What Is The Future Of Stablecoins? With Allen Farrington

Allen Farrington co-wrote Bitcoin Is Venice and Only The Strong Survive, and is a co-founder of Axiom, a Bitcoin-focused venture firm. We discuss the future of stablecoins and taproot assets.

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Episode Transcript

(00:00):
It seems pretty obvious to me that on a long enough time
horizon, all stable coins basically just move to lightning
as a settlement network or or tosome extent like a value
transfer network. Hello, I am Cody Allingham and
this is the transformation of value, a place for asking
questions about freedom, money and creativity.

(00:23):
My guest today is Alan Farrington who Co wrote Bitcoin
as Venice and Only the Strong Survive and is a Co founder of
Axiom, a Bitcoin focused venturefirm.
Alan, welcome back to the show. Yeah, Thanks so much.
Thanks for having me back. You wrote an article on Nosta
last month about the future of stable coins.
And also back in January, we sawannouncements from Tether and

(00:46):
Lightning Labs about USDT comingto the Lightning Network via
Taproot assets. Can you run me through it at a
high level where you're thinkingis that with things and sort of
what your what what, what this article is about?
How long do you want me to talk for?
I mean this this article is likeI tend to think in.
Terms of word. Page count, it's like 6 pages

(01:08):
in. Word.
I actual word kind. I'm not sure.
OK, super high level. Let's see.
I'll tell you what. Yeah, I'll just give you like
the highlights with no actual explanation and then we can get
into whichever part of you thinkis most interesting.
So stable coins are clearly a thing.
As annoying as Bitcoiners typically find that, I think in

(01:36):
particular not so much that theyhave a problem with people using
dollars. I guess you could go that far
out the ideological spectrum andsay no, Bitcoin should just
replace absolutely everything. Probably in a long enough time
horizon I would agree with is islikely to happen.
But I think the real reason Bitcoiners are kind of peas by
this is that it it is a use caseof crypto.

(01:58):
It's actually probably the only real use case of crypto that
isn't kind of circular or scammyor doesn't really amount to
anything more than gambling. So that's kind of the starting
point. Stablecoins are real broader
trad FI or maybe more like fintech is kind of catching on
to this. And I think the thing that

(02:20):
Bitcoiners tend to miss is, yes,stablecoins are stupid from kind
of an engineering perspective. Like they're they, you basically
don't that. I'm sure we'll get into this.
You don't need a blockchain for them.
However, I think they miss that actually regular Fiat is even
Dumber than stable coins. And so this is this is where the

(02:41):
the kind of product market fit is coming in that people who are
oblivious to all of this, right,who have no no notion of these
like intra crypto culture wars for a whole bunch of use cases
are just realizing the stable coins are bare.
So that that probably happened acouple years ago, but but now
more serious, credible fintech is catching on to this and is

(03:04):
making all kinds of announcements about, you know,
at least experimenting with, with stable coins.
And and so that then gets into the the meat of my argument,
which is that this won't work incrypto for basically reasons
that I think all Bitcoiners do know.

(03:24):
I think the weird difference is that the the the kind of
technical and economic contradictions as to why it is
dumb in crypto, you don't actually see these like they
don't impede the performance like the the user experience
until they're used at a way bigger scale than they are now.

(03:46):
So they're currently in this weird, what would you call it,
like transitional phase, let's say, where they're small enough
to actually work, which is what's attracting attention.
But as soon as you get more popular, they'll break.
There's a whole bunch to go intothere.
Obviously, I'm kind of skating over the any real explanation of

(04:09):
why that's true. But the exciting thing, I think
is exactly as you mentioned in the introduction, Tabra assets
getting closer and closer to to being a thing, basically being
real rather than just an idea that people have been talking
about for a long time and for a host of, I guess, similarly

(04:30):
technical and economic reasons. I think they will work at scale.
I think if anything, they have the inverse problem.
They're the most difficult to use when the fewest people are
using them. But the more people use them,
the easier it's going to get foreverybody to use them.
It seems pretty obvious to me that on a long enough time
horizon, all stable coins basically just move to

(04:52):
Lightning. I, I just use that as a
shorthand. I don't think it even needs to
be like Taproot assets specifically.
We can get into some of the nuances there too, but they all
move into using Lightning as a settlement network or or to some
extent like a value transfer network.
And then the thing I ended on isthat this is way, way, way more
out there and speculative. But if we do get to that point,

(05:15):
so say, I don't know, 1020 years, however long it takes
going right back to the whole where you don't actually need a
blockchain for this, you probably don't even really need
to operate assets at that point either.
You can actually just swap out for E cash.
And so that's my grand stable coin thesis is that in 50 years
or whatever, actually, it's probably like the last step

(05:38):
before we just use Bitcoin anyway, which is kind of the
exciting point too, that that transition then becomes a lot
easier as well, right? Because currently, if you're
thinking, I remember every Bitcoiner has some experience of
this. You, you have the starting point
of most of your life and most ofyour day-to-day expenses in
Fiat. And Bitcoin kind of takes a lot
of effort. Like it's, it's completely

(05:59):
segregated monetary system that you have to opt into, which is,
you know, great for philosophical reasons.
But in terms of the practicalityof it, it will be a lot easier
for people to change if the dollars or pounds or whatever
they're using are just stable coins on lightning because it's,
it's no longer like a almost an engineering hassle for you.

(06:22):
It's basically just a preference.
It's like you flick a switch or like, I actually would rather
have real Bitcoin now. So yes, I guess penultimate
stage of all of this developmentI think is probably stable.
Coins are all E cash and they all write over lightning.
So that's my that's my thesis. Yeah.
OK. Well, there's a bit there.
So I think zooming out a little bit before we get into some of

(06:44):
your technical points, just in conversation, I think there's
kind of, I don't know if it's a Trojan horse or there's
something going on where I thinkthe reality is, or I mean, I
don't think I know the reality is stable coins are being used
quite extensively in places thathave ship banking systems.
Yeah, much more than Bitcoin. And I think we, we sort of put

(07:07):
on the masquerade and I think we, we, we still try and
champion Bitcoin in those situations.
But at the same time we, I thinkwe, we are cognizant that there
is a reality and there is a product market fit there.
And so I think that's sort of playing a bit of the game there
where I think of course, I'm I'malways going to push for
Bitcoin, but stable coins are making a real inroads in a lot
of places and I've had these conversations with people and

(07:28):
so. I just think they're completely
different, right? I, this is, was kind of a, a
very helpful realization for me having just been disgruntled
about this for years and years, that I don't really think they
compete in any meaningful way. I think they're entirely
different. Like I basically don't think
stable coins are crypto and that's probably the best way of

(07:50):
putting it. They're sort of an accidental by
product of crypto, but they don't really have anything to do
with, you know, to get super crunchy for like blockchain
technology, right? That's I mentioned that
extensively in the introduction,right, that you don't actually
need blockchain for this. And if you it's better if you
don't have blockchain actually, and it's all the crypto garbage

(08:11):
that is directly competing with big.
I don't think anybody really makes a claim that like stable
coins are the new Bitcoin. I've never heard that meme.
I think stable coins are just fintech.
They're just payment rails that are worse than Bitcoin but
better than Fiat. But they use the same
denomination as Fiat. So everybody's expenses and

(08:31):
liabilities are all in that denomination.
So for them it is an improvement.
Yeah, well, that kind of this kind of grey Formica IKEA kind
of thing, right? It just, you know, it kind of
works. But it's also like the the, the,
the dollar hegemony, which you talk about, you know,
ideologically, yes, in Zimbabwe and in Argentina, you know, like
what, what does this mean? But I think this is an

(08:52):
interesting thing though. Just again, at the high level,
you've got this project that is taking place where it is a
dollarization project. And I think that's something to
keep an eye on as we kind of go through this conversation
because, you know, it's the, thestable coin is superior to the
local Fiat and in those situations.
And so there's kind of creating a, a geopolitical dynamic, but

(09:13):
also at the same time it's, it'screating it's own, you know,
it's on the US side. It's creating a situation where
you've got Tether this, you know, small organization that's
handling all of this stuff and it's sort of outsourced, You
know, the US government has kindof outsourced this project to
this one. Dollarisation project.

