You're listening to TIP. Hey, everyone. Welcome to this Wednesday's release of the Bitcoin Fundamentals podcast. So this is a very non-standard show. On Thursday of last week, the 30th of January, 2025, Tether, the company that issues the USDT stable coin, made a big announcement down in El Salvador that they were going to be issuing their stable coin over the Bitcoin Lightning Network via the Taproot Asset Protocol.
After the announcement, I got a text message from my good friend, Luke Grohman, who's a repeat guest on the show in which we typically talk about macro. Well, the text messages started to get long back and forth between the two of us, and I just... shot him a message. I said, why don't we just do a Zoom call and we can just talk about this in a lot more detail. So we started having the Zoom call and quickly it was just like, okay.
I need to hit the record button because I think that some of this conversation, this very candid conversation between Luke and I could be maybe useful for people that are just really kind of wanting to understand what the announcement is all about, what it means for payments and settlement and all sorts of things. And I have to warn you, I was not using my podcast microphone. I just had some ear pods in whenever I was talking with Luke. So this is completely unscripted.
There were no planned questions or anything. It's just a very candid back and forth. So I hope you guys enjoy this. by the Investors Podcast Network. Now for your host, Preston Pish. All right, Luke, let's talk about this Taproot asset protocol situation that was announced in El Salvador yesterday with Tether and Lightning Lab. We were texting and we were trying to figure out like what in the world this means. And I said, dude, let's just record something.
have a candid conversation between the two of us. So fire away your questions. I'm going to do my best I can to answer these. I'm definitely not like the resident expert, but I'll try my best. No, no, no. You're going to seem like Einstein compared to me.
These questions, they're going to be like five-year-olds. But there's a lot of, I think, people out there that feel that way about sort of the apps within the use case, right? One of the most frequent things I hear on Bitcoin is, oh, what's I use for? There's no use case. And quietly, as you know...
And as I know, there's a lot of use cases. And so last night, there was this announcement. And so why don't we start by just having you, in your words, what was that announcement and what was the significance of that announcement? So first and foremost, Bitcoin is store value technology. I think everybody understands that it's the first and most primary use case is to preserve buying power and protect against government printing of fiat.
Through the years, there's been a lot of innovation that's been done on the code base to allow it to become payment rails as well. And so what was it, 2017, you had a SegWit update to the Bitcoin for code. that then enabled scaling on the lightning network. So the lightning thing, just like how the internet works, you got internet protocol. And then on top of that, you have the transmission control protocol, which then basically allows you to send the digital packets over the internet.
very quickly. I could get into more details on that. What I would rather do is just say, similar to internet protocol and then transmission control protocol being built on top of it, you now have Bitcoin as store value, money layer. layer one, and then layer two on top of it, similar to transmission control protocol, TCM, I'm sorry, TCP on top of IP, you have the Lightning Network.
And what it's doing is it's basically breaking Bitcoin into these like smaller pieces that allow them to be sent very quickly all over the internet, just like TCP does for just basic data. So that update happened in 2017. So Lightning Network has grown significantly since then. Right now you have... 21. I looked this stat up before we started. Bitnodes reports that there's 21,592 full nodes running on the network.
And then what happens is, is these full nodes that are all over the world, anybody can run on, you can run a node for, I mean, it's basically free on the electrical cost because it doesn't require a lot of power at all to run a node. Like I run a node, it's very simple and easy to do for the most part. The hardware will cost you anywhere from like 300 bucks to run like a Raspberry Pi and you can run the whole code base for like three to $400.
one-time cost, and then there's no additional electrical cost to run a full node. So these full nodes, which there's 21,000 at least, there's a lot that aren't being accounted for. So I'd suggest that the number is higher than that, all distributed all over the world.
And what they're doing is they're setting up channels between each other. So like I have a channel open to somebody else and then that person has a channel open to another node. And what it's done is it's created this payments network on layer two. that allow for me to send, like, you could pull out your smartphone. You have a Noster account, right? I think you do. Yeah. I could zap you dollars worth of Bitcoin over this network. And it would be that lightning network, that layer two network.
conducting the settlement of that Bitcoin to come to you instantly at the snap of a finger. I think it's important to stop and just highlight and then... Hold on that thread for a second for the uninitiated, because if I understand it correctly, what you just said there is actual physical Bitcoin is moving.
to move that packet of value from one node to another around the world and i think I want to just pause there for a second because this highlights something very fundamentally important that I've noticed amongst the, we'll call them Bitcoin skeptics around the use cases, and how it is different than gold, which is to say, in gold... Gold's price historically has been controlled in part because it's all centralized in a vault. And so when a payment occurs on a ledger relative to gold...
