DLC. They don't even know the contract address or the payout addresses or any of that stuff. They just know that they need to leak a certain secret if certain events happen. So the risk of collusion with the oracle is a lot lower. With the oracle is kind of on equal footing as the lender versus like a two of three setup. And I think the last thing that's really big is like the privacy piece where, you know, you can be comfortable knowing it's non-custodial, but there's not some third party that knows all the knowledge of who the borrowers and lenders are, all their addresses, you know, you" }, { "speaker": "matt_black_jay_patel", "time": "16:21", "start": 980.99, "text": "know, all of that. Yeah, that's an interesting point as well around the privacy aspect of it. So I guess it's sort of, now it's not a totally free thing, like obviously you still have to understand what is the trade-off or the trust. In the oracle. so can maybe you guys can tell us a little bit about the oracle, how, in, in your model, who is the oracle, what's their role there? You know, w- tell us a little bit about the oracle." }, { "speaker": "guest_2", "time": "16:45", "start": 1005.32, "text": "Yeah, absolutely. So we use, a completely third party oracle, they're, they're called Magnolia. they're, they're registered, they're ba- they basically are a complete third party to us, where they make decisions, on their own about what the outcomes of the, of the loans should be. and that's the current setup for us. So when the user is going and locking their funds into a DLC, they're taking that announcement, so- You know, the, the oracle is basically gonna saying, \"I'm going to attest to whether it's going to be a repaid, whether it's gonna be liquidated by price, or whether it's gonna be liquidated by maturity. I'm gonna go and independently verify that that information is correct and true. and then when that event occurs, they obviously go and attest, and they create that Schnorr signature that then allows for the user to go and, you know, unlock their collateral.\" now, one of the unique things in the DLC model is that it's possible to, Very easily expand. So r-right now, this is a very nice model because with the oracle setup, you know, that oracle doesn't need to know, you know, Johnny over here is the borrower and, you know, and, X Y Z person is the lender, like they don't need to know any of that information. All they need to know is, hey, this is the information I need to attest to, and I'm gonna do so at the time of, and it's very easy to go and verify that they actually attested properly to those predefined outcomes. and if you compare this to an arbiter system, you know, at the time of the, the event occurring, now that arbiter software needs to go and say, \"Hey, what actually occurred here?\" And, \"Hey, let me make a, let, let me make a decision on the fly of what we're going to do in regards to this, this loan,\" which, you know, kind of, kind of makes the process of being a judge and jury, you know, much more, much more flaky at the time of, of when that event actually needs to occur." }, { "speaker": "guest_2", "time": "18:48", "start": 1128.32, "text": "manage for DLCs is it's much easier to expand to a multi-oracle system than it is to a multi-arbiter system. 'Cause if you can think about it, like with the arbiter system, if you take a two of three, you're using a PSBT, right? So, you know, you've got a two of three, maybe you wanna move to a three of five, where you have the borrower, the lender, and you have three arbiters. Well, now those three arbiters need to go and actually communicate with each other in order to pass around that PSBT, Get that, that transaction broadcasted. Whereas in this case, the three oracles can act completely independently, they can go and broadcast that signature, you know, when, when the DLC needs to be executed, and then the borrower or lender can go and take that signature, and then they can go and unlock the funds from the DLC. So this makes it very easy to scale to two or three oracle system or three or five in the future, which is what we plan, what we're planning to do very soon." }, { "speaker": "matt_black_jay_patel", "time": "19:48", "start": 1188.34, "text": "It kinda depends on like if, if this whole DLC model picks up and we start to see more oracles come online and it becomes like a thing, then maybe this multi-oracle model kind of, becomes more feasible, more popular, more desired as an option, interesting to see. So, yeah, so I guess, yeah, so I guess the answer then is it differs from the cust- obviously the custodial lenders is kind of a bit more of a clear trade-off of like, hey, you actually get to still hold the keys, but Let's say your, the outcome of your coins is locked to certain pathways depending