(09:34):
The stirring up demand for Treasuries globally project.
And something that was interesting, you mentioned this
network effect and the first to market and this has sort of come
through with 80% of stable coinsor so USDT, Taylor, followed by
USDC and then some others. But basically it is Tether and

(09:57):
that's it. And I'm just wondering, I mean,
maybe we can start there sort oftalking about that network
effect, which you do sort of outline quite a lot.
But basically there's there's one company and it's doing
everything and maybe there's some challenges with that.
Yeah. So this is worth explaining
quite a lot of details. So, and this is the core of the.

(10:17):
You don't need a blockchain for that argument.
So just ignoring type of assets for now.
All stable coins within. It's funny people actually.
People will usually say like Ethereum and Solana, but most of
the volume goes through Tron, which is a is a worthwhile point
to, to pick apart because I think the way I phrase it in the
piece is something like Tron is pretending not to be a database

(10:43):
the least right? And so, but, but because of
that, it's the most effective for this because you don't
actually need a blockchain to dothis.
You just need a database. So and, and actually maybe
viewing that from kind of the other perspective, even more
critical of the, the, the faux blockchain element, the
blockchain component in all of this is basically irrelevant to

(11:06):
how it functions, right? Nobody's using the blockchain as
rails, right? They're not using it as payment
rails and they're basically using it as an external public
Ledger, which is they they will often talk about that like I'm
sure this is a bit out of date now, but the meme of, you know,

(11:27):
digital Ledger technology or distributed Ledger technology
technology, but this sort of gloss over that it's actually
tethers internal Ledger that really matters.
And so this is the key point in terms of like really nailing
down why you don't need a blockchain that and that they
don't give a shit about. Like it's not the payment rails
or anything. It's, it's, it's nothing about
the tech of any particular blockchain that's relevant to

(11:50):
how this works. Tether routinely burns tokens on
one blockchain and reissues themon another.
Like for example, if one of themjust goes down, which happens
from time to time because they're, they're bullshit in the
1st place, right? They're not remotely maybe
Ethereum, you can kind of give it a bit of slack, but the rest
of them are clearly centralized.They go down, people with Tether

(12:12):
get pissed, Tether burns those units and reissues them
somewhere else. It's still live.
The only relevance of these other entities is the external
Ledger that admittedly allows, I, I think to give it a tiny bit
of credit and sort of where the product product market fit comes
from. And it allows faster transfers

(12:36):
and more anonymous transfers because you don't have to
constantly be liaising with Tether.
But even that's a bit iffy. Like I, I, my suspicion around
this is it in sort of more fundamental technical terms, it
may as well only be an internal database of Tether.
It may as well just be Tether running the effectively E cash
mint, right, which is where, where the, the argument ends up

(12:58):
going. But the reason they've done it
this way, or at least the reasonthat it's succeeded this way, is
a kind of regulatory arbitrage in the sense of they've wowed
regulators. I know the entire crypto
industry has done this, obviously, but they've they've
just confused regulators with buzzwords about how innovative
this is and how decentralized and you blah, blah, blah, blah,

(13:18):
when in fact this could be shut down immediately and which
again, is going back to, well, you don't need to blockchain for
that. If you can just shut it down.
And then what's the blockchain achieving for you?
Yeah, so. Well, what it reminds me of,
it's almost like, you know, it'sjust, it just says that it's a
blockchain, as you say, you know, it's kind of like a
buzzword that someone came up with over a coffee and didn't
really think it through. And as as you write about, I

(13:41):
mean, RWA, real world asset tokens have to have issuers, you
know, the value sits outside of the blockchain, unlike Bitcoin,
where the the unit itself is thevalue.
And so this is, I mean, clearly a difference, right?
Yeah. So coming back to your question
though, in terms of the network effect, the, the implication of
all of this of not actually using a blockchain for, you

(14:02):
know, what blockchains are for not really caring about the
payment rails being totally indifferent and just burning
them and moving them somewhere else and and so on.
Effectively just using it as an external Ledger.
And it means that anybody who wants to get into this game of
issuing stable coins, which is something we should come back to
because that's kind of why this is getting a lot more exciting

(14:24):
now. They're like 8 years too late at
this point because the, the way the way anybody who will be
using a stablecoin, so as opposed to the issuer of it, the
way they're going to be thinkingis precisely to this point of,
you know, the real world asset conundrum.
You are entirely trusting the issuer because there's no

(14:46):
indulgence value in this, you know, quote UN quote digital
asset. That's another meme that's
become popular around all of this.
You both, both the sender and the receiver of a stable coin,
are forced to trust the same issuer.
And this is the crux of it, right?
Because you might think that youyou might be bamboozled by all

(15:10):
the blockchain jargon into thinking there's some element of
decentralization, maybe not Evenso much in the like you get the
fact that there has to be an issuer, but well, why can't I,
you know, have my own issuer? And I can see a lot of the
thinking here basically going towards how Fiat banks actually
work and how settlement the Fiatbetween Fiat banks actually
works. But that's not at all how stable

(15:31):
coins work in crypto because precisely because of this
element of well, you're not using the blockchain to settle
value, you're just using it as an external Ledger that has to
be matched to tethers internal Ledger.
So both the sender and receiver have to trust the same issuer
because if they don't, there's simply no way to MIT like it's,
it's not physically possible in terms of how these tokens on the

(15:53):
block chains work for you to want like you to trust USDC me
to trust USDT and to somehow transact there.
It just doesn't happen. So you have these completely
segregated sort of ecosystems all I mean, obviously people
will there are ways of making those trades, but not
trustlessly. And hence that gets even funnier

(16:16):
in terms of like reintroducing middle men into this, right.
And so one thing I wanted to come back to that you mentioned
in terms of the breakdown of of issuance, it's roughly Tethers
80% USD CS like 19% and then everybody else combined as 1%,
it would just be 99 and then everybody else combined as one
where it not for political interference.

(16:37):
So USDC only really exists because the US federal
government has told Tether that they can't operate in the US.
But if that wasn't the case, Tether would be all of it for
exactly this reason that any sender and receiver have to
trust the same issuer because there's no settlement mechanism,
because there's no relevance of blockchain in this whatsoever.

(16:59):
And so that, I don't know if youwant to get onto it right away,
but that I think sets up nicely why Taproot assets are different
and ultimately why they're much better as well.
Wait, can you just confirm that for me?
So you're saying Tether isn't able to operate in the United
States? Well, this is at the time of
writing speaking, this is a little way up in the air.
But historically that hasn't been the case.

(17:20):
Or at least I think the way it'senforced is more like US users
and like service providers that are serving US users are not
allowed to use tether. And so it's, it's kind of
functionally barred from the US.That's probably going to change
it. I don't, I'm, you know, I'm not

(17:41):
politically connected enough to know exactly what's happening
right now. But that's, that's, that's why
USDC exists, basically. Interesting.
That would be a probably a deep dive on its own because that
sounds like a bit of. AI wouldn't be the person to do.
That yeah, no, no, no, just separately, but yeah, that's
sounds like an interesting shenanigans going on.
It's sort of like it will tetherfor me but not for me or
something but yeah, yeah, anyway, OK, so that's really

(18:02):
interesting. So we've got the situation where
you and me might just be using smoke signals to communicate,
but at the end of the day, Tether is the one with the
database telling us what's what.And I mean to be, I mean, maybe
showing my ignorance a little bit.
I haven't really used stable coins that much.
I've mucked around with Aqua Wallet Liquid Tether just a

(18:22):
little bit, but I mean, maybe this is privilege, but I just,
you know, I'd rather use sets oryou know, some something else,
but. I don't know.
I mean, I think that's perfectlyreasonable.
It's well, because again, it's not, it's not crypto, it's just,
it's just dollars and. If you.
Either don't need dollars or youactually have access to pretty
well functioning dollars then like why would you care?