Basically, it gets put on a cart and it gets wheeled across to the other side of the vault and a ledger is made, but it allows for paper. It's all paper. It allows for a great deal of the expansion of unallocated paper derivatives. In contrast, what you just described, as I understand it, is basically you are this... Payment rails requires the movement of some small amount of physical Bitcoin from one node to the other.
so that makes it difficult to centralize bitcoin and run sort of the capping of bitcoin price that a lot of people have discussed with gold rightfully so I'm sorry, before you go any further, there are similarities, but very large differences when you start talking about...
the record of the Bitcoin happening on layer two, to what you were describing with gold. So like you're saying the gold moves from one side of the vault to the other, and it's a paper entry, but now Switzerland doesn't own it. The United States now owns it, and it sits over on this side of the vault.
Lightning works kind of similar to that where like, let's say you and I have a lightning channel open to each other. I send you a hundred sats, which is 10 cents. Okay. So I send you that 10 cents on this network. And all it is, is there's this gossip network on the whole network that is constantly saying, hey, the update is the channel that Preston opened, the original channel on layer one Bitcoin. That's important.
On layer one Bitcoin, the Preston open to Luke was for $100. We're going to make a paper entry that instead of it being $100 on Preston's side and zero on Luke's side, now it's $9. $99.90 on Preston's side and $0.10 on Luke's side. That hasn't been officially updated into layer one. It's basically, it's almost like a paper entry between you and I on layer two that we could just keep zapping these paper entries back and forth to each other and keeping an update on the ledger.
Here's the difference. When you want to make that final, you can unilaterally go back to layer one and say, I want to settle this channel right now. And I want my 10 cents and I want Preston to have his $99.90. You can make that decision. And also, I can make that decision at any point. And then in the gossip network... It goes off of there into the banking system? It goes into stablecoins or...
No, no, no, no. We're not even talking stable coins or any of that yet. We're all still just Bitcoin. Basically what happens is when either one of us make that unilateral decision to make it final. We go to layer one Bitcoin where the mining is happening and the core layer, just like I was describing the internet protocol and TCP.
Lightning will go to layer one, Bitcoin, raw Bitcoin, and make that all final, and nobody can undo that transaction. And we write that into layer one. But we could keep that channel between you and I open for 10 years. And we could be transacting that $100 back and forth to each other as much as we want. And here's the other thing is, let's say I'm connected to Sam and you're connected to Sally. And Sam wants to send that transaction to Sally, but they're not connected.
but they're both connected to us and you and I are connected. So now you get the routing of that 10 cents from Sam to Sally that actually came through us, right? So I have 10 cents less that they routed through you, but then you don't have that 10 cents because it went.
to Sally, right? So you can see how the sats just kind of pinged off of us. I have the same balance. I still have the $100. You still have zero in that scenario, but we just routed payments to two people that aren't even connected. It's so identical to transmission control protocol where it's breaking down data packets and making them more digestible so you can send them. There's so many similarities there with Lightning's doing.
So people, if they want to like research or study that more, I would tell them kind of look at that and then look at how lightning channels work. And again, we're not even to the big news event, which is what we still need to talk about. Right. Let me build one more on top of that. If I understand it properly, it sets us up for that big news event and its implications for our discussion.
But that is implied here since we're talking about since 2017 and the rapid growth in the Lightning Network. What you're creating is...
A, how fast has Lightning Network grown? It doesn't have to be exactly. You and I both know it's a huge number. I don't know off the top of my head. You know better than me, I'm sure. A, what's that growth? And then B, does that imply essentially that you are creating given finite number of bitcoin at the base layer you're as you're using this more and more as payment rails
You are essentially creating what is a short squeeze that cannot be papered over unlike gold, where there's more and more ultimately whenever those packets are settled. Is that the right way to think about it? And then what is the growth in the network in Lightning Network, Ben? And what's the prospective growth? And then we can sort of talk about this news. Let's take a quick break and hear from today's sponsors.