on repayment or maturity or, liquidation on the price if, if, you know, the, if Bitcoin crashes dramatically, but of course, the idea is you should be over collateralized to prevent that, and then the con-difference with some of the, let's say most, mostly the multisig, lending, platforms is this difference of an arbiter versus having an oracle with Programmatic outcomes is kind of how I'm understanding that. okay, and then talk to me about, 'cause I'm thinking, and like a common use case people might have is like they might need to- Roll over or extend the loan. How does that work in a DLC context? So just make an example. Let's say I take a loan out from you guys, I'm your customer, I take out a one year loan, and let's say, it's now the eleventh month of that loan, and I'm like, \"Hey, Jay and Matt, can I like extend for another year? How do we do this?\"" }, { "speaker": "guest_2", "time": "21:21", "start": 1280.78, "text": "Yeah, great question. So DLCs are very versatile because at the end of the day, it is just a two of two multisig with obviously these off-chain trans-- you know, off-chain transactions that are signed in relation to the oracle. So at any time, if you are sitting there and you're like, \"Hey, I'm almost at the end of my loan, I wanna go roll it over,\" we have a whole process for that where basically you co-sign, you know, with the, with a, with a lender key to basically be able to go and move your, From the old DLC to a new DLC, and then you just re-sign for those same outcomes, but, you know, you know, one year later or six months later or, or whatever. and we also use this, the same process for also allowing for you to be able to, you know, add collateral or remove collateral. It's simply a process of taking the old DLC, moving it from the old DLC to a new DLC with new outcomes, and now, now you've got a new contract where you've got those new, parameters in place." }, { "speaker": "matt_black_jay_patel", "time": "22:21", "start": 1341.32, "text": "Got it. Okay, so yeah, so basically it's similar to even just, as you said, adding collateral or even rolling over or even early ending, I guess, if I want, it was like, \"Alright, I wanna end my loan now and repay now\" or whatever. Okay. yeah," }, { "speaker": "guest_2", "time": "22:36", "start": 1355.91, "text": "a-and, and this is very, like, those that know Lightning, this is very similar to a, a splice in or a splice out transaction, like, on chain it looks almost the same, which is really cool because you get that privacy benefit of this really looking like a Lightning channel, on chain, so people don't even know necessarily that this is a loan, maybe they just think it's a really big Lightning channel, which is kind of fun." }, { "speaker": "matt_black_jay_patel", "time": "22:57", "start": 1376.96, "text": "Gotcha. I should also ask just obviously the obvious kind of questions like the terms of the loans that you offer, like what are the interest rates? What is the length of the term or the tenure of the loan? and, collateral as well. Like what are the collateral and like, what's the collateral requirement? So maybe just talk us through the basics, like what are the, of the DLC loans that you offer? What are the rates, the, the loan term and the collateral?" }, { "speaker": "stephan", "time": "23:21", "start": 1400.72, "text": "Yeah, so, with regards to term, we can go anywhere from 18 or even 24 months, depending on the, the loan size, so fairly flexible in terms of the loan term for the, collateral requirements, I mean, suffice to say, Bitcoin only collateral, but in terms of the LTV, you know, we limit borrowers to an initial LTV of seventy, and a, you know, a liquidation threshold of ninety LTV. So, you know, we give borrowers a decent amount of room for topping up collateral, and we also have a process to notify borrowers that, hey, your loan is approaching liquidation. obviously, you know, it's up to them whether or not they want to add collateral or, you know, play it by the market and see how it goes On the interest rate side, you know, I think we have kind of industry leading rates right now. We start as low as ten percent, depending on loan size, and, you know, that, that's applicable regardless of the LTV as long as it fits within those parameters. So, you know, I think the big thing for us is like, it's not just a trade-- you know, you're not making like a, \"I'm gonna pay more for this non-custodial, trust-minimized architecture.