(18:45):
But obviously for a lot of people, they don't.
And they, you know, they do wantthis.
Yeah, so it's interesting. So we've got this, the situation
where Tether is in this place. But again, because I haven't
used it that much and I'm showing my ignorance here.
I'm curious because there's Tron, which man, I don't even
know like what they're supposed to be.
But then you've got Ethereum andyou've got these other chains,

(19:05):
but you actually have to bridge between them, right.
So if you, you kind of the US, there's different kinds of
Tether, as far as I understand. So you can't just sort of
transact like cleanly, it's sortof Tron to Tron.
You can't go Tron to Ethereum say there is it.
Yeah, there's, it's a little murky there.
I mean you, you, this is what I was referring to before in a
slightly different sense with like USDC, there are quasi

(19:30):
decentralized ways of doing this.
But you're going now you are very much going down the the
bullshit crypto rabbit hole of is it actually verifiable how
this works? You know, to what extent is
there more blockchain jargon, you know, pseudo an innovation
rhetoric powering it rather thananything that actually makes

(19:52):
technical sense? Yeah, yeah.
Well, one other thing just I noted, you mentioned TVL total
value locked and this is something I've had.
Oh. Did I?
When did I say that? In the article you say, oh,
right, sorry, no, yeah, not now.But in the article you mentioned
that and that's interesting because I have heard people say
this who are I guess more, more crypto people.

(20:13):
And they're like, oh, you know, TVL, this is how much is locked,
blah, blah, blah. But I mean, as you identify, it
doesn't mean anything because it's just a pass through.
It could be anything, you know, We could be you.
Know. Yeah, exactly.
Yeah. Smokes agree each other it.
Doesn't really matter to anybodythat it's like quote UN quote on
Tron. Yeah, and that.
Could just be tomorrow and nobody would care.
Yeah. I mean, I think I would probably

(20:34):
take a long look at it and thinkthat I don't know if I want to
use that. But yeah, most people don't
care. And it's actually.
It's important to let that like really sink in why that's the
case, because This is why I was labouring this.
You know what might have seemed sort of abstruse point about the
internal and external ledgers. The only thing that matters is
the internal Ledger Tether. The external ledgers are kind of

(20:54):
nice in so far as they, you know, facilitate easier
transfers than might exist in Fiat, which again is what the
real competition is like Fiat dollars in a Fiat bank are more
difficult to send than stable coins.
That's basically the gist of theproduct market fit.
But in terms of assuring, I don't know if that's even the

(21:16):
right word because there is quite a lot of trust in this.
Like it's not a technical argument in, in terms of there
being any widespread belief thatthe tokens ought to have value,
right? That the basically that the peg
should hold. You need to believe that Tether
will redeem and it doesn't matter what the blockchain says.

(21:38):
Like it's completely up to Tether, which means it's
completely up to the state of their internal Ledger.
If they basically if they stop redeeming, then the entire
enterprise falls apart and it doesn't matter what tokens are
issued and what block chains, because that's the point at
which everyone will realize theynever cared about Tron or about
Ethereum or whatever else. Well, I think it's interesting

(22:01):
as well this idea of outsourcingto the public infrastructure of
Tron, which is, you know, basically this, this shitty
network that you know, goes up and down and you know, these
other these other networks wherethey have tether available.
But it's sort of, you know, those transaction phase a part
of it, right? And my understanding is Tron is
the cheapest and shittiest. And so that's the one they they

(22:22):
sort. Of it's like, I mean, it depends
what you mean by shitty. In some way I'm going to make
sure this isn't quoted out of context, but in some way it's
the most honourable because it'sjust not like pretending.
It's just like, we're a databaseguys.
Yeah, you want to use a database, go for it.
That which is why it's cheap, right?
Like this is the essential. This is like the core tension of

(22:45):
the bullshit crypto engineering,right?
Is that if you're not excluding Bitcoin because Bitcoin actually
is money, if you're trying to engineer it to be something
other than money, the more decentralized it is, the more
expensive it is, and hence the more pointless it is.
But in the other direction, the more centralized it is, the
cheaper it is, but actually alsothe more pointless it is so that

(23:08):
you can't really win no matter what direction you go in.
You get some new dimension of pointlessness.
Whereas Troll and I think is almost the most open about like
yeah, this is pretty pointless, but it kind of works for this
one thing. Yeah.
Well, look, I mean, taking that idea then that the approach
that's currently being used for stable coins won't scale.

(23:29):
I mean, do you have any kind of ideas of what that those pains
might look like? Oh, it's.
Just fees. It's exactly this point.
It's that if you look at what what seems to be pretty
legitimate excitement in broaderfintech, because I brought this
up in 5-10 minutes ago. So the likes of Stripe buying
bridge for a billion dollars andannouncing actually fairly

(23:52):
recently since I wrote the article maybe 2 weeks ago or so.
I'm not sure when this is going to come out, but they, they had
some announcement about basically rolling out stablecoin
capabilities for Stripe merchants.
So I mean, that's a pretty big signal of like a lot of money is
going to be, or at least a lot of effort, let's say is going to
be put into this. And I don't have the exact

(24:15):
numbers off the top of my head. But if you're just thinking
about things like, you know, looking at the actual volume
going through stable coins versus volumes just globally
for, for payments, it's like many, many orders of magnitude
higher. And if that moves to these
crypto rails, they'll break likethey, they just can't hold this.
The fees will get so high that it completely undermines the

(24:36):
purpose. And actually, it's good that we
went through that example with Tron, because you'll end up in
kind of a funny situation like that.
That tension of how decentralized you want it to be
will become a lot more obvious in everybody's minds because
you'll be saying, on the one hand, so the more the more
decentralized it is. So probably Ethereum is the best
example of that. Actually, definitely Ethereum is
the best example. The more decentralized, the more

(24:58):
expensive it's necessarily goingto be and the less they can
reasonably do about managing thefees.
It's just going to happen. It's, it's, it's almost more
Bitcoin like in that sense. Like in Bitcoin, you really
can't do anything about it at all.
But that's a good thing. It's a security feature.
In Ethereum, it's kind of a weird design bug because they
keep claiming this stuff isn't money so it shouldn't matter,

(25:19):
but the fees are just going to make it unusable, at which point
they'll look elsewhere. So they might look at some like
bullshit layer 2. I said like layer 2 on Ethereum,
which is really just completely controlled.
Or they might just go to some other blockchain.
So they might go to Tron. They're actually, I would argue
just different versions of the same thing because what you're
doing there is just moving into a more centralized environment

(25:41):
where fees can be directly managed because you don't have
the the baggage of the fake decentralization.
And I think all of the bullshit that is why I'm calling them
bullshit layer twos and Etheriumare, are essentially making the
same trade-offs as if you just went to Tron.
But the more you do this, the more it kind of hits you that we
really don't need a blockchain for this at all.

