TFTC: A Bitcoin Podcast - #370: Deezy and Tao Wallet with Danny Diekroeger

Episode Date: October 24, 2022

Join Marty as he sits down with Danny Diekroeger to discuss his new projects after leaving Cashapp. Follow Danny on Twitter Check out Deezy Check out Tao Wallet Shoutout to our sponsors: Unchained Capital Braiins HodlHodl Upstream Data TFTC Merch is Available: Shop Now Join the TFTC Movement: Main YT Channel Clips YT Channel Website Twitter Instagram Follow Marty Bent: Twitter Newsletter Podcast

What's up freaks, it's your boy Marty here to introduce this rip of TFTC. I sat down with Danny DeKroger, formerly of Cash App and BitGo, now out on his own spreading his wings working on Deezy and Tau, both having to do with the Lightning Network. Fascinating conversation. You guys are going to learn a lot in this one. I certainly did. so exciting what's going on right now. Very excited to see what Danny goes out there and builds on the, on the very sound foundation he seems to have with his products.

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through the trouble of building the infrastructure yourself upstream data is here for you for you go to upstreamdata.ca tell their sales team that tftc sent you enjoy this robot danny kroger you've had a dynamic where money's become freer than free if you talk about a fed just gone nuts all all the central banks going nuts so it's all acting like safe haven i believe that in a world where central bankers are tripping over themselves to devalue their currency bitcoin wins in the world of fiat currencies bitcoin is the victor i mean that's part of the bull case for bitcoin if you're not paying attention you probably should be probably should be oh we're live what's up freaks it's your boy marty here with danny de kroger who's recently

had a departure from Kashyap, a Mikkelbolt departure, to spread his wings and build out some projects on the Lightning Network, Deezy, and Tau. Danny, welcome to the show. Thank you. Thanks for having me, Marty. Good to see you remotely here. And yeah, excited to chat a little bit. Well, I'm excited to have you on. I've been badgering you for, it seems like a couple of years now, I think, in terms of an individual who's built out critical infrastructure within the Bitcoin app space. I think you're one of the undervalue, underrated individuals

who worked on probably a product that more people are having interaction with than any other app, arguably, as it pertains to Bitcoin with Cash App. What was your title at Cash App? What were you working on specifically? so i guess my title was basically just software engineer uh on the bitcoin product um and i focused on a lot of the low-level bitcoin stuff like the hot wallets uh sending and receiving just the on-chain stuff and then for the last year and a half uh was one of the people

to sort of lead the lightning integration um so yeah definitely got my hands dirty in there and was just thrilled to be able to work on bitcoin at cash app um yeah it was a fun time what's it like building bitcoin products for a company and product as big as cash app so yeah it was it was first of all really fun i think we had a great uh team and it was a small team that was working on bitcoin um that grew over time but um i think it's it can be different depending on the company i think cash app did a really good job of um having like different teams be responsible for different parts of the code and helping them to segregate the responsibilities nicely so So, like, I really got to focus on the Bitcoin wallets, basically.

And I didn't, as a team, we got to be hyper-focused on that. So, it definitely felt, I mean, and then you're part of a big company, so you feel the momentum from a big company, but your team is very small and very focused. So, I think Cash App particularly was a really cool place to work to do that. And, yeah, also just the culture of Cash App being Bitcoin-only and very focused. You know, well, Coinbase was building a NFT marketplace that nobody uses. We were rolling out lightning. So when it comes to like building hot wallets, cold wallets, lightning integrations at that scale,

what are some of the hurdles that you ran into or the parameters that you were working within that most people may not be aware of? Yeah, there's a lot of interesting stuff. I think especially with the hot wallets, uh, I guess I could start there. Cause that was the first stuff I worked on was, um, before I got there, they were using like an external provider and then with a little bit of their own built stuff. But then we started building something more from scratch, custom built to handle like

all the on-chain volume. Um, so one of the things is transaction batching, just, uh, you know, batching the withdrawals together so that they take up less space, um doing coin selection is super interesting um because the fees you pay on chain can be super super high and they can be really high if you don't properly manage your utxos um so i got to do a lot of stuff on kind of actually we had uh um so there's like coin selection there's batching there's then consolidation transactions so it's what's interesting at cash app is you get a lot of small UTXO deposits on chain, you know, people depositing 20 bucks, 50 bucks. And so you basically have all this loose change sitting around and that's expensive to move on