\" I think the longer term thesis for us is actually, you can probably pay Because unlike a big custodial lender, we don't have a massive operations team, we don't have a massive, you know, financial audit that we have to do and proof of reserves and pay custodians and collateral managers, and, you know, there's a lot of costs that are removed because instead of trusting in kind of, institutions and audits, you're just trusting in Bitcoin and cryptography, and therefore we can kind of pass on a lot of those costs, cost savings to borrowers, which is beneficial for both borrowers and lenders, you know, there's less- Operational cost in the middle, and, you know, the security, you know, most of our borrowers are comfortable relying on the security of Bitcoin already, so it should, you know, it's a given that, You know, it's advantageous compared to trusting in someone else's audit." }, { "speaker": "matt_black_jay_patel", "time": "25:23", "start": 1523.1, "text": "Interesting. So the rates, like you're saying they're about, is it about ten percent or so? What's the rough range?" }, { "speaker": "stephan", "time": "25:29", "start": 1529.49, "text": "Yeah, roughly between ten to eleven percent, depending on the loan size, the loan term, and the, you know, basically the duration you're trying to lock" }, { "speaker": "matt_black_jay_patel", "time": "25:40", "start": 1539.71, "text": "in looking for. Okay. So as in, if you are doing a bigger loan and a longer loan, you get a, you get a cheaper rate or a lo- or a more expensive rate or how does" }, { "speaker": "stephan", "time": "25:49", "start": 1548.56, "text": "Bigger loans are slightly lower rates. the length, I'd say, is actually, you know, like the, and this probably in more credit semantics, but the term structure of Bitcoin, like the rates don't actually go that much higher depending on the term, and I think that's basically, because the industry, I think, you know, most people accept that over time rates will continue to come down. you know, as we get more lenders in the play-- in the space, as people get more comfortable with the role of Bitcoin as a collateral asset, you see more and Lower and lower of cost of capital entering, and so we do think that, you know, it'll be, you know, that ten to eleven percent range for now, but, in a year's time it'll be lower, and in a year beyond that it'll be even lower. So, you know, we're gonna continue to work to bring on lenders to, to pass those savings on to borrowers." }, { "speaker": "matt_black_jay_patel", "time": "26:35", "start": 1595.45, "text": "Oh, interesting, yeah, because, I guess I, I might have thought at the start, oh, maybe this ten percent is like a, like an entry, you know, entry offer kind of thing, to entice people, but it sounds more like you guys are saying, no, actually, it's gonna, it's gonna be like ten or eleven percent and coming down over time." }, { "speaker": "stephan", "time": "26:53", "start": 1613.3, "text": "Yeah, yeah, for sure. I, I think, you know, if you think about Bitcoin as collateral, a fifty LTV Bitcoin loan is maybe the lowest risk thing you" }, { "speaker": "stephan", "time": "27:05", "start": 1625.13, "text": "Of the other kind of bonds or other yielding instruments out there where people take massive credit risk or, you know, no collateral, in exchange for much lower rates. So I think as people get more comfortable with the idea of Bitcoin as collateral, that rate is just gonna come down. We're at ten percent right now, but, you know, we have, plans in the works to bring on more and more lenders who can lend at lower rates. and the other benefit for DLCs versus something like a custodial platform Or even a multisig is we can bring in a larger pool of lenders because in a custodial platform, the end lender who's providing the capital, which is generally not the platform, you know, you think of your custodial lenders, they don't have billions of dollars to lend, they have lenders on the other side providing that. They have to be comfortable with, okay, where's the collateral held? Is it held at a custodian in a certain country? You know, what is the process around this? For us, the lender can always choose to repossess the collateral to their chosen- Custody, you know, whatever they like, whatever they're comfortable with. and as Matt alluded to, as we do more and more integrations, you know, we basically allow a lender anywhere in the world to connect with a borrower anywhere in the world and have no trust involved or, you know, minimize trust compared to something like, you know, the world that Frances and I came from, which was like tri-party and, institutional, custody, where, you know, if you're a lender in Dubai and a borrower in the US, like, I might not want" }, { "speaker": "stephan", "time": "28:35", "start": 1715.43, "text": "You know, like even if that's reducing the trust required, so we solve for a lot of those things as well." }, { "speaker": "matt_black_jay_patel", "time": "28:41", "start": 1720.96, "text": "Got it. And so the, I guess on the- Okay, so yeah, like we- while we're here on the topic of the lending side of this house, I guess one thing is they, they have to get technologically comfortable. That might be like kind of one hurdle for them to be like, \"Oh, well, DLC, like, this is like a new thing.