(26:02):
So this is the progression I imagine the likes of Stripe
going through. They tried an etherium, fees go
insane, completely undermine theentire proposition.
Then they move to either Tron orsome bullshit layer 2.
It gets better, but they they recognize they surely have to
recognize at some point, maybe just because there's some issue
of like censorship or you know, some, some other downside of it

(26:24):
being woefully, insufficiently decentralized.
Maybe it's actually exactly backto this point about they still
are forced to use Tether in thissetup because like nobody else
can reasonably issue because of that network effect that was
lost eight years ago now. And they're going to, they're
going to have to recognize that once again, it's really only

(26:45):
tethers internal Ledger that matters here.
Like if we're already trusting that database, why are we using
this basically just the database?
Cuz that's what Tron again is basically just the database
bullshit. Ethereum layer 2's basically
just databases. Why even bother trusting them if
you already have to trust TetherAnd there's no way of

(27:06):
introducing any value settlementbecause block chains don't
matter. Like, they're going to go
through all of this. Everything that that Bitcoiners
grappled with, I think in, you know, somewhere between 2016 and
2021, Stripe is going to grapplewith between 2025 and 2031.
So we can sort of maybe hypothesize is this future where

(27:26):
you know, Wise or Revolute, you know, is the experience we get
and we maybe have to even submitsome ID.
We've got a KYC to use the database for Tether 2.
You know, it sort of becomes it's not centralized in any
sense and. That's good point, actually.
Yeah, Yeah, that's when you weresaying that I was a little bit
skeptical because I, I do want to try to I guess steel man all

(27:48):
of this the best I can. I don't just want to make fun of
it because I think that's, well,I mean, I do want to make fun of
it, but it's it's more powerful if you're like, actually, you
know, being technically accuratein in picking it apart.
The the KYC thing I think is more a decision of any apps that
decide to use the tech. But you do make a very good
point though, because this is itdawned on me quite quickly that

(28:09):
the more centralized the, you know, quote quote like
underlying tech gets, the more the apps that are connecting to
it are kind of indistinguishablefrom that layer and can in fact
just force you to use it like it.
It could well be that there actually isn't a way to use
Tether without KYC whereas and this is back to that tension,

(28:31):
right? That it the more the more
decentralized the OR like fake decentralized the, the technical
environment it's in, you do at least retain that optionality,
but also it will break. So they'll stop using it and
they'll move somewhere more centralized.
So there's just no way around this basically.
Well, I mean, so taking that argument, you know, to it's
extreme, I do think there could be a reality where, you know,

(28:54):
sanctions, you know, of fact, whatever mean that.
Yeah, and it's one company, you know, they can just come and say
no this you have to just KYC thepeeps, you know, and and then
that's it, you know, and and then that's.
Kind of what I meant by censorship, by the way, I I
didn't really tease it out that much.
But again, the more, the more you embrace that or kind of,
it's not really embracing, it's like reluctantly accept that

(29:17):
trade off that the fate decentralization makes it
unworkable. So you move into a centralized
environment, so suddenly everything can be censored and
you're completely undermining like it's again, it's just back
to there's nowhere on this spectrum that isn't dumb for
some reason. Or is it?
Was it pointless? I think I called it before it.
There isn't pointless in some dimension and I fully expect

(29:39):
Stripe and Wise and Revolute to explore everywhere on the
spectrum, cover every single, you know, every single point of
pointlessness and eventually in like 2035 or something, realize
that we are right about this. Yeah.
So I think that, you know, in short that reality is is going
to continue on potentially wherethat, you know it centralizes

(30:02):
more and it basically just becomes, you know wise with to
the qualities basically. And you know, maybe that's
actually an OK experience for people who you know, and ship
countries or whatever, but it's still gonna be losing its value
and all these inflationary. Issues you know what's
interesting about all this, though?
So this this then sets up the the contrast to how it would
work with hybrid assets really nicely.

(30:22):
The the this entire time, this entire conversation, we've just
taken for granted that tether won't rug you, right, But like
will wise rug you will revolute rug you?
I mean, you, you could argue like probably not, But again,
you can see even just in that sentiment alone, I think you see
the pretty stark contrast between this and Bitcoin.

(30:45):
So so stark that I again, would argue this isn't even crypto.
We're not talking about crypto. We're talking about fintech
rails. People don't think that about
fintech rails. Like regular people just don't
think will I be rugged by revolute, right?
I mean, you could argue maybe they should, but they don't.
And it's, it's quite a different, you know, attitude
that you need to have that in some sense it's just forced on

(31:07):
you by how it even works in the 1st place.
So is there a good rug you like that?
So no, but what what it would bethough, is there'll be the trade
off where, you know, you've got a KYC and it and it goes through
its Wild West phase and then it becomes KYC and then it becomes
backed by the government. And there's these backstops.
And I mean, basically it become,it is Fiat and it become
continues to be Fiat like. But yeah, I do, yeah.

(31:28):
I want to move into the temporary assets and the Bitcoin
side because this is of course moving, you know, in parallel to
all of this. And I mean, to be fair, I mean,
I've, I've looked into Taproot assets a little bit.
I mean, I, I haven't really usedthem that much or I haven't used
them at all. I'm not really too familiar with
the exact workings of it, but you're seeing this.
I mean, obviously Lightning Labshas made this announcement that

(31:49):
they're working on it. I don't think it's launched yet,
though. Is it the Tether?
As far as I'm aware, Tether hasn't, but there are some
stable coins as Taproot assets out there.
OK. Like tell me more about this in
terms of like what, what is the temporary assets main and sort
of how does that contrast with everything we've talked about up
until now? Yeah.
I mean, I, I probably am not thebest person to give like a

(32:09):
technical deep dive on this. I I'll describe it at a fairly
high level that I think is more relevant to in as much detail as
I think is needed to fit with the rest of what we've been
talking about. Yeah, which is basically that a
temporary asset is it's it's it's really an asset issuance

(32:30):
scheme on layer one Bitcoin. It's a way of basically making
Bitcoin transaction. But in imbuing with all this
metadata that, you know, everybody else who is on board
with this protocol is like, oh, OK, so that's what this asset
means and you can track it and so on.
It very much in the vein of I forget the number, but that was

(32:50):
the ERC 20. I think is the one for for doing
same thing on on Ethereum. That wouldn't be that
interesting where it not for thefact that you can.
So once these assets have been issued, you can open lightning
channels denominated in them andyou can write them over the
lightning network even though only the first and last hop need

(33:15):
to be in this non Bitcoin asset.So you can make an atomic
payment across lightning, the middle X hops of which just are
Bitcoin payments. Enlightening.
That's I think that's basically all you need to know to fit into
to everything else that we've been talking about.
So the, the, well, I mean, my thesis on this when it was first

(33:38):
publicly announced, just as as an idea, like not this is
probably three years ago or something now and there was a
lot of hype around things other than stable coins.
Basically, I, I, I don't really want to go too much into it, but
I'm mentioning it just to make the point that I think this only
works for stable coins. I, I don't really see anything
else that I think tapu assets even can be used for.

(34:02):
The reason basically being that I don't think there's anything
else that has anywhere near enough value for the mechanics
of this transfer to work in the sense that dollars and I guess
probably all Fiat kind of has uncapped value.
Not not sorry, I shouldn't say value like nominal value, right?
In the sense that there's no maximum to the number of dollars

(34:25):
there could that there could be.And so long as the incentives
are right for people to use this, people will always put
more dollars into it as opposed to like basically any other kind
of, you know, real world asset thing like a tokenized security
or something. Even if you like the biggest
company, I don't know what the biggest company in the world is
right now, Probably Apple or Google or somebody like that.

(34:45):
Even there, it's questionable that there would be enough value
denominated in Apple stock that not in absolute terms, but that
people would be willing to put into this protocol to actually
enable writing. And then even on top of that,
like it's not clear why you would ever want to pay for
anything with Apple stock. Like that doesn't really add up.
So in my mind, this is a good shortcut for your listeners.

(35:07):
I mean, do your own research, obviously.
But my, my take on this is capital assets are for stable
coins. I don't really think they're
going to be used for anything else.
So kind of now injecting that into all the other arguments
that we'll be making, you see two very crucial differences
here to how it works in crypto. So 1 is that this time you
actually are using the blockchain for something that

(35:32):
you need a blockchain for, right?
You're using Bitcoin and Lightning specifically for value
transfer and, and you could maybe call it settlement.
I think that's kind of muddying the waters a little bit, but
that is actually what it's for. And you notice that you can't
just like burn all the tokens and go somewhere else and do
this because you, you do in factlose the rails, right?
This is the key difference, I think, to like Tron versus

(35:54):
Ethereum. You can just burn a whole bunch
of Tether on Tron and reissue iton Etherium because nobody
actually really cares how Tron or Etherium works other than it
being public. Like the fact that it's public
and the fact that you can send it, that's kind of all you care
about. Again, could just be a database.
The Tabro assets construct couldn't just be a database
because you need lightning for it to make any technical sense.