Have you ever been interested in mining Bitcoin? As a miner myself, I've been using simple mining for the past few months and the experience has been nothing short of seamless. I mine with the pool of my choice and the Bitcoin is sent directly to my wallet.
Simple Mining, based in Cedar Falls, Iowa, offers a premium white glove service designed for everyone from individual enthusiasts to large-scale miners. They've been in business for three and a half years and currently operate more than 10,000 Bitcoin miners. based in iowa their electricity is over 65 renewable thanks to the abundance of wind energy not only do they simplify mining with their top-notch hosting and on-site repair services
but they also help you benefit financially by running your operations as a business. This approach offers significant tax advantages and enhances the profitability of your investment.
do you ever worry about the complexities of maintaining your mining equipment they've got you covered for the first 12 months all repairs are included at no extra cost if you experience any downtime they'll credit you for it and if your miners aren't profitable at the moment simply pause them with no penalties when you're ready to upgrade or adjust your setup their exclusive marketplace provides a seamless way to resell your equipment
Join me and many satisfied miners who have simplified their Bitcoin mining journey. Visit simplemining.io to get started today. That's simplemining.io to get started today. With Simple Mining, they make it simple. FinTool is chat GPT for SEC filings and earnings calls. Are you still doing keyword searches and going to the individual filings and using Control-F?
That's the old way of doing things before AI. With FinTool, you can ask any question and it's going to automatically generate the best answer. So they may pull from a portion of an earnings call or a 10K, whatever it may be, and then answer your question. The best part is that every portion of the answer is cited with the source document. Now, if you've tried to do any of this in ChatGBT, you may know that the answers are often wrong or full of hallucinations.
The way Fintool is able to outperform ChatGPT is their focus on the SEC filings. If you're an analyst or a portfolio manager at a hedge fund, check them out at Fintool.com. That's Fintool.com. This is a message from our sponsor, Intuit TurboTax. Taxes was dealing with piles of paperwork in frustrating forms, and then waiting and wondering and worrying if you were going to get any money back.
Now, Taxes is easily uploading your forms to a TurboTax expert who's matched to your unique tax situation. An expert who's backed by the latest technology which cross-checks millions of data points for 100% accuracy. While they work on your taxes, you get real-time updates on their progress. And you get the most money back, guaranteed. All while you go about your day, no stressing, no worrying, no waiting. Now this is taxes.
Intuit TurboTax. Get an expert now on TurboTax.com. That's TurboTax.com. Only available with TurboTax Live full service, real-time updates only in iOS mobile app. See guarantee details at turbotax.com slash guarantees. All right, back to the show. I'm smirking because I think I know what you're getting at, which is if I take a hundred dollars worth of Bitcoin and I load it into a channel that I'm sharing with you.
And that channel is being used to zap Satoshi's back and forth between us. And let's say we keep the channel open for five years, right, on this layer two. Those coins are never going back on an exchange to be sold into the market or exchange for dollars, right? So as the Lightning Network is being used, it has more and more utility.
It's creating a short squeeze in dollar terms on layer one or Bitcoin that's being sold into an exchange because that Bitcoin is not there anymore. It has to be there. It is the fundamental building block to allow these rails to exist. yes okay and is there a ratio of number one two questions follow-up questions is there any ratio established between amount of bitcoin needed relative to amount of transactions that has been
established and then what has been the growth in transactions on Lightning Network over the last seven, eight years since 2017. So what you'll find is like, let's say you were Apple and I am... nobody pressed and pitched running my own node, and I've connected to all these other people, right? And Apple starts doing a bunch of sales in Bitcoin. And I'm using Apple as an example because they're a retailer that sells a whole lot of stuff, right?
So let's say I open up a one Bitcoin channel, a whole Bitcoin, $100,000 worth of capacity. to you. And capacity is kind of an interesting way to look at this because it's almost like an electrical network, right? As far as the capacitance, the size of the cable that's running between you and me.