\" Have you experienced much of that, or are you seeing that actually you're on the lending side of the house, people are sort of comfortable with the concept of DLC and placing, you know, some trust into that technology?" }, { "speaker": "stephan", "time": "29:14", "start": 1754.14, "text": "Yeah, I mean, I'll definitely defer to Matt on how easy it is to underwrite DLCs, but our experience has been that it's actually not nearly as difficult to get lenders comfortable because of how simple DLCs are. You know, we can actually let them verify every single set of messages that sign and see, you know, these are the different, spending paths and these are the oracle attestations that will be made. It's not like a smart contract on Ethereum where you have to do some massive audit, and it's not like- Like a custodial platform where you have to, you know, underwrite our ops team and our, you know, finances and, you know, all of these other complicated factors, it's actually quite simple to audit the DLCs." }, { "speaker": "matt_black_jay_patel", "time": "29:55", "start": 1794.68, "text": "And I, I presume you're, you're looking, because you are, in a way, I guess, I'm understanding you as a technology also provider here, and so you're looking for people on both sides of the house, right? You're looking for borrowers, and also you're looking for lenders to kind of put up some fiat to, you know, For people on both sides of the house, right?" }, { "speaker": "stephan", "time": "30:16", "start": 1815.68, "text": "Yeah, yeah, exactly. Whether you're a lender or a borrower, we're interested in having you on the platform. Obviously, borrowers the size of loan can come much lower. Borrowers, for, for each lender, there might be ten, twenty, fifty borrowers, but generally for lenders, we look for larger lenders who have stickier capital. I think the biggest thing for us is making sure that their lenders will be around for the long term. Like, we wanna make sure that the borrowers on the platform have a good experience. You know, if you're taking out a loan, our experience in general is that most folks take out a loan and they're looking to roll it over forever because they think, and, you know, Bitcoin Kager will be more than the ten percent going to five percent interest that they're gonna pay, and so we don't want lenders who are basically like, you know, looking to lend for six months but then going to leave the platform. That's probably not one of the things. Yeah, because" }, { "speaker": "matt_black_jay_patel", "time": "31:09", "start": 1868.51, "text": "you want some continuity there, obviously, so that, that borrower can roll over when he wants to, if he wants to. and then can you give us an idea on the loan size? Like, what's your minimum loan? What's your maximum loan?" }, { "speaker": "stephan", "time": "31:21", "start": 1880.92, "text": "Yeah, so I'll say you know, a hundred thousand plus, we can go low as twenty-five thousand, but I'd say our average loan on the platform is somewhere between, you know, one hundred and fifty thousand and two hundred and fifty thousand dollars right now. I think as we open up more of these integrations with kind of institutional custody solutions, you know, we'll be able to support much larger loans as well. but, you know, we can, you know, the, the, the range of borrowers, is pretty vast right now, you know, it's, it Where from individuals looking to purchase real estate, buy a house, or bitcoiners looking to fund their business, like it really varies a lot, and, you know, as long as you have Bitcoin collateral that you can post and you're comfortable with the LTV, I think we can definitely service you." }, { "speaker": "matt_black_jay_patel", "time": "32:10", "start": 1930.39, "text": "In terms of regions, where are you taking customers? And that, that's both customer, the borrower side of the house and the lending side of the house. Like, is this US only, or is it just global? Or what, what are the countries that you are operating in there?" }, { "speaker": "stephan", "time": "32:24", "start": 1944.0, "text": "Yeah, so it is a fully global platform. you know, we support borrowers and lenders in most any country that's not, that's not sanctioned by the US. but in terms of the lender side, you know, I, I think that varies based on the lender side. You know, right now the lenders are primarily based in, you know, the US and Europe, but we are looking to make like a more, more global push. you know, on the lender side, it's just someone looking for fiat or stablecoin yield, so it's pretty simple. But yeah, on