(36:17):
Like the way the value is transferred is atomically
through lightning. So that's one difference is that
it's way less stupid in terms ofwhy you're using a, you know, a
blockchain for this. The second one though, is why I
was glad that we we spent a bit of time on the point about
Tether having the network effectis that I don't know if this
will be immediately obvious to the audience, but I think we've

(36:39):
covered enough grounds for for them to at least go away and
think about it that you, you don't need the sender and the
receiver to be using the same issuer anymore.
So this this massive unreachablenetwork effect is now gone in
the sense that it could be, I don't know.

(37:00):
Well, let's use examples we've already come up with.
Actually, it could be like Revolute.
Like I have my Revolute stable coin on Lightning and I want to
pay you, but you don't have a Revolute account.
You have a wise account, right? And they also have their own
stable coin. This is completely trivial to do
in Tabroid assets because basically I send my my stable
coin goes to whether it's directly to Revolute or it's,

(37:24):
you know, I have a channel with a market maker.
However, it ends up working. So it goes, you know, dollar,
like revolute dollar, Bitcoin, Bitcoin, Bitcoin, and then wise
dollar comes out the other end. And these what's actually even
cooler here is these banks basically is what they are
stable coin issuers, but they'reeffectively just banks.
They don't even need to trust each other, like they don't need

(37:45):
to know each other even at all. Everybody's just relying on the
fact that lightning is real, right?
Lightning is a is like a real functional thing that
effectively sends value and can imbue the value transfers with
various cryptographic propertiesthat enable this entire transfer
to be atomic such that there's there's an interesting level of

(38:07):
trust involved here in that obviously you can't avoid
trusting the issuer of the asset, but you don't need to
trust anybody else in any of this.
And again, even there, that's completely unlike, you know,
you're asking the questions by, Oh, can you swap from USD T to
USDC? Like kind of it's a bit unclear
exactly to what extent who you're trusting and why and what

(38:27):
fees are, you know, blah, blah, blah, blah.
And and then even, you know, like going in and out bullshit
layer twos and that kind of thing here, the it's kind of
assumed you already have trust in the issuer if you're using
stablecoin, as I actually would just encourage using terminology
bank at this point, like you trust your bank.
You don't need to trust anythingelse about how this works

(38:48):
because Lightning is great basically.
So I guess maybe there is a Third Point that's worth
mentioning quickly that this is what I meant by it's the most
difficult when it starts just because of probably inadequate
liquidity. And like the the size of the
lightning network is miniscule compared to the the, you know,

(39:10):
the amounts that are transferredin stable coins already
elsewhere. So significantly more value
needs to come to lightning to enable this.
So it'll be the most difficult, by which I basically just mean
it's like people will it'll be costly to issue.
You won't always it'll be like the early days of lightning
basically that you won't always be able to find a payment,
right? It'll be kind of clunky for a

(39:31):
while probably, but the more butthat in and of itself creates
opportunities for people to makea profit by enabling it more
effectively. So in theory, you can imagine it
will it will start to as soon asit it works really at all, it'll
start to attract more and more value.
And then the bigger it gets actually the cheaper it will

(39:53):
get. So that's completely flipped
from in crypto because as we covered right in crypto is just
the gas problem because it, you shouldn't really be using a
database in the 1st place. Sorry.
You should be using a database. You shouldn't be using a
blockchain here. You should be using a blockchain
because you're sending value andthat's what it's for.
So that's just to confirm this. You're saying those middle hops

(40:15):
though, those are just bog standard lightning.
Yeah, routing nodes. So there's actually a couple of
other things here that are probably worth pointing out.
Number one, there's going to be phase involved in there, which
over time actually incentivizes,you know, routing.
And then #2 as you say, startingoff, it maybe needs to scale
more just to get, you know, the volume and then the channel
sizes to go up. But yeah, that's got a

(40:37):
stickiness to it, I think where,you know, the average channel
size is just sort of slowly creeping up.
But that's kind of like, I thinkof that like hardwood, you know,
it's sort of it's like the oak tree that's, you know, growing
and of building those channels and those relationships between
the nodes that, you know, that'skind of hard.
You know, you pay for that up front.
But unlike the, you know, running it on a shit coin, you

(40:59):
know, it's not going to fall over when it actually needs to
run, you know? So that's sort of really
interesting, yeah. Sort of scaling thing to
consider and ultimately with Lightning being able to run it
through these intermediate nodes.
I mean, that's what's the one for everyone who's just using
Lightning, you know, normally I guess as well.
Yeah. So that that's the point.

(41:19):
That's I, I, I alluded to this right at the start and then sort
of dropped it. But that is a reason I think
Bitcoiners could be excited by this, even if you really don't
care about stable coins at all, that I see it all as kind of a
kind of a Trojan horse to just what would be the right word?

(41:41):
Like Bitcoin eyes Fiat in the 1st place that this is kind of
go back through everything that we've covered.
So this design is clearly superior of, in my mind at
least, it's clearly superior to how it works in crypto, with the
minor caveat that is going to suck at the beginning, but the
more it scales, the better it's going to get.

(42:01):
So if it can be effectively bootstrapped, then we're we're
Scott free, right. So clearly better than crypto in
a lot of cases. Crypto is clearly better than
Fiat, annoying as that is, it just is true.
And so, but then the with the added component, which is like
you could have an ideological spin on this if you wanted, I
suppose equally, I think I covered this earlier, though,

(42:23):
you can think of this purely practically too, that the
Bitcoin monetary system is kind of, I want to say physically, I
don't know if that's exactly themost helpful way of describing
it, but it's segregated from from Fiat, right?
It's they like they work in in separate ways and you can

(42:43):
manually switch from one to the other, but it's a it's a hassle.
With all of that in mind, even if you don't care about even
like Fiat, say like you don't care about Fiat, you definitely
don't care about Sable coins. You should, I think, be at least
mildly positive about this because it's going to make it so

(43:04):
much easier. Like if this all works right,
it'll be a while away. This will be like 10 years in
the future or something, maybe even longer.
At that point, it will be so much easier to Orange Bell
people than otherwise because itwon't be a question of basically
everything that we're used to now in terms of how much of A
practical nuisance it is. It, I mentioned this earlier,
right? It'll it'll literally just be

(43:26):
flick a switch like do you want to just stop accepting this
government shit coin and accept Bitcoin instead?
It's like, cool, we'll press that button and it'll start
happening like now. Yeah.
Could you tell me please, so with Tether have these magical
T-bills somewhere and they are using Tron to match that on a

(43:47):
database somewhere. But how do I mean the the, the
burning and issuing to to keep the pig and and that's a process
that they're running. Oh, it's not to keep the peg.
It's purely for operational purposes.
Like the the peg is kept by trust by by their effective
operation. They're basic.
There's something I mentioned right at the start actually that
we didn't cover that is worth going into a little bit of

(44:09):
detail on too. I think the best way to think of
Tether in kind of economic termsis just as a fully reserved
bank, right? And I kind of alluded to this
before when I was saying that especially in the Taproot asset
set up, I think the language is a lot cleaner.
If you like stablecoin issuer tome is weird.
It's a very crypto centric thingbecause people didn't know what

(44:29):
else to call it. And I get like why it's you,
It's, it's straightforward enough English, but just calling
it a bank, I think makes more, makes more sense.
So Tether is a fully reserved bank that you, you by
definition, or you know, to the extent you believe that
definition, you can't run it right.
You can't run Tether in the way that you can run literally any

(44:52):
Fiat bank by just pulling out your your deposits because
there's no leverage there. So that's, that's basically all
Tether is. And again, even this goes to it,
it kind of I think at least a little bit helpfully explicates
the point about the internal versus the external database.
The burning and issuing of tokens on whatever other block
chain is completely irrelevant to the actual economic workings

(45:15):
of Tether. The economic workings of Tether
are people send them dollars andthey buy treasuries.
That's it. That's, that's literally it.
There's obviously all the token issuing stuff is like why
they're sending them dollars because they want to play around
with the tokens over here. But it doesn't matter at all.
It's like it could be. It could be a database again.
Yeah, sorry, excuse my ignorancehere.