So I open a $100,000 channel to you. That $100,000 is sitting on my side of the channel. Yours is at zero, right? But I'm connected to all these other people on the network. And all these other people are buying things from Apple, okay? So what's happening is all of these transactions are flowing through me to you, and that channel, all of those coins that are sitting on my side of the channel immediately go to your side of the channel, and it's completely used up.
And there's not much more flowing from you through me back out to the rest of the world because you're kind of a bit of a black hole with respect to everybody wants to pay you for your physical things that you're selling. Okay.
I don't have much of an incentive to open a channel to you. Sure, I'll get all those routing fees one time as they go through you. But what I would really like to have when I open a Lightning channel is kind of a two-way mechanism where sats are flowing through me and then they're coming. from me to you, and then they're coming from you back through me out to the network because that back and forth, almost like alternating currency or alternating current is...
actually very lucrative for me because I'm getting routing fees as it's going back and forth between the two of us. But if it's a one-way street because you're Apple and you're just selling a ton of stuff... Like my channel gets depleted really fast. It goes to zero on my side. It goes to a whole Bitcoin on your side. And I'm sitting there and I'm saying, I should probably just close this channel and basically unilaterally settle this, go back to layer one.
and open another channel to somebody else that's not going to deplete my side of the channel as quickly because I can make more routing fees that way. So there's a lot going on in that conversation, but what it gets down to is the most optimal partner... that you can have on the network is somebody that's somewhat balanced with the amount of Bitcoin that's going to flow between you and them. And because I'm going to get the most routing fees for something like that.
So then can you give some real world examples of what more of that bilateral type of interaction transactions would be relative to what you just laid out? Some real world examples, right? Okay. So it's not you buying a bunch of stuff from Apple all the time through me. It's you wanting to have a back and forth netting on those rails. What is that as simple as?
a retailer who is both taking in visa cards right now, visa transactions from customers now, and paying suppliers on the other side? Or does it have to be back and forth with the same people? How does that-
I would just say that today, the network is pretty robust from just how many nodes you... I mean, like I said before, you have 21,000 nodes on the network that are doing this. So finding a path between you and another node on the network... is there's some type of connection that can be found to route that payment because of how many nodes are on the network.
I was talking more, if you were going to run a node and try to do it in a way that you're collecting a lot of fees, you want to try to have balanced partners or else if you have a black hole payment, one of the nodes on the network is just sucking. I'll give you an example. There's a wallet of Satoshi, super liquid node that you can connect to. But if you do, it's just going to deplete your channel really fast. So you're going to want to go back to layer one to close out the channel.
When you say the feature channel, it means the Bitcoin you're putting up as essentially collateral is going to zero because you're running deficits against that channel. Yeah, against that node, but then all the people that are paying through you, you would still have one Bitcoin.
on your node right like let's say i only had one bitcoin on my node i open a channel with you you deplete the bitcoin out of that channel but i'm receiving a full bitcoin from all these other people that are routing through me so i still have my one bitcoin I actually have a little bit more than one Bitcoin because I have the fees for routing all of it. So I go back to layer one, I close out the channel, and I got 1.0001 Bitcoin instead of just one Bitcoin.
because I routed all of that Bitcoin to you. So I get paid... If that was your fee, you were getting paid as a fee in Bitcoin. That's right. Now, some people aren't even running fees. Some people are just doing it because they want to make the network stronger. So they're not even charging a fee. And so then the routing is...
going through these paths where nobody's even charging a fee today, right? 10 years from now, it might be very different, but today it's getting routed through nodes that aren't even charging a fee. And so the Bitcoin, as I close that out on layer one, I'm paying a fee to close it out on layer one.
And very de minimis, I would tell you right now, practically nothing. It might be 20 cents to close it out on layer one. And that full Bitcoin is still there. But that channel between you and me, I closed it out because it's just been inundated because you're such a popular... vendor on the network. We don't know the ratio per se, but it's fair to say there's a positive correlation between the growth in volume on the Lightning Network and the amount of Bitcoin we'll call collateral.
that you've got to put up in order to facilitate the volume on that network yes yeah yes correct and i don't know how many bitcoin let me see something real fast i'll just search this yeah Okay, we'll see what AI tells us here on how many Bitcoin have been loaded into the Lightning Network. I don't know how accurate this answer is going to be, but it'll kind of give you a sense for what it is. Now, this is where this new news is really...