the borrower side, you know, we're, we're, we're not a custodial platform, so we're not taking possession of your funds, so, you know, we kind of cut out a lot of the, difficulty that other platforms have in terms of expanding" }, { "speaker": "matt_black_jay_patel", "time": "33:11", "start": 1990.83, "text": "In terms of the loan, funding the loan. So, from a quick look on your site, it looks like you have stablecoin support there. Are you doing, and are you also going to have fiat wire support? So just talk to us a little bit about how the loans are funded and, you know, what the mechanisms are there." }, { "speaker": "stephan", "time": "33:30", "start": 2009.84, "text": "Yeah, so on the funding side, and I, I maybe I'll just take the fiat piece and Matt can take the stablecoin side, but we are looking to add fiat support in the near future, but currently the loans are only funded in the form of stablecoins, and that's for pretty good reason that I feel like Matt will be able to do better justice to than I will, so." }, { "speaker": "guest_2", "time": "33:49", "start": 2029.14, "text": "Yeah, and, I think, well, one of the really nice setups here is that because we're using DLCs, it becomes very, very easy to be able to add support for many new stablecoins. If we, you know, we have USDC today, but if we wanna add USDT support in the future, that's very easy. One of the considerations is that, stablecoins themselves are very easy for an oracle to attest to. It's very easy to look on, whether you're looking on, you know, like running like shit" }, { "speaker": "matt_black_jay_patel", "time": "34:17", "start": 2057.42, "text": "chains and On Tether payment or this whatever Ethereum USDC, like you can see that the payment was made or not, right?" }, { "speaker": "guest_2", "time": "34:25", "start": 2064.87, "text": "Yeah, like even though, you know, all these shitcoin chains are, at risk of, reorgs or hard forks, you know, it is easy to verify that a, a, you know, a transaction was sent. Okay, you guys did that well. on the other hand, like the fiat world is still very old, it's difficult to, you know, as an oracle, you know, most of these banks don" }, { "speaker": "guest_2", "time": "34:49", "start": 2088.88, "text": "verifying that a, you know, a particular transaction has been sent, I basically have to rely on the party that is actually, you know, sending that wire at the end of the day and them sending proof to me. I can't actually go to the bank and double-check that. So I think like that's something that we would like to be able to add support for, like in the future, but it's going to take some more time to, you know, develop those relationships and, you know, figure out the, you know, itty-bitty details of like how can Oracle to be able to easily attach to bank, you know, wire transfers." }, { "speaker": "matt_black_jay_patel", "time": "35:23", "start": 2122.73, "text": "Yeah. Yeah. Yeah, it makes sense, I think, around the, you know, stablecoins and the, you know, the various chains that, they travel on. Now, around the UX and convenience side of things, that, that's probably another big, maybe sticking point for people because if I'm thinking about like Tip what a typical person might want, whether they're like a Bitcoin Maxi, ideological Maxi, or just kind of a convenience Maxi. Like, for a lot of people, they'll be thinking, \"Well, I want a lending product that also gives me like a card that I can just like spend on that card, so that, so that way it's convenient for them to be able to borrow and then use that fiat that they just borrowed to spend.\" You know, for their bills or whatever. So do you have any thoughts on that and where that's going?" }, { "speaker": "stephan", "time": "36:11", "start": 2171.36, "text": "I think that's definitely an interesting space, and I, I'll, I'll say that, in general, our thesis is that you can build a really good non-custodial product without sacrificing on the UX. It is more work, but I think, you know, as Matt alluded to on the integrations front, we try to do our best to basically always let users know when they're signing a transaction, what they're signing. Like, we avoid the kind of blind signing You know, update your loan and then it just signs a bunch of stuff in the background. We, you know, we wanna make it very transparent what users are signing to, but that doesn't mean that we can't add more complexity later on. Like, I do think that you could get to a world where we have a, stablecoin wallet, maybe it's Spark or Ark or maybe it's some coin chain, whatever someone, wherever someone wants to receive those funds, where they could spend it via a card or, you know, they could basically, you know, pre-agree to For us is like we're always gonna first and foremost stick to the fact that