chain because it costs, it's a lot of data. So then what you do is you want to consolidate those sort of in the background at a low fee rate. So those confirm, you know, it might take it 24 hours or a couple of days for those low fee consolidation transactions to confirm, but then you sort of compress those UTXOs into a bigger one and then the bigger UTXOs can be used for your big withdrawals. So stuff like that. So yeah, with the hot wallets, there's coin selection, batching, consolidations, and then fee bumping is another super interesting thing. Basically having, so it's hard to estimate what fee to pay, but if you use like replace by fee and you can use child pays for parent which are just two techniques of um allowing you to edit

the fee after you've sent the transaction kind of um to like make sure you don't overpay for your on-chain fees but you also get your transactions confirmed uh at exactly you know the duration you you want so anyway that's a quick overview of all the on-chain stuff but maybe i'll stop there and then we can get into i can go into more of the lightning stuff too No, I think it's fascinating and really good that Cash App is building these processes because that's something I was at an event a couple of weeks ago with a bunch of other Bitcoiners running companies that operate on a Bitcoin standard. And that was one of the things that came up.

Like a lot of people are using BTC Pay Server to accept Bitcoin to produce invoices, both on-chain and via lightning myself here at tftc it's like one thing that has become glaringly obvious to me as i've been running this bitcoin on as much of a bitcoin standard as possible as i've been running this company on as much of a bitcoin standard as possible is these problems i've run into where like you mentioned i have a lot of people donating five dollars on chain, paying for shout outs at 60,000 Bitcoin, $50 on chain. And I got to a point last year where I went into my BTC pay server and noticed all these small UTXOs, fee market was high. I was like, holy crap, like I have to create a process to actually consolidate these UTXOs and ensure

that I'm not wasting too much money. So when it comes to operating a company that revolves around Bitcoin, particularly receiving Bitcoin on-chain, the canvas to create business processes, not even like on-chain technical processes, but they result in that. But like thinking as a business, what are my tendencies? When do I consolidate UTXOs? When do I broadcast transactions? How close do I have to monitor the fee market? And then for something like Cash App, like obviously you guys have demand for withdrawals on an ongoing basis day in and day out.

So how do you sort of temper what's going on on-chain with the demand by our users to actually receive their Bitcoin? So it's just like a fascinating part of the industry that's not fully fleshed out yet. Yeah, definitely. it's um and i think it's there are like they're known techniques to deal with all this stuff um but they're not the tools aren't widely available um i think everyone's just kind of building their own versions of some of these tools that's actually interesting i guess i hadn't thought of it that the btc pay server users would have the same problem so maybe there's a cool plugin or something that um might be fun to work on to do you know auto consolidations

or stuff like that um yeah i would love like an alert that says hey you have x amount of utxos equate like i'd like to set a threshold whenever i get um a bunch of utxos that add up to 10 million sats i like to consolidate them into one utxo um instead of having to maybe like oh shit i probably gotta do some utxo consolidation randomly one day and then going in and trying to do the coin selection and batch smaller UTXOs together and then thinking about like the privacy like I'm batching these together so freaks know that other freaks have paid with these UTXOs it's just a very interesting bitcoin specific business problem that you run into yeah definitely the privacy and then also in privacy for you as well other people might be able to follow their coins

and deduce how much you brought in. But yeah, definitely things to think about, tools to build. But also Lightning, once we start doing more of our Lightning, things make it even easier, actually. Yes. So why do you say that? What was your experience like building the Lightning part of Cash App's wallet in the last year and a half? Well, yes. So building the Lightning wallet was a lot.

I guess what I was saying is perhaps from a user perspective, it might be easier when payments start coming in over lightning if you don't have to worry too much about managing your channels and stuff but um yeah depends how things play out but uh yeah i guess i can go into the the cash app lightning stuff um which was uh super you know super proud to be able to help build that. And yeah, basically, so one of the big things that Cash App did differently than some others is we elected to use, oh, and for the record, I'm not at Cash App anymore. So, but I am going to, you know, I can't say anything about future endeavors of the company or things like that. But a lot of this tech is well known that Cash App is used. So only talking

about public knowledge and stuff but um yeah anyway so cash app elected to use ldk which is the lightning development kit um which was a the way i like to describe it is it's a it's a library that helps you build your own lightning node in a really customized way and um whereas like if you use something like lnd which is very mature and widely used and battle tested lnd kind of like gives you a house and then you can just start using that house um and then there's a whole ecosystem of you know additions that people add to have added to the house that you can use ldk is more they give you kind of like the parts to a house but then you can customize how the house is built and so we wanted that customization and the way to fit it into our current infrastructure