There's a lot going on here. Okay. So yesterday down in El Salvador, you had Tether. Paulo from Tether made the announcement. And just for context, Tether was more profitable. than BlackRock in the last year with the amount of money they're making off the coupons of all the treasuries that they're sitting on for all of the dollar tokens that they have issued against those treasuries.
just to put things like we're talking billions, billions and billions of dollars. So this guy who's running this company, that's basically tokenizing US treasuries. short duration treasuries. He only buys the short duration stuff because the yields are better than the long duration stuff, and he doesn't have the inflation risk, right?
Okay, so here's what it's saying. Today, there's approximately 5,100 Bitcoin loaded into these channels over the Lightning Network. Now, because it settles so quickly, it's not like you have to have 100. 200,000, 400,000 Bitcoin loaded in this because it's both ways, right? Like these channels are operating both ways. And like when you get into the capacitance of what's needed as far as Bitcoin and these channels, and just for...
You know, if a person wanted to research this more, they could go to river.com and they have a full or really quality article about how much capacitance do we think is even needed in the lightning network because of the way. payments are routed and blah, blah, blah. But going back to... Sorry, I interrupted my previous point. So Tether makes this announcement that they're going to start routing their US dollar stablecoin, USDT, over the Lightning Network.
And they're going to use a thing called Taproot Asset Protocol. This protocol is a decentralized protocol. Anybody can run it. It takes consensus to agree with the protocol. But they developed this open source protocol that allows... an individual to issue tokens, USDT in this case, on the Lightning Network and route the tokens just like we're routing Bitcoin. Here's why this is exciting, is because...
The speed at which you can do this is near instantaneous. The fees to do this are practically nothing. And the reliability and the decentralized nature of this network... in my opinion, is the most decentralized network that exists, like truly decentralized. And the reason I would say that it's decentralized is because going back to the first point that I said,
It costs $300 to buy a Raspberry Pi and participate in this network. And the electrical cost is basically like a goose egg. It's like nothing. It's the minimus. So, for example... competitors that this is currently being routed on, call it Solana or Ethereum, for you to conduct an Ethereum transaction of USDT today, you're going to pay 50 cents to a dollar and maybe even more. to transact. So that means if I wanted to send you a dollar, or better yet, 10 cents in US dollar stablecoins, USDT...
that $0.10 would cost me $0.50 to send it to you on Ethereum or more, maybe $1, maybe $2 to send the $0.10. So you can quickly see how that's not... The incentives are very bad relative to this new way of doing it over the Bitcoin Lite network. Okay, so Solana, which would also be another competitor, the fees are very low, but... I would argue that running along a full node costs anywhere from like $3,000 to $5,000 per month to run the node.
So do you think that that's actually decentralized or do you think that Solana itself is running all the nodes? Like everybody's got their own opinion, but I'm sorry. I don't know too many people that are going to go spend three to $5,000 to run a node just to route payments. Not to mention, I think they have to have 10 Solanas in order to have voting rights and all these other.
Like that network, in my humble opinion, is completely centralized. Yeah, we just saw that, right? With DeepSeek versus OpenAI, right? You're seeing the open source is... Killing. Yes. Killing. So if it's not actually open source, if it's actually not decentralized because willing participants want to run a node on the network, is it actually decentralized and outside of government control? And I would say absolutely not.
So why would Tether want to do this? Well, I think Tether would want to do this because they don't want... And I'll argue with myself here in a second, right? I think they want to make sure that they don't ever have to worry about the Solana non-profit.
tapping them on the shoulder and telling them what in the world to do. Same with Ethereum and whatnot, right? Well, Ethereum, I think it's just killing itself just through the fees alone. Like it's, in my opinion, that thing's dead, like super dead. Solana is the competitor to what we're talking about. But if I'm Polo at Tether, I want to move to a network that I know some Solana foundation can't tell me what to do or control me.