(45:35):
But so when it comes to the temporary asset side, these
lightning channels sets will be flowing through there, but those
sets, and it's not necessarily going to equate to a dollar
value. Is that like, how does that
work? Like, you know, like what, what
does one set mean going through a lightning node and then coming
out the other end? Or is that just the information?
Well, I see. Yeah, I was kind of dancing

(45:56):
around this. I'm not sure this is worth going
into that much detail on in terms of like the an economic
view of all of this. But in a Taproot asset channel,
the denomination is, I mean dollars basically, right, as
it's denominated in whatever that Taproot asset is like
effectively has its own. It's, it's, yeah, it's kind of

(46:17):
hard to describe because it is still pegged to a specific UTXO.
But it's you can almost think ofit as like, you know how, I
don't know if this is a helpful metaphor.
I'm just coming up with this right now and I might, I might
regret it. You know how you know how
equities have par values, which is typically like 1P or $1.00 or
something like that, Because there, there needs to be for

(46:38):
accounting purposes, there needsto be some capital contributed
to explain the liability. You can think of it kind of like
that in that in a technical sense, yes, this is pegged to
the UTX O in which it was issued, but there's no Bitcoin
value there. And and hence it's exactly as,
it's just it's trust in the issuer as to why anybody would

(46:59):
think it has any value. Well.
The key thing is that you can. You can write atomically across
lightning. So you can have the first hop be
your dollar payment, then every other hop will be an equivalent
dollar value of Bitcoin moving until the very end it swaps back
into some other dollar denominated taproot asset.

(47:21):
I I think I'm beginning to understand.
So you have the you know, the the the wires and revolute at
both ends and the first hop it'ssort of maybe it's doing its own
thing. But then from that point on
there's I guess. And that's an instant.
So we spot price, right? The the value in sets would
match the value of the dollar. Yeah.

(47:42):
And then it would kind of come out the other end and be.
I mean, there's just to be clear, this is like this is very
much getting into the details that are I, I don't think really
matter for, for, for understanding the, the economics
of it. But there there's a bit of
negotiation involved in the sense that you need people.
There's some, some terminology your, your audience might
recognize. I don't know to what extent this

(48:03):
is even been kind of settled on,but people talk about like edge
nodes and Dexes, so like decentralized exchanges.
I, I think I said market makers before, which is more like
tradify language, but it is, it's pretty like
uncontroversially what's happening.
There's a very, I mean, almost certainly this will be

(48:25):
automated, right? It's not like somebody's going
to like an actual person is going to be saying they're
deciding what they think a good value is.
But you do as part of arranging the, the atomic lightning
payment, both sides need to agree on what the effectively
exchange rate is at the first top and then what the exchange
rate is going to be at the, at the last stop.

(48:46):
And the thinking, this actually goes back to the point about, I
think I, I brought this up and then you mentioned that even in
more detail that you can imaginethere being a profit opportunity
here that attracts more liquidity in the 1st place.
Like obviously there will be, there's, there's fees throughout
because it's lightning payment, right?
Every writing note is going to take a fee.
There's probably, well, no probably.
There's definitely going to be aminiscule profit to be made on

(49:10):
that exchange, which is which islike an FX swap basically, which
is what in theory attracts liquidity in the 1st place for
people looking to profit from these trades.
Yeah. No, that's fascinating.
And I mean for you it is a technical detail, but it sort of
clarified in my mind just that, you know, there will be sets
that are, you know, somewhat resembling the the real world

(49:31):
value of that dollar sort of flowing through the network.
Oh yeah, yeah, yeah. And that's good to know.
Like that, that sorry, that is worth emphasizing.
You know that component of how it works.
I do. I completely agree, because
that's the crux of what I was saying in a much more like
almost rhetorical context beforeas like you do actually need a
blockchain for this, right? You can't just, you see what I

(49:53):
mean now that you can't just copy and paste this out of
Lightning and try to do it in Tron because there is no such
mechanism in Tron because Tron'snot money.
Yeah. A couple other things man.
So there's liquid. I have got this, have have got
to that and I'm just wondering what your thoughts are on that.
Is that sort of a, a middle ground or where it's a?

(50:16):
Federation, yeah, I've always thought of it as being kind of a
middle ground. I don't want to get too
distracted by this. I have talked about this
publicly previously before, but I have a very specific view of
what I think Liquid should be for that I think very few people
agree with me on, or at least are very few people are as as
specific and as public as I havebeen about this.

(50:38):
And I think block streams marketing around it hasn't
really helped. And I just to be clear, I say
this as a block stream board member like I'm I'm pretty
openly critical about this. For what it's worth, I think
Adam Back is one of the few people who does agree with me,
but this is more of a historicalissue in terms of how Liquid
came about in the 1st place. What I think Liquid should be

(51:01):
for is security tokens. Basically.
I think it's perfectly designed for that and not really well
designed for much else. I think almost every other use
case that has historically been attached to it is like fine if
people like it, but it's just not great design.

(51:21):
There's actually kind of a similar criticism by the way.
It's stable coins on crypto now.I think about it is like, I
guess it's fine, like if you like it, that's fine, good for
you, but it's not very well designed.
I think Liquid's for security tokens, which is completely, I
mean we can talk about that if you want, but I think it's a
completely separate discussion to this.

(51:41):
No, cool. I just wanted to highlight that.
And then the other thing I just wanted to throw in the mix here
while we're talking about stablecoins is have you encountered
the concept of stable SAT's? Yes, true, yeah.
And and I mean, just from what we've talked about, I mean my
take just and then I'd love to hear what you think is that
almost that effects make a role someone like Galloway and and
the stable set system I've got. I mean, it feels like that would

(52:02):
be a perfect integration there with our sort of having that's.
Interesting. Actually, I don't know if I have
anything sensible to say about that because I've never thought
about it before. And my, the reason I've always
been a little bit skeptical. Like I think it's kind of
technically cool, but you're, it's very trusted.
It, it's, as far as I'm aware, there's no real way to you

(52:27):
because there's no like Oracle or anything.
There's no price feed. You're just, you really are
trusting your channel partner to, to be honest.
And I know that it's, it's usually proposed in a way that
they're very strongly incentivized to be honest.
And I'm just not sure anything about it.
I I don't know how it would how it would integrate with this if

(52:48):
if at all. No, that's fine.
I mean, I get my understanding and maybe my information is out
of date. But with something like the
Blink wallet, which is a custodial lightning system,
right, You can have stable sets in there and they are
effectively they are the bank and they are managing their peg
for you and you know, hedging onboth sides of that to keep keep
the value. And you know, in El Salvador,

(53:08):
whatever people are, you know, choosing to move their Bitcoin
into that stable sets to keep the dollar value.
And I'm thinking kind of in thissituation that that kind of in
their own universe at the moment, but you could have blank
doing that over here and then another system doing it on the
other side and then that actually.
This is point. Yeah, yeah, yeah.
You could only have that. So, yeah.
So you're saying you could have like, I have my Revolute dollar

(53:30):
as a Taproot asset and I want topay somebody using Blink who
actually just has a stable channel?
Yeah, that would totally work. That'd be fine.
So there's some interesting stuff there, I think.
Even that is cool, by the way, like that's maybe an even better
example. So when I give the example
before, I was like, you don't need to all trust tether
anymore. I can trust Revolute, You can
trust wise, you can push it way further than that.
Like you could trust or I trust exactly the right word, But you

(53:54):
could be using something that has its entirely own isn't even
taproot assets, right? It's some completely separate
design. The only real requirement is
that it uses lightning or or even you can, you can push it
even further than that. Now I think about it, it needs
to be able to use lightning. It doesn't like have to be
lightning centric necessarily. So that's cool.