like we wanna keep things trust minimized and non-custodial, like we are, you know, never gonna compromise on you knowing what you're signing and what you're doing with your keys, you know, to slightly improve the experience, I think we can do the more hard technical work to get there without compromising on" }, { "speaker": "matt_black_jay_patel", "time": "37:25", "start": 2244.9, "text": "I see. and I guess it just, yeah, it might just mean that users have to kind of do an extra step, because as an example, maybe it means they just have to estimate, okay" }, { "speaker": "matt_black_jay_patel", "time": "37:38", "start": 2258.22, "text": "like move that money. Basically, it might be an extra step of moving it, moving-- so let's say the, the loan gets funded in USDC, they have to then find a way to off-ramp in their local country. So that might mean finding an exchange somewhere and then transferring that out into their fiat bank account so they can have a card that they can go around and tap and pay for things. This is if they're in the case of using a loan for living expenses, right? Obviously, if they just wanna use the loan to buy more Bitcoin, well, that's not so And, maybe the business use is also kind of, different also. But I guess just thinking about what are the typical, like, UX things that users on the borrowing side of the house will be thinking about?" }, { "speaker": "stephan", "time": "38:22", "start": 2302.15, "text": "Yeah, I definitely think it splits into like planned purchases versus like, maybe like the lifestyle kind of stuff that you were talking about. You know, if it's like, \"I'm gonna go buy Super Bowl tickets or something all of a sudden,\" you know, that might work a little differently. But yeah, generally- Like right now, the UX is really good if you know, hey, I have a business and I need to cover this amount of expense, or I'm, you know, building a home, or, you know, buying a plane or whatever Bitcoiners might be doing out there. but I do think, you know, we can probably get closer to a world where anyone, regardless of what they're trying to do, can find like a seamless way to interact. and the other thing I'd say is like, we do have plans for the fiat side of things to make it seamless Or funding via wires, like we will be able to find some sort of, approach that works for people globally. obviously, you know, different countries it changes, you know, what the easiest way to off-ramp is, whether it's USDT or USDC, or even in some places, it's easier to off-ramp Bitcoin than it is stablecoin. So maybe there's like a funding the loan in a dollar amount of Bitcoin, But yeah, there's, there's a lot of cool things you can do because the funding side is actually kind of disconnected from the DLC. Like you could fund the loan theoretically on any transparent ledger," }, { "speaker": "matt_black_jay_patel", "time": "39:43", "start": 2383.48, "text": "Gotcha. Yeah. Yeah. So I mean, I, I think it's just interesting to explore that trade-off space at le- at least the listeners understand, okay, what are the options here? What are, what are the different trade-offs with that? So, yeah, I think those are kind of the key, probably the key questions that I, I'm imagining. what, is there anything else you guys think we should cover in terms of like, you know, what should listeners know?" }, { "speaker": "guest_2", "time": "40:07", "start": 2406.92, "text": "I think we covered most of it. I think the only other interesting thing is like, I mean, I'm always interested on the technical side, like what's, what's possible in the future, you know, if we- If we ever get any upgrades to Bitcoin one of these days, you know? Well, didn't," }, { "speaker": "matt_black_jay_patel", "time": "40:24", "start": 2423.72, "text": "TX hash recently get assigned a BIP number and some other, you know, some other, you know, there's been a little bit of movement, but, you know, it's, yeah, we'll see what happens on, I" }, { "speaker": "guest_2", "time": "40:34", "start": 2433.57, "text": "thought folks had some issues with TX hash, so now it's like a slight derivation of TX hash. Yeah. So I think there's" }, { "speaker": "matt_black_jay_patel", "time": "40:39", "start": 2438.77, "text": "now people talking about what's called Template hash, which is kind of like a variation on CTV. I, I don't, I don't know enough to be able to explain the difference, but there's like some little technical nuances around that, so, but I, I presume like the, the same things from our prior conversation would apply that if we got CTV or TX hash or Template hash and like these other covenant things, it would make DLCs More simple to do, right?" }, { "speaker": "guest_2", "time": "41:06", "start": 2465.67, "text": "Exactly, yeah. So I mean, first off, CTV would allow-- I