Welcome to the Bitcoin Lightning Network where nobody can tell you what's what, right? Now, here's where I'm going to argue with myself. Ether is still centralized, right? The amount of treasuries that Ether is holding, like... Don't think for a second that the US government can't tap him on the shoulder and say, hey, we don't like the fact that so-and-so is squatting on a hundred million dollars or a billion dollars worth of feather tokens. We want you to...
remove those tokens from their control. And guess what? If he's the issuer of the USDT token that's backed by US treasuries, he can kind of control those tokens, even if they're running on the Lightning Network. right? Because he's the issuer. And that's an important point. And think about this. So why is Bitcoin different than Tether? Why is Bitcoin different than Solana? Why is it different than Ethereum? It's different because nobody can take this Bitcoin from you.
It's impossible because there's no issuer. The issuer is the protocol itself. So why does this long run range, what is this? So knowing, right, because Tether is, we'll say, controversial in certain circles for a number of different reasons as to... verity of reserves etc trust me i get asked all the time and i i don't have nearly the the depth of answer i should but
knowing that what you just described is the case, that he can get tapped on the shoulder, that he does have the vast majority of tether reserves in T-bills, which are liquid, backed by the government, etc. Is there a longer run move here? And what is it? Because it seems to me that it's a short, uninitiated person. on this it's it seems to be a relatively short jump from this world to rolling this out to competing with more existing payment systems oh yeah uh security clearing
big fee businesses done by payment processors, credit card companies, banks. And is that where this is going? And if so, how quickly does that start to be a factor for some of these kinds of industries, do you think? Well, I would say... 100% without a doubt, like all payment technologies are being disrupted like now. The next thing I would say is the fact that you have a company that probably one in a hundred people would even know exists, call it Tether.
is making more profit than BlackRock alone tells you how fast this is happening. And should be... The wake-up call of wake-up calls to anybody on Wall Street that's not paying attention to this, the fact that you have this company like literally shellacking any other major bank in profits, I mean, that's the signal.
That is the signal that this is where, and you know what, with the SAB 121 repeal, and now that the banks can basically get into the same game of over collateralized tokenization of U.S. securities. is a super lucrative and profitable business. And now that banks can custody Bitcoin...
and play in this space. You basically have the president and his administration saying, it's green light here. We want to be the leader in this space. If you're a bank and you're not trying to do what these guys are doing, you're off your rocker. You're spending too much time on the golf course. and you need to wake the hell up.
Think Lamar Jackson will get more than 250 passing yards next week, or Patrick Mahomes will pass for more than 1.5 TDs? PrizePix allows you to put your skills to the test. Join more than 10 million members, play with your friends, and win real money this football season when you and your crew run your game on PrizePix. PrizePix puts their members first so all withdrawals are fast, safe, and secure, and you can link your MasterCard to deposit money seamlessly.
And with the big game coming up, now's the time to hop on prize picks and check out their promos tab to potentially win a split of $1 million in promo funds if you tail a lineup that goes three for three. Download the app today and use code WSB to get $50 instantly after you play your first $5 lineup. Again, just download the app today and use code WSB to get $50 instantly after you play your first $5 lineup. PrizePix, run your game. Trust isn't just earned, it's demanded.
Whether you're a startup founder navigating your first audit or a seasoned security professional scaling your GRC program, proving your commitment to security has never been more critical or more complex. That's where Vanta comes in. Businesses use Vanta to establish trust by automating compliance needs across over 35 frameworks like SOC 2 and ISO 27001. Centralize your security workflows, complete questionnaires up to five times faster, and proactively manage vendor risk.
Vanta can help you start or scale your security program by connecting you with auditors and experts to conduct your audit and set up your security program quickly. Plus with automation and AI throughout the platform, Vanta gives you time back so you can focus on building your company. Join over 9,000 companies like Atlassian, Quora, and Factory who use Vanta to manage risk and prove security in real time. My audience gets a special offer of $1,000 off Vanta at vanta.com slash billionaires.
That's V-A-N-T-A.com slash billionaires for $1,000 off. For decades, real estate has been a cornerstone of the world's largest portfolios, but it's also historically been complex. time-consuming and expensive. But imagine if real estate investing was suddenly easy. All the benefits of owning real, tangible assets without all the complexity and expenses.
That's the power of the Fundrise flagship real estate fund. Now you can invest in a $1.1 billion portfolio of real estate, starting with as little as $10. 4,700 single-family rental homes spread across the booming Sunbelt, 3.3 million square feet of highly sought-after industrial facilities thanks to the e-commerce wave, The flagship fund is one of the largest of its kind, well diversified and managed by a team of professionals. And now it's available to you.
