{ "episodeId": "SLP747", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "jesse_shrader": { "name": "Jesse Shrader", "role": "guest", "tag": "JESSE" } }, "segments": [ { "speaker": "stephan", "time": "00:01", "start": 0.55, "text": "Hi everyone, welcome back to Stephan Livera Podcast. Today we're doing the fast episode. Joining me, or rejoining me today, is Jesse Shrader from Amboss.space, aka Justifer. Jesse, welcome back to the show. I know you guys have been doing some interesting stuff over at Amboss on RailsX. So let's just quickly start there, give like a very quick overview: what is RailsX?" }, { "speaker": "jesse_shrader", "time": "00:21", "start": 21.164, "text": "RailsX is the trading interface. So it's the combination of technologies allowing people to trade taproot assets using their own lightning node. And the The way that we brought RailsX live is we added it to Thunderhub, which is the open source node manager that almost everybody that runs a Lightning node already uses to manage their channels. But now we're introducing the asset channels. So you've got USDT and USDC that are live on Lightning, and people are able to trade that on their own Lightning node by making circular payments. So high level RailsX is a trading interface for Taproot Assets on Lightning." }, { "speaker": "stephan", "time": "01:10", "start": 69.656, "text": "Excellent. And so let's now talk from the different perspectives here. So we have the user side of it, like let's say you want to do trading. And then we have let's say the liquidity provider side of this. And then maybe we'll talk about the costs and benefits for both sides. So let's just start on the trader side of the house. So let's say you are a trader who wants to use RailsX. What does the what does it look like? What are the costs and the benefits of doing it this way from the trading and user perspective?" }, { "speaker": "jesse_shrader", "time": "01:38", "start": 98.274, "text": "Yeah. So for the end user, that means that they're keeping self-custody for the entire trading experience. so that's one of the key benefits, and they're doing instant trades against specific counterparties. So when you use RailsX and you go into Thunderhub and that trading view, you're looking at the different prices that your peers are quoting for moving between Bitcoin and stable coins. And you choose those peers directly. You say, I want to trade with this person. And so you set up the lightning channels. So either creating a Bitcoin channel, purchasing a USDT channel, and then you're able to send a payment in a circle that goes out your Bitcoin channel and into your USDT channel, allowing you to effectively increase a USDT balance. So all in all, that means I want to purchase USDT or sell Bitcoin. or I wanna buy Bitcoin and do the reverse trade. But you can do it instantly without ever giving up custody of your funds." }, { "speaker": "stephan", "time": "02:39", "start": 158.629, "text": "I see." }, { "speaker": "stephan", "time": "02:43", "start": 163.161, "text": "And so the high level of it is the trader who wants to do this, he can set up Thunderhub, he can put some Bitcoin onto his node, open some channels, and then use RailsX to effectively sell some of that Bitcoin into stablecoin, either USDT. Now, as I understand, this is like the wrapped form or the speed wallet, is it the their kind of wrapped form because it's not like fully live from Tether itself." }, { "speaker": "jesse_shrader", "time": "03:07", "start": 186.763, "text": "Yeah. i it's been slow going to get issuers to actually use tappered assets and I think a lot of them are waiting to see the data that comes out of it. So what we did to shortcut that is let's give them the data. and what Speed has been doing is they've already been using USDT and USDC on their own custodial wallet for a long time. So these assets have already existed, but now we're bringing it to a more decentralized framework where you've got the the assets that Speed Wallet created that are backed one to one by the by the, you know, n native asset on Ethereum or another chain." }, { "speaker": "stephan", "time": "03:44", "start": 224.102, "text": "Gotcha. Yeah. And and so let's say these traders, what kind of fee are they paying to do that swap? So let's say in that example, you put you know you put you you go from Bitcoin to Tether on l you know, tap root assets. What's like a a rough fee range that they are paying to do that?" }, { "speaker": "jesse_shrader", "time": "04:02", "start": 242.407, "text": "eight to fifteen BIPs is really the range. so it's incredibly tight spreads. That's the level that you would see at