because the cash app cloud infrastructure was like really really nice and really scalable and so it was a bit more of an upfront cost to or upfront work to get it everything configured and working but the result was basically we have a really nice scalable deployment of a couple lightning nodes and these nodes kind of work together so they can kind of operate they like effectively when i left we had three nodes um but like for example when you um a customer like requests a deposit like an invoice for a deposit it actually the payment can come to any of the three nodes which is pretty interesting um it's called like a phantom invoice and so there's a way of sort of load balancing uh the traffic across the three

different nodes which is nice because if you just had like one node and you had to you know spin down and spin it back up for a software change then you have those you know few 30 seconds a minute maybe where all the deposits would be failing so something like having three nodes split out you can have a an LDK made this super easy it's just one example of one of the things that they made useful there or they made it easy to do that but now we have like high uptime deposits which is what you want

for like a really scalable infrastructure. Yeah, that redundancy seems like a very big value add. Yeah, definitely. So, but, you know, there was a lot of, you know, LDK is also very early library as well. So it was sort of a mutual back and forth with us and the Spiral team, um just us giving them feedback or bug reports and then fixing things or catering you know new

features to our needs um so that was a great experience i mean i was just really lucky to learn from uh the team there uh matt corallo jeff suze uh valentine uh all right yeah yeah and then they've expanded the team recently to even more incredible folks so um and steve lee as well so i mean that's a big debate in the spaces how is the adoption of these different lightning network implementations lnd core lightning eclair ldk electrum's implementation you throw that in there as well how do you how do you view the competition between these different implementations and how they affect the the build out of the overall lighting network moving forward I think it's good to have competition um and I think they're all going to find their niche

um like I think they're all going to kind of find their niche in terms of what who uses them so I think it seems maybe a little contentious now but I think they're gonna like for example I think you know I'm already looking at my own on my own stuff like I run an L&D node personally um but i'm already thinking about how i can use like the ldk pathfinder as an extension to my node to do some type of uh probing on the network to you know try to predict good routes so i think there's going to be ways that people mix and mash or you know choose different implementations for different reasons for example i think you know when people want to build custom uh mobile wallets they might want parts of ldk whereas you can't as well take out

you know parts of lnd or parts of core lightning um but you can take out parts of ldk and put them in like you know the graph sinker or the pathfinder um so yeah i guess my biggest my only worry is that cross-integration, there might be some troubles there. Like if there's not enough testing between compatibility between different implementations, that could become kind of annoying. Yeah, that's why there's a big debate about like the spec for... Yeah, exactly.

Whereas I think, yeah, it sounds like some are much more, you know really want it to be spec based and then others kind of like to develop quickly and move and so we'll kind of see how it plays out but yeah and so what obviously you've become pretty enamored with the lightning network specifically what about it really let this fire under your ass to leave cash app and start a company project of yourself like how would you describe Deezy and Tout are they good together are they separate are they yeah yeah I guess so about two weeks ago I left Cash App um after I mean I loved my time there I just I've always wanted to kind of do my own thing um and I felt like felt like the right time had been two and a half years

but yeah I kind of started uh first I started this little thing called Deezy which is um the name of my, my lightning node. Um, and yeah, the DZ, so the DZ platform, basically the D is the culmination of my experiences trying to run a good routing node and, um, learning what's hard about it. And, um, basically it's a platform for lightning liquidity. And there's a couple of things you can do. First of all, the DZ node is just one of the larger, well-connected nodes on the network. But it has certain things like you can earn directly from the DZ node, which I can talk about in a little bit. You can also do swaps. I implemented a little swap service that is similar to like a loop out or a bolts um where you can send over lightning and receive on chain

as a way to like get inbound liquidity um but the way i implement it is in a trusted way and so you basically instead of it being a trustless submarine swap um you just my service gives you an invoice in that invoice is actually a signed message from my node that says i will agree to pay this amount to this address and then so you have at least that as like a reputational collateral um but then the advantage of the trusted thing is the api is like very easy to use and it's less expensive um and so that was something that i kind of desired as a node runner so then i made it for other people so there's that the swap service and then um i have my earning feature which um i guess i could explain how that works too now or then because

we also want to talk about the tau stuff but um yeah the earning feature is interesting as you say if you open a channel with me you can earn because i will pay you a fat fee when we close the channel i've never seen this set up before yeah exactly okay so the earning feature was basically when i started as a node and you know i had like even had one bitcoin or even like two bitcoin on the node and it was still just so hard to generate any type of revenue from routing because as a small node you're you're you're not like that likely to get selected in other people's pathfinding so it's really hard but your liquidity is valuable and so basically what my node offers is a way for you as a small node if you only have I say only one bitcoin is a lot but one bitcoin is kind of

small for to be a routing node but you can take your one bitcoin and you can put that all open one channel with me and then if you're able to essentially push the liquidity through that channel, which means you're then actually like buying inbound liquidity for me because you have to push it through my channel. It also has to go out some of my other channels. So you're essentially like reloading my inbound liquidity. That's super valuable to my node because then my node now having that inbound liquidity can then sell it um off at a at a decent price um which i can command a higher price for because my node is more well connected but i also will pay you very well like i think right now i'm paying people