(54:16):
Yeah, no. So there's a lot of really.
Interesting. So actually, oh, sorry, I've
just come up with a good one. Right.
So this is linking back to something you mentioned.
You could, I hope this is correct.
I'm just thinking of this right now.
You could have a lightning, you could have a type of asset
lightning payment that starts with me sending a revolute
dollar, goes lightning, lightning, lightning, and then

(54:36):
does a bolt swap such that you receive tether on liquid.
I'm nearly certain that that would work and would be fine.
And again, you need lightning for this.
You can pick this up and plop itinto crypto.
It won't work. Yeah.
And I mean, I've said many times, I mean, lightning is its
own miracle. I mean, just the way that works,

(54:56):
you know, lightning and Bitcoin together, Wow.
But lightning on its own is pretty awesome as well.
So there's a lot of stuff there.Alan, I guess one other thing
just maybe we could wrap up on. You wrote a little bit about the
history of Visa. Yeah, Yeah.
And I thought maybe we could just sort of dwell on that for a
moment because yeah, that's one.Of the coolest parts of all of
this. Yeah, tell me about that.

(55:16):
Yeah. So oh again, I'm wary of
speaking for like 30 minutes. So the the way Visa came about
in the 1st place, I think this is kind of a spoiler I guess,
but I think in hindsight wasn't possible without Bitcoin.

(55:37):
Like the the original goal of Visa couldn't be achieved
without effectively Tabroid assets is like that's the
spoiler. So originally Visa was a
not-for-profit. It was a cooperative between
member banks and the goal was to, I mean, the goal was to they

(55:57):
did want what we now know as Visa, right?
For for basically for credit cards.
Well, actually even that's interesting.
Sorry, that's not true. The original goal was not for
credit cards. The goal was for debit cards,
which obviously that is still a thing.
But the reason we've ended up with credit cards is, is quite
interesting. And the reason the Visa has
ended up as a for profit like kind of oligopoly with

(56:18):
MasterCard is also very interesting.
And it basically comes down to within, within Fiat other than
basically central banking, whichis kind of missing the point a
little bit. There is no way to send a debit
like it. It's literally impossible to
send a debit because all Fiat money is commercial bank

(56:41):
liabilities and the only way that you can transfer between
commercial banks is by them taking credit risk with each
other to update their balances. And there may even be it depends
exactly how removed they are from one another.
There may be even more like middle man and even more risks
and delay and potentially FX in there as well.

(57:03):
That makes it even more complicated.
And prior to I wouldn't even saycredit, yeah, Visa, I guess the
card networks, let's say prior to card rails, the the only way
of making such a transfer was via central banks.
This is actually why a lot of this, you know, contrary to like
Bitcoin lore, this was the express purpose of the creation

(57:27):
of a lot of central banks and more historically recent ones to
enable I, I guess, free. It's obviously not really free,
but like nominally free interbank clearing.
However, that was only ever available to banks.
It was never available to customers.
So D Hawk, who's the founder of Visa, his original concept with

(57:48):
Visa was effectively interbank clearing extended to customers
such that people can pay basically not with checks.
Like that was kind of his idea, like not with cash, not with
checks digitally, instantly. And so original idea or

(58:10):
original? Yeah, original idea for the for
the entity rather than for the, you know, the product as such
cooperative between member banks.
And basically it just gets gradually corrupted because
first of all, they realized there needs to be a credit
component to this because you literally can't send Fiat debit.
It doesn't exist. That's where credit cards come
from. And and you know, eventually

(58:33):
they just this is maybe not so much a Fiat thing.
It's just like a human nature thing or whatever, but they
realize that this is incredibly valuable.
They eventually shift it into a for profit.
Then they they list it. It goes public at some point as
well. And now it's, as I mentioned,
it's just like a gatekeeper effectively.
But if you read so the I actually might have the book

(58:54):
around here. No, I think I moved it.
Highly recommend everybody read D Hawk's book.
It's called one from many. There's also another one I
recommend in the piece, which isI think is a good counterpart to
it because the one from many is like, it's quite, it's kind of
funny how it's a little bit overthe top in places.
It's very personal. It's almost like it's more a

(59:15):
biography of him. It's like a professional
biography. And you can tell he's very
passionate about it and he's very angry at how, how it, you
know, went completely off course.
I think the other book is calledElectronic Value Exchange.
I think that's the name of it byDavid Stearns, which is more of
like a historical, like purely you kind of dry historical

(59:35):
account of of the same thing. If people are interested in all
this, very much recommend both of those books.
They they, they make a good pairing as well, just because of
the different, like they're talking about the same things,
but with a, you know, with a different perspective on it.
The reason I mentioned that, though, is so in in one for
many. In particular, Dee Hawk is very
insistent on what his original vision was and very annoyed at

(59:59):
how corrupted it became. And so basically my take is this
was completely inevitable in Fiat.
You actually need Bitcoin, and Iguess now we also know you need
lightning. You may be also even on top of
that, you maybe need taproot assets for this to work the way
he intended for it to work, which is some.
I forget the exact quote that I I given the piece, but it's

(01:00:21):
something like. Open permission less value,
digital value transfer mechanismthat anybody can just plug into
and use and you can't do that with Fiat, but you can do it
with Bitcoin. And so the final step in all of
this is that again, going back to this point about Tether has

(01:00:42):
this amazing network effect thatwill probably never be overcome.
But if we move into if, if stablecoin issuance becomes, you
know, predominantly on Taproot assets, you don't have the
network effect and conceivably anybody can issue a stablecoin.
It really just comes down to, you know, how well reserved are
they, how trusted are they, someprobably relatively minor

(01:01:02):
technical points about how well connected to the network they
are, blah, blah, blah. You're basically rebuilding Visa
at that point, but with the the interchange element not being a
company that you know, per thesebooks ends up being corrupted
because it's kind of unavoidablyfor profit.
The interchange component just is the lightning network, which

(01:01:25):
kind of obviously can't be corrupted in that way.
It's it's a significantly betterdesign to meet this goal, which
I think is pretty cool. So if we, if we then get a whole
host of this, this again would be like way, way, way far in the
future, probably 1020 or something like that.
But if you have hundreds, thousands of Taproot assets,

(01:01:46):
stablecoin issuers potentially in different currencies as well,
because that's the key part of like the value add of Visa and
they're all just settling through lightning.
That is the original vision of Visa, not at all what Visa is
now. Yeah, that's, that's profound.
And I think, you know, the idea of the global visa, let's go
anywhere, let's see, you know, let's see do what you need to

(01:02:06):
do. I mean, having that compressed
down into actually the network itself.
Yeah, it's cool. Pretty awesome.
One other thing I'm just conscious of time.
We haven't touched on this too much, but you do write a little
bit about E cash. And we both know E cash also
kind of needs Bitcoin to to workas per David Charm's original
vision. So do you want to have any

(01:02:27):
comments just on how E cash fitsinto this vision as?
Well, this is, this is way more speculative I think than most of
what else I've talked about. And it's really just the idea is
to come full circle on whether or not you need a block chain
for any of this. And I think, I don't think it's
realistic to jump straight to stable coins being issued as E

(01:02:49):
cash. So the thing in there is you're
just being completely honest with yourself.
You're like, the internal Ledgeris the only thing that matters.
The external Ledger is like kindof a LARP, but it's at least
better than Fiat. But actually, if we use an
internal Ledger as Charmian E Cash, well, the first step, we
use this shiny unique cache. It has vastly better monetary

(01:03:09):
properties, primarily around privacy.
If we go further and then integrate it with Lightning,
which is basically a default of the cache protocol, it assumes
that you're running them in on top of the Lightning node.
Then you get this far greater connectivity and you can kind of
emulate what what we've been talking about with with Taproot
assets in the sense that it's it's baked into cashew.