mean, this isn't an issue for us, and we built all around this, but, you know, if we did get CTV one day, you know, those payout curves could come back. It'd be instead of it taking two minutes to enter a contract, it would take, you know, five to ten seconds. if we get like T x hash, for example, then you can do transferability of DLCs without actually requiring, the other party to- Be online to do that. So, you know, just some of these like little UX things that just improve DLCs overall. all those improvements aren't really necessary for, for our product, like we've built it in a way that works kind of perfectly as Bitcoin is right now, but, you know, just for me personally, like having built with DLCs for a while, like I'm excited if we do ever get those improvements, 'cause we'll just be able to build like even more cool products on top of Bitcoin, maybe one day," }, { "speaker": "matt_black_jay_patel", "time": "42:02", "start": 2521.99, "text": "we'll see. Yeah, we'll see. I guess the other, obviously it's, it's kind of hot right now, there's a lot of quantum fud, right? And so the quantum fud now is that, oh, it's coming really soon. Now, I don't think it's coming soon, I think it's being a bit overblown. I think it's more like, you know, at least from what I've seen on experts say, it might be like twenty years out, but nevertheless, quantum theoretically might end up wrecking adaptor signatures, right? So would that like impact I guess, I mean, given what we're talking about, we would need to have some kind of quantum-resistant thing anyway, but I guess it might change the model of how, you know, hypothetically, you know, fifteen to twenty years from now, maybe the model would have to shift a little to kind of be a quantum version of this, quantum secure version." }, { "speaker": "guest_2", "time": "42:52", "start": 2571.81, "text": "That's true. so I guess for context, like we, first of all, like I'm not, like quantum itself, like I don't necessarily, I agree with you, I don't think it's anywhere like close at the moment. the other thing too is the, the DLC contracts that we have actually use like ECDSA adapter signature, not the Schnorr adapter signature, which means that, the funds are actually stored in SegWit addresses. So, you know, if you are a person that's super concerned about quantum, you know, SegW Addresses are hashed, so, that's a little bit less of a concern. and but, but like, you know, on that, on that point, like, I also think that, you know, if we're just game theorizing this out, you know, the likelihood that someone's gonna go after, you know, figuring out the Schnorr signature for, you know, to be able to create that adaptor signature for funds they don't even own on SegWit, to be able to create an invalid, you know, adaptor signature for an oracle versus like being able to" }, { "speaker": "guest_2", "time": "43:52", "start": 2631.59, "text": "Bitcoin each. I think we're gonna be safe for, so you're not the" }, { "speaker": "matt_black_jay_patel", "time": "43:55", "start": 2635.21, "text": "lowest hanging fruit." }, { "speaker": "guest_2", "time": "43:57", "start": 2636.92, "text": "Yeah, we're, we're very far from the lowest hanging fruit. one day if we do decide to upgrade to like Taproot DLCs, then like, okay, we're, we're still very, like, super low hanging fruit, we're slightly above that, but still even then, I think it's not a, not a big concern. So, but, you know, I think it is important to like be thinking about it and at least have pathways to be We're kind of, we've kind of been at a stan- you know, a standstill. So, I would love for us to, you know, I would love for Bitcoiners and the community to come together, to be able to activate something. We've talked about CTV for so long, just be able to activate something on Bitcoin, I think would be good at, at this point." }, { "speaker": "matt_black_jay_patel", "time": "44:40", "start": 2680.04, "text": "Yeah, who knows? I mean, maybe it's Bip 360, maybe it's a consensus cleanup, maybe it's Bip 360 and one of these covenant things. I mean, who knows? But, anyway, I, I think we'll leave it there. any, where can people find you guys online if they're interested? you know, I, I think it is interesting that there's people building self-custodial forms of lending. You know, I think it's, I think it's interesting. So tell people where they can find you online." }, { "speaker": "guest_2", "time": "45:06", "start": 2705.67, "text": "Yeah, just follow us on Twitter at Lagos Finance, Lagos dot finance, as well as our website. And, yeah, it's been a, it's been a pleasure, Stefan. really, really enjoyed it. great to be back. Yeah. All right, well, thanks, Jay" }, { "speaker": "matt_black_jay_patel", "time": "45:19", "start": 2718.96, "text": "and Matt." } ] }