Binance, for example." }, { "speaker": "stephan", "time": "04:12", "start": 252.238, "text": "And what kind of sizes can they do for this? Like are we talking like, you know, anything from like a dollar all the way up or like what's the rough ranges that are available?" }, { "speaker": "jesse_shrader", "time": "04:22", "start": 261.867, "text": "Yeah, it's the only limitation is the size of your channels. So part of the experience is choosing what is your max trade size that you want to do. And then we'll create the infrastructure for you. And then you just do the swap. I mean it's a circular rebalance. If you can fit a payment through these channels, you can execute a trade of whatever size you want." }, { "speaker": "stephan", "time": "04:43", "start": 283.15, "text": "I see. Now I guess at bigger levels or larger sizes maybe you'll get like more slippage at that kind of level, but what what do you see there? Or is that yeah, like I guess above a certain threat that's only for like very large amounts?" }, { "speaker": "jesse_shrader", "time": "04:57", "start": 296.619, "text": "Yeah, what we did in order to help people provide these price quotes is take into account the tr size of the trades. So we use the Aveanata and Stoikov model to give people an inventory based pricing. However, it just means that okay, it's taking into account the trade sizes so that your your inventory as a liquidity provider isn't out of balance. So yeah, the slippage goes up. Yeah." }, { "speaker": "stephan", "time": "05:21", "start": 321.412, "text": "Interesting. And so Gotcha. And so I guess the high level for the end user trader here, as you were saying, and on some of your like your marketing and your documentation, it's basically like a a DEX on Lightning and it's not actually KYC as well. So that's kind of also might be interesting for some users who want to be able to quickly trade in and out, for a relatively low fee. Of course there's trade offs with that. Obviously you're accepting certain, you know, if you're holding tether via the speed wallet method, And then where in that example, let's say you've got Thunder Hub, where are you holding your balance of stablecoin? Like it's in the taproot channel, yeah?" }, { "speaker": "jesse_shrader", "time": "05:59", "start": 359.434, "text": "It it is in yeah, it's it's on your own node, protected by your own seed phrase. you are holding the asset. So it's as self custody as you can get. it's a true DEX on Bitcoin." }, { "speaker": "stephan", "time": "06:15", "start": 375.238, "text": "Yeah, and we're starting as yours as you're mentioning, I've seen you've got on the page here the stats, amboss.tech slash rails slash stats. You got some stats there. and then let's talk on the liquidity provider side of the house. So let's say now you're not the trader, you are providing the liquidity. Walk us through what does that look like? What are the costs and the benefits, you know, what what does it look like for them?" }, { "speaker": "jesse_shrader", "time": "06:39", "start": 399.095, "text": "Yeah. When when we launched Rails a little bit over a year ago, it was an incredibly popular product. I'm so glad we created a wait list because there's way more Bitcoin than you may ever want in Lightning. I mean, it's it's still early days. And at at this point, now there's like forty five hundred Bitcoin that's waiting to go in the Lightning Network. and that's larger than the entire Lightning network, or it's about the same size as the Lightning Network today. so that process. is setting up your own lightning node. And we, you know, give the full white glove service so that people, you know, write down their 24 word seed phrase, create a password to do client-side encryption. So And then they hand over limited macarons so that AMBOS can do the management. So we open the channels, we close the channels, and we set the routing fees. But we cannot withdraw or create new addresses. that that provides management level permissions for this, but not control over the underlying assets. So for the institutions, this is very popular and now this exists, Rails exists. as lightning earn offered through Bitco." }, { "speaker": "stephan", "time": "07:59", "start": 479.303, "text": "Got it. And so walk us through as I understand, there are different ways you can use this, right? Because you could use Thunderhub yourself, right? But I guess the point is you're offering different options, right? So the people who want to let's say DIY, they can do it themselves, and then people who want a managed service, they can work either through you and or BitGo for that side of