Visit Fundrise.com to explore the fund's full portfolio, check out historical returns, and start investing in just minutes. That's Fundrise.com. Carefully consider the investment objectives, risks, charges, and expenses of the Fundrise flagship fund before investing. This and other information can be found in the fund's prospectus at fundrise.com slash flagship.
This is a paid advertisement. All right, back to the show. So to clarify exactly just for the listeners, what we're talking about, what you're talking about, that the rollback of... Say I'm 120 or whatever. 121 is a staff accounting bulletin from the SEC under Gensler was repealed. So these banks now can start issuing their own stable coins back issued from the bank.
collateralize with T-bills, and ultimately collateralize, you know, to go in and out of or help their customers go in and out of Bitcoin. In other words, to be involved in Bitcoin. And not only that, but in the... In the same way that some of these AI companies are having to invest lots of money because if they don't, it's a threat to their business. It would seem to me that these banks are going not only, it's not a choice, they're going to have to invest to compete with what Tether's doing.
But where I think this race goes, so Tether is sweeping all their coupons from all these treasuries into their corporate balance sheet and buying Bitcoin with it. That's what they're doing with all their coupons that they're getting.
where I think the competition is going next. If I'm JP Morgan, or I'm one of these big banks, and I actually understand all of them, what I'm going to do is I'm going to do the exact same thing that Tether's doing, but I'm going to issue with the coupons that I receive...
I take, let's say I receive 5% of the underlying. Let's say I got $100 billion of treasuries backing all the coins I got on the network. And that means I'm going to get $5 billion in coupons annualized for all of that. And why don't I take... 3 billion of that, and I create and mint new coins, and I distribute those coins to all the people that are holding the existing stock of USDT. I basically get interest payments for holding USDT, right?
Then I take the other 2 billion that I made, because I made five, and I take the other 2 billion and I retain that. on the corporate balance sheet. And I buy Bitcoin with it, which then makes me even over collateralized on the coins that I'm issuing because Bitcoin has a CAGR of 25% to 50% annualized, right? Which makes my coin more trusted because I'm over collateralized and I have this treasury.
And that's where, you know, they don't have any competition, so they don't need to pay this dividend or coupon payment or whatever we want to call this yield that's there. But if you're going to compete with them, you have to start competing in a way that you're paying some type of yield for holding Tether, which they can completely do. And this creates balance sheet capacity from the government. Why would the government want JP Morgan to do? This is ultimately...
The government needs balance sheet. They need balance sheet to buy treasuries. And they need preferably balance sheet that they can issue. They can financially repress. They need somebody buying their debt. And this is... Tether is the number one growing buyer of US debt. If you're looking at the second derivative of who is really stepping up to buying this garbage, well, it's Tether. They're probably top 10 at this point in the world buying US debt. So the government...
has to love that. They might not agree or like how it's like basically expanding the monetary units. in the crypto Bitcoin ecosystem, because that's what it's really doing is it's the access and how quickly these rails are being tied to the Bitcoin are self-reinforcing and just making it that much more powerful. And they probably don't like that, but...
Well, I guess the new administration loves it. New administration seems to love it. You've got the balance sheet there. You've got presumably competition in the not too distant future on, right? Because now if you start getting these establishment banks in. things like Visa and MasterCard. Are these types of payment monopolies or oligopolies then at risk of margin compression if JP Morgan can process payments far cheaper over the Lightning Network in some period of time? Is that...
the right way to think about this kind of thing. Far cheaper is such an understatement. By doing this on Lightning, you are literally taking the cost of a USD transaction. It's de minimis. It's effectively zero because it's less than a penny. It's way less than a penny. And the transaction size could be $5,000, right? And it's still less than a penny for the transaction to clear.