1111 parts per million if you can push the stats through tell me about it i will pay you and then I close the channel um and and then I can sell that right now um to like you know with a another in a channel to loop or something for like you know 1500 or something so there can be a small margin that I take given my position as a node but I give smaller nodes the opportunity to earn like outsized returns if they can do these like targeted liquidity operations so it's sort of like a win-win where you can sort of just onboard as like spin up a node out of nowhere put a small amount of coins on it and then just have reliable earnings all the time by sort of integrating with my ecosystem and so it's kind of cool we have like you know a discord and a telegram and there's

like over 100 people in the discord and you know there's several just basically arbitrageurs that are coming in and uh collaborating sharing open source scripts on like how to automate these processes and um yeah it just helps you put your bitcoin to work um and yeah it helps you also you can get a yield on your coins but it's at the risk tolerance that you're comfortable with so for example if you want like a typical thing that people do is they will like have an account on an exchange like you know a bitfinex or something and they'll open a channel with me and then i don't care where they push the liquidity through because wherever it is it's getting me inbound liquidity from my current network a lot of them

will like pick the exchange that they have an account on and they'll send through their channel with me to their account on the exchange. So the funds go from their node to their account on an exchange. They happen to move through my channel or sorry, they happen to move through my node. And because of that, I'll then pay them, you know, 1100 parts per million for that liquidity. And so some people just they do that cycle over and over again. And they're essentially arbitraging mispriced liquidity um across the network so this is fascinating yeah so you've again you mentioned an api i don't know if that's only for the swap side of things but you mentioned the community and discord creating scripts so hypothetically with our node at tftc

i could send dj this episode be like listen to this right away figure out how to do this and We can just begin opening channels and getting yield on our Bitcoin, on our node. Yeah, you could. And it depends what risk level you're willing to take. If you're willing to put funds onto a custodian temporarily, and that custodian, that exchange, they have some type of mispriced liquidity somewhere, then you can take advantage of this arbitrage and do this thing as an active strategy. um the other things you can do if you don't want to use an exchange you can like rebalance um you can like if you have other channels you could rebalance out your dz channel come in through your other channels and then earn from that but when you do that that drains your other

inbound liquidity so you have to have like if you're going to do that you have to have some type of excess of inbound liquidity already that you're sort of selling off to me um and or anything else that people come up with i mean i don't personally i don't really i i'm it's sort of just a little business for me and so if anyone can push liquidity through i pay them you can find a new arbitrage or something like that uh it's good for me and yeah it's a little bit like it's a little bit of a pain i think for these exchanges because you have people coming in and just like you know taking their liquidity in a sense um and so i encourage the exchanges to fix their fee policies so that they don't get arbed um and there are known ways to set your

fees properly so you can't get arbed but for now like a lot of exchanges have their liquidity mispriced and so these these arbitrages are available interesting so correct me if I'm wrong this is a very unique way for an individual to create yield on their Bitcoin via the lightning network historically when people talk about getting yield on their Bitcoin via operating a lightning node I mean I mean, famously, we have Nick Batia's Lightning LLR, the rate of return on providing that liquidity. But it seems like you're allowing, enabling users

to basically help you operate your node without doing too much on their end and monetize that way. Where historically, thinking about monetizing via the Lightning Network has been like create a node and figure out your fees and get paid for routing where now people are getting paid to help you create an environment where routing is easier and more likely to happen through DZ.

Yeah, exactly. So this operation is valuable because it betters the liquidity profile of my node, which then my node gets used reliably for normal users routing on the network. so as you like sort of work do my note in my notes like hey i'll pay you for this stuff it's good for me it's good it's good for you you get paid um and i guess it might be interesting if we walk through because this seems like a little kind of like you know complex or uh kind of

roundabout at first but if we step back and walk through the journey of a node runner it might make a little more sense should we yeah let's do that okay so you start off as a node runner you don't really have you don't run in a business or exchange or anything you don't have any natural payment flows so you're going to basically what are you going to do you're going to take and say you have like you know i don't know you got two bitcoin so you might pick you know 20 different nodes and open you know 0.1 bitcoin channel to each of them or say you got one bitcoin pick 10 nodes do 0.1 bitcoin channel each of them so maybe you pick kraken wallet of satoshi uh nice hash okay coin you know strike some some some when you pick your top 10 bit refill um and now you've got all