it, right?" }, { "speaker": "jesse_shrader", "time": "08:20", "start": 499.903, "text": "Exactly. what we do is apply all of our intelligence from all the routing activity that we're seeing through all the lightning nodes that we run. And we're able to identify areas of high traffic or low traffic and be able to allocate the assets accordingly. And so we've spent most of our time and our funding on research to figure out exactly how to use machine learning to train. a cluster of nodes on how to improve payment reliability and maximize the yields that can be extracted from this. So it really is you know being as competitive as possible in order to provide a payment service for the end user of Lightning." }, { "speaker": "stephan", "time": "09:04", "start": 544.378, "text": "I see. And so I guess this comes down to things like who do you open the channel to? How large should that channel be? What is the fee that you should set on that channel? I guess that's these are kind of the things that your your your system figures that out. Now, coming back to the liquidity provider question. Let's say I'm a liquidity provider and I come to you. what kind of yield can be expected here? What is you know, what are some of the costs and the benefits there for the on the liquidity provider side of house?" }, { "speaker": "jesse_shrader", "time": "09:31", "start": 571.394, "text": "Yeah. w we charge a small like management fee. So it's a it's an assets under management fee that really helps us bootstrap the node. And then you as a customer capture all of the upside that we're able to achieve. And lightning activity is is variable. also our intelligence is continuously improving. So All of these factors, it it results in, you know, kind of we we don't know what the what the fee could be. Or what the what the returns could be. And we're also not able to provide any expectations of earnings. so you know, people might start off with, hey, I want to help out the lighting network and use my stack for it. but what we're seeing historically is, you know, 0.6 to 1.5% APY is coming out of this in complete self-custody. So there's no lending, no rehypothecation. And really the objective is to provide the lowest risk yield opportunity. that we possibly can using Bitcoin to support the Lightning Network." }, { "speaker": "stephan", "time": "10:42", "start": 641.998, "text": "And what's the feedback been so far on the BitGo partnership? So this BitGo Lightning Urn, what are people saying on that?" }, { "speaker": "jesse_shrader", "time": "10:50", "start": 649.715, "text": "It's one, it's a people are very excited about it. This is the pathway that is necessary for Bitcoin treasury companies to start participating in the Lightning Network. Because one thing that we've learned is that Bitcoin Treasury companies and other large holders of Bitcoin, they have to use a custodian. They cannot use a self-custody product, which is what we designed. So the partnership with BitGo allows institution level controls and coverage to allow these treasury companies a pathway into participating in the lightning network." }, { "speaker": "stephan", "time": "11:27", "start": 687.228, "text": "I see. And as you mentioned, sort of about one percent yield that's in Bitcoin terms. I've seen different numbers thrown around because obviously this is a nascent industry, right? There's not that many people out there doing like w this. you know, people might think of the block number, which was like sort of nine or ten percent, there's LQWD, there's B hodl, there's Zeus, you know, th there's kind of a range of numbers. Is it just sort of like as you add more and more li Bitcoin into the channels, you know, it it has to come down that yield?" }, { "speaker": "jesse_shrader", "time": "11:57", "start": 717.036, "text": "Yeah, I mean there there's only so much activity that's happening in the Lightning Network. So most of our effort now is how do we make it very easy for people to participate in the Lightning Network? How do we map it to real world use cases? We've we've now answered what institutions want, which is a way to participate in the Lightning Network. And now all of our focus is on how do we support people using the Lightning Network for payments. And that means bringing in stable coins because that's where the volume is. That's the way that people avoid volatility. And I think that's the way forward for to get a stepping stone into using Bitcoin the technology instead of just Bitcoin the asset." }, { "speaker": "stephan", "time": "12:41", "start": 760.708, "text": "I see. And then on the the magma side of the house, right, can you talk to a quick update on that? Because this