So game theory, JP Morgan would want to put some Bitcoin on their balance sheet in the context of what you discussed earlier, because then that will subsidize their ability to undercut the competition and move the volume on payment rails at some point down the road, in theory. And the wild thing is, is we're just talking about tokenizing dollars on the Taproot Asset Protocol. You could literally tokenize Microsoft stock or Apple stock and have the same clearing mechanism. And so...
again, you're dematerializing in traditional finance is clearing houses. Clearing houses and custodians. Custody services, like all of it. Now, think about how does Robinhood make their money? Well, they take your shares that you own and they lend them out. like behind the scenes in a rehypothecation scheme that they collect fees on. And then whenever you like sell it, then they have to get them back. And they're just looking at...
From a statistics standpoint, how much can we re-hypopulate without running into issues, right? That all, and all these naive retail investors, they don't understand that that's happening in the background and that their shares are actually being re-populated and money is being made on that. But think about if you are creating tokens of Apple and I'm receiving those on my digital wallet, I actually hold those certificates.
And if I want to send you a share of Apple, I can do that instantly without asking somebody for permission for the actual stock certificate. That's kind of a big deal. Potentially a huge deal. How much has Lightning Network transactions grown over the last...
seven years just since its existence well it's the infinite basically but what's it growing at now yeah that's sort of a dumb phrasing of the question during the bear market it was pretty flat but now that it's starting to get into a bull market again it's picking up Let me just look real fast. Sure. So how many lightning transactions happened in 2024 is the question. And I'm using perplexity if people want to know which AI I'm using to kind of search this.
Okay. Based on the searches, though, Lightning showed significant growth in 2024. In August 2024, it was reported that a record-breaking 92,000 transactions through their infrastructure averaging 3,000 transactions a day on Lightning. And you got to remember, like, no, I mean, for the most part, globally, no vendors are even, I would think that honestly, I would think the number is like way higher. I would imagine you have, because I'm an officer, right? And like, oh, just to give people.
That idea is like how simple this stuff is. Like I can go to a person's post right here on my phone and for people that are seeing the video, they can see that I got this social media. I can go to this little icon, like this little... lightning bolt icon. And when I click that, it's already made the payment. Like I just paid that person 42 satoshis, which is like 4 cents. And it's already cleared. It's already set. And that's one transaction right there for the day on the lightning network.
Right. Microtransactions are happening all day long. So that's right. That's what it's saying here. Let me let me interrupt you, because in the press release yesterday of this announcement, they noted that total USDT tether volume topped ten trillion dollars on shame. rapidly closing in on Visa's annual volume of $16 trillion. Once fully integrated, users will be able to make cross-border payments with USDT on Lightning that settle instantly.
and in a fraction of the cost of other networks. So when you frame it that way, the volume that's on USDT is staggering already. Your point is perfect because...
What you're going to get is better reliability on this network of 21,000 decentralized nodes. You're going to get more connectivity. You're going to get... like just a more robust reliability of being able to route payments because USDT is coming onto the Lightning Network, which then reinforces the reliability of the Bitcoin network because they now want to play on that.
And if you get other stable coins, let's say a company in Europe wants to do a European stable coin on the Lightning Network and have zero fees for the routing and have instant clearing. through the taproot asset protocol running on top of Lightning. I don't know. When you have an open network, everybody is strengthening it and making it stronger by participating on it. and making the reliability better. And the transactions that you just said are mind-blowing in size.
Yeah. And then you start getting into things like Fedi, which you can use to set up any size federation and whether you're a major corporation or family and use the same network to pay in different currencies with those same types of low costs. instantaneous or near instantaneous settlement, you start to see the network effect really build on itself. Well, I promised 11 o'clock hard stop. I'm close. I know you got things to do. I would love to continue this at some point in the future. Yeah.
Because I think it's super, I mean, it is super important, but I think it's been super important in a niche space. And I think what we're starting to see with these announcements is it's stopping being niche and starting to. really compete with or see clear to competing with the existing big chunks of the existing financial system, some of which...
have been around a long time, have very entrenched positions and have very rich margins to boot. And so I think it's a really interesting moment of an acceleration in what's already a very disruptive technology. For sure. Hang on, man. It's definitely getting crazier by the day, man. Absolutely. Absolutely. Well, thank you very much for your time. Always a pleasure, brother. Yeah. Great chatting with you. You too. Thank you for listening to TIP.
Make sure to follow Bitcoin Fundamentals on your favorite podcast app and never miss out on episodes. To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor's Podcast Network. Written permission must be granted before syndication or rebroadcasting.