these channels but all your capacity is uh outbound because you've taken your coins you've put them in a channel but nobody has taken any coins and like directed them directed them towards you so you have no like ability to receive um so therefore you're not going to route any payments until you go acquire some inbound liquidity somehow um does that make sense so far yes to me at least i don't know about the freaks listening but so yeah you can think of inbound liquidity um as coins pointed towards you somebody else like points chords coins towards you uh which is the thing that's harder to come by because you need to convince somebody else that you're worthwhile to point cord point coins to like open a channel to you um so instead but it's super easy

to get outbound liquidity outbound meaning coins that you can send because you can just open a channel with any public node that accepts channels um so basically as you start you realize wait okay really hard to get inbound equity so then you can go on like plebnet telegram you can like say hey i'm trying to get started on who wants to you know open a balanced channel and you guys can sort of coordinate you know you can use this thing lightning network dot plus which helps you coordinate these like balanced channel opens where you both commit funds to a channel or you do like these triangle structures where you do a three people agree and you want to a opens a channel to b b opens a channel to c and c opens a channel to a and then you do a rebalance um so that was

how i sort of started because i would just go on these telegrams like hey who wants to do a triangle who wants to do a balance channel this that and you sort of like tit for tat you know give some get some um that's one way to sort of like grind it out and get some inbound liquidity but you know really the one the people you want inbound liquidity from is the big exchanges like you you want inbound liquidity from cash app or river or crack in or wallet of satoshi because that's where the volume is like coming from so you want to be able to get inbound liquidity from them so then it's like okay how do you get that and what you start realizing is that to get inbound liquidity you have to pay for it somehow well you either have to pay for it or you have to

or you have to be like a natural source that people are wanting to pay like for you marty like if you're streaming in sats and tftc is going crazy and you're you know everyone's trying to pay marty then people are going to node runners are going to notice that and they are then going to position themselves they're going to give you that inbound for free because they can charge a fee um when the payments come through so that's you can attract the inbound liquidity if you have a valuable um destination that's being paid but if you're just a normal like no runner you don't have a service there's no reason people are paying you you have to go buy your inbound liquidity um and the way you buy it is the easiest way is um you can like you know oh you have a wallet

of satoshi account on your on your phone and you opened a channel with wall of satoshi from your node and then you send you know over lightning to your wall of satoshi account which then pushes the sats uh across your channel across your wall of satoshi channel and then now you have some sats in your wall of satoshi app and then you withdraw on chain back to your your node and now you can go open a channel somewhere else so then you've like but so the fees then you paid are the withdrawal fees from what the wallet of satoshi account and additionally the risk that you took is the risk of using this wallet of satoshi app who which is like an app that not a lot of people know who runs it or um you know what they're are they going to shotgun kycu or something like that um another way

to buy inbound liquidity is loop uh lightning labs did they they've obviously solved this problem super early on so they have their service loop um and loop allows you to do a trustless submarine swap so this is like the the cleanest way to do it it takes a little bit longer but basically what you do is that same thing you push sats towards them and they send you on chain however that's going to cost you a fee so that's going to cost you like a thousand ppm for the swap but then additionally the routing fees to get to loop are usually another 1500 or 2000 ppm um and so what you realize is oh sorry go ahead can we i've never heard ppm before can you just briefly yeah i said parts per million i've never heard that yeah parts per million it's become a common

like uh uh unit i guess so it's just you know it's a it's a fee rate for lightning and so if you route a million sats and you're charging a thousand parts per million that means you're going to pay you're going to get a thousand sat fee on the million sat payment right um i mean It's self-explanatory, but I just needed to make sure. Yeah. And so, yeah, basically when you start to realize, okay, so now we're back as our node runner, we've started out and we've realized, okay, shoot, to have any value as a node runner, unless you already have like a reason for people to connect to you, you need to kind

of go buy inbound liquidity. And so what you start to realize is that inbound liquidity has a price and it's a market in the sense that your goal is to go acquire inbound liquidity for some price and then hopefully sell it by routing because when you route you're also like selling off that inbounds liquidity you want to like sell it for more than you paid and then you're in profit and so it's really hard to do if you're just kind of a small node because so basically what then you start to realize is like and then if you're gonna it's really hard because to buy this inbound liquidity at least when I was when I started it's going to

cost you like 3,000 ppm but then nobody's going to route through you for 3,000 ppm so you're like how am I ever going to make a profit doing this it's it's because like a routing typical routing fee is like 500 ppm or 200 ppm um and so it's very hard to find like a profitable thing and so then what you sort of realize is the next thing you can do is you can do this arbitrage with the custodial exchanges and