is also just for listeners, this is also a product where y you know, well actually it's better for you to explain. What what is MAGA and what's kind of the latest there?" }, { "speaker": "jesse_shrader", "time": "12:55", "start": 775.189, "text": "Yeah. Magma is our liquidity marketplace. It's now by far the largest liquidity marketplace out there. it was one of our earliest products at Amboss and it continues to be like a kind of a hallmark of some of the technology that we've delivered. What it enables is liquidity leasing. And so we as Amboss, we're provisioning liquidity to people that need it. So if you're starting up a store, you say, Hey, I need liquidity. Get me well connected to the Lightning Network. And so what we do is that user will pay AMBOS. And so Amboss now goes and finds what are the liquidity providers that would help this merchant receive payments as reliably as possible. And we use machine learning to do that and we weigh that probability of payment reliability against the cost of that liquidity. And the end result is the best connected nodes get the get a leasing fee as payment. So we'll pay those liquidity providers and when we're running them those liquidity providers using Rails, we're opening the channel to fulfill it automatically. So it's it's a decentralized marketplace to give people liquidity that need it. we're enhancing payment reliability and we're also driving the the yields, the returns from using Lightning higher. that's the service." }, { "speaker": "stephan", "time": "14:22", "start": 861.572, "text": "Yeah. And is that available in Thunder Hub as well, Magma?" }, { "speaker": "jesse_shrader", "time": "14:25", "start": 865.343, "text": "Mm-hmm. Yeah, if if you can it's really a one button click in Thunderhub if you need to get liquidity, just pay for it. You pay a lightning invoice and you'll see a channel open to you like within the within the hour." }, { "speaker": "stephan", "time": "14:40", "start": 880.06, "text": "Gotcha. So it's like for the DIY users, they can just basically install Thunderhub on their lightning node and then they can use Magma, they can use Rails, either as a trader or as a liquidity provider on either side of the house." }, { "speaker": "jesse_shrader", "time": "14:50", "start": 890.061, "text": "Mm." }, { "speaker": "jesse_shrader", "time": "14:55", "start": 894.559, "text": "Exactly. And if you are technical and you want to help someone that just started up on the Lightning Network, you can even gift them liquidity. So you go to their node page on Amboss and you buy them five dollars of liquidity and the magma engine starts up and will open some channels to that party." }, { "speaker": "stephan", "time": "15:13", "start": 912.698, "text": "Yeah, really fascinating. And I guess just quick quickly of the last question. Are you obviously we're in a bear market right now, but I guess the question I'm curious, are you still seeing a growth in the routing volumes, like the throughput, right? Because everyone looks at the TVL of Lightning, but they always forget or misunderstand it's actually also about the flow, the throughput, right? Not just the stock number, but the flow. So what are you seeing on the flow or the throughput of Lightning?" }, { "speaker": "jesse_shrader", "time": "15:38", "start": 937.653, "text": "Yeah. every month we see higher and higher volumes. So it is growing consistently. And what we can really speak to is what we see going through our cluster because there are no network level metrics to show lightning volume because lightning is private. And what we see going through our nodes is increasing every month. and our intelligence is also improving. So our plan is to capture more and more of this volume and and that means providing a service to the end user. we're routing payments, which is providing a service. If there is a cheaper route, that route will be chosen." }, { "speaker": "stephan", "time": "16:19", "start": 979.248, "text": "Fantastic. So I think that's also a really good spot to finish there, just so people understand. Lightning is growing in a secular sense, right? It's not just about like bull markets. It's actually just growing anyway, even in a bear market, right? We're down 50% from the high. So it's fascinating to see. but yeah, really interesting. great to catch up with you, Jesse. So listeners, go and check it out. It's at amboss.space to find out more there about magma or RailsX. Of course, listeners, make sure you share the podcast out there. And Jesse, thank you for joining me." }, { "speaker": "jesse_shrader", "time": "16:47", "start": 1006.936, "text": "Thanks so much, Stefan." } ] }