(01:03:32):
And I think it probably will be for, you know, if anybody else
tries to do some E cash protocolthat that has anything to do
with Bitcoin. This it's sort of obvious that
you would want this to be the case.
It's baked in that somebody can send their also keep in mind,
sorry, clarification that that the main assumption with cashew
is that the E cash is denominated in Bitcoin, so that

(01:03:52):
it's like it's a bit kind of more ideologically pure, but it
doesn't have to be right. It's basically just a variable
that you can configure. You're like new asset called
this whatever, but the assumption is you can pay like
Alice can pay Bob or you know, Alan can pay Cody and it's the
payment flow is me to the men, mint to mint over lightning and

(01:04:14):
potentially with many other hopsin between and then payout meant
to to Cody, which is very similar to what we've been
talking about with Taproot assets.
It's almost more like it's kind of more from the ground up,
which is sort of nice ideologically, I guess, but I
don't think it's all that realistic that it'll take off

(01:04:34):
with stable coins that way. I think you do need this for
this really much more of like a commercial point.
Tethers not going to start issuing E cash.
I don't think I I don't think that's really realistic, but
they are going to start issuing Tabroot assets.
We're like we know that they've said that.
So with all of that in mind, thething the far more speculative

(01:04:57):
idea is Tabroot assets can be kind of an on ramp for stable
coins and just, you know, Fiat in general, right?
This is how we bitcoinize Fiat. We we get them into lightning
with Tabroot assets. Once it's all there though, and
once it's no longer really needed as like a way to suck
value from crypto. My thought is you may as well

(01:05:20):
just come full circle in the on being honest about the database
and at that point just swap it out just like it it.
The rails will still work exactly the same way because the
rails are lightning like that. That doesn't matter.
You get vastly greater privacy and there's even there's
benefits for the issuer as well.It's not just like it's it's

(01:05:41):
cheaper basically is what it amounts to better privacy for
the user much cheaper. And it's kind of this even that,
sorry, is worth lingering on. It's cheaper because you don't
need a blockchain, right? So that's kind of the gist of
why it ends up being cheaper forthem too.
And, and the only thing that youreally need to make this work is
you still want the payments to be atomic.

(01:06:02):
So you need the E cash to be capable of being hash locked,
which is all you need to to thenintegrate it with the rest of
Lightning, which it can. So this is another primitive
within within cashew and will have to be for any alternative E
cash implementation. And so that's kind of thinking,
it's like once you have all these pieces in place, you may
as well take the final step and just admit that you don't need

(01:06:24):
to blockchain for this. Just have the internal database.
Just make it like the coolest, most powerful internal database
that we know about anyway, whichhappens to be Jimmy E Cash, and
then be done with crypto for good.
Yeah, that's an incredible. And I think, I mean just my
thoughts on there. I mean, I think we can think
about the technology of it, but there is a social component and

(01:06:47):
it might be a case of sort of you go forward a step and you
sort of linger there. You let that kind of deepen and
then you move on to the next step and this.
Is it would be it would be way better socially to just start
using E cash right now. Like if literally if tether you
can even think about this like counterfactually if tether had
always issued E cash like they never bothered with crypto at
all, it's just E cash. Like that would have been

(01:07:08):
better, but it probably also wouldn't really have worked the
same way. Yeah, now that's cool, man.
So I think that's it's covered sort of the article.
I do recommend people go and check that out.
And it's it's titled 1/2 Baked thesis on Stable Coins.
But I mean, I think it's pretty comprehensive as far as I can
see. No, I, I'm honestly, I think it
is pretty half baked. I'll tell you why.

(01:07:28):
So OK, And I meant to mention this in the introduction
actually, but we just went straight into the meat of it
that I've been, I say this in the first few paragraphs, right,
But that I've been thinking about all this stuff on and off
for like 3 years, probably sincethe taper assets announcement,
which I think was in 22, but just never really had that much

(01:07:49):
of an impetus to go further withit.
I think in Part 2, because so you mentioned in the, we didn't
cover it all in terms of what wetalked about, but my like day
job is Bitcoin VC and just because of the stage of the
project hadn't ever like I see lightning stuff all the time.
As I'm sure you can imagine, probably almost everything that
we look at has at least some lightning component to it.

(01:08:11):
But there hadn't really been anything taproot asset centric,
which is not that I would expectthere to.
I think I now I do expect it forthe next couple years.
I think it'll be really excitingto see what pops up.
But yeah, so I didn't have that much of an impetus to like
actually write any of this down or or form a coherent thesis
around it until the Tether announcement.

(01:08:33):
And then I was like, holy shit, this is like actually happening.
This is the thing. Anything about this and I, the
piece, I wrote it in 1/4 and 1/2hour sitting because I had a
train journey from Edinburgh to London.
I didn't have anything better todo.
So I was like, I'm just, this ismy chance to just get all of
this out and see if it makes anysense.

(01:08:54):
I do think, I think it's like relatively half baked just in
the sense that, you know, I, I said this a couple of times in
this chat and hopefully it comesacross relatively sincere.
That is very speculative, right?Is this is not at all, this is
what is going to happen. It's just I, I think if people
are now want to go read it, I would do so in the spirit of

(01:09:17):
this, you know, this might happen.
Like here's here's what I think the incentives are not, or like,
here's how I think the incentives are changing.
Therefore, I think we can be hopeful about the direction this
is going. But I don't, I don't really.
You're claiming to know. Yeah, well, I mean, for me it
was a provocation. And I certainly, I mean, I

(01:09:38):
understand what it's like. You know, you sit down and you
just got to get it out of your system and it's it's, you know,
it comes through. And I think now, I mean, we've
had this conversation. I mean, others are having these
conversations. And I think putting it out there
and, and having at least the conversation as sort of maybe
for people who, you know, even just the connection with stable
sets and some of the stuff we talked about today is like, oh,
actually, you know, there are some connections coming through

(01:09:59):
and they're all connected by lightning.
It's pretty amazing. So I mean, I think, I think
there's some, some cool stuff there, man.
But look, wrapping up what, what's, what's next for you?
You got sort of, I don't know, in the next little while you got
sort of things on your horizon. What's what's What's up with
you? Nothing all that exciting to be
honest. I mean, I'm off the Oslo for the
Freedom Forum next week and thenactually don't travel all that

(01:10:21):
much for a while because I got apretty full slate in autumn.
So I'm going to be, at least I hope I'm going to be, I, I
intend to be at Riga. There's 22 BTC plus pluses in
Europe. So one in Istanbul, then one in
Berlin, and then I'll be in Lugano at the end of October.
So I'm kind of saving my. Energy to the town for.

(01:10:42):
That long haul. It's tether town, isn't it?
Lugano, yeah. Yeah, yeah, yeah.
Tether Fest. The Tether Fest.
OK. That's an unofficial title of
Lugano Plan B. This is coming up to the car
here, the great con. All right, man, well, look,
that's that's that's pretty awesome.
I mean, again, thank you for sharing your thoughts on this
and I hope we can, yeah, keep the conversation going because

(01:11:04):
this is, this is really interesting stuff, man.
And I think when we look at all I've had.
A great time. Yeah, all of the stuff
happening. But look, man, I'll leave you to
it. And otherwise, yeah, thank you
for your time. Thank you, Thank you for
listening. I am Cody Allingham, and that
was the transformation of value.If you would like to support
this show, please consider making a donation either through
my website or by directly tipping to the show's Bitcoin

(01:11:27):
wallet. Or just pass this episode on to
a friend who you think may enjoyit.
And you can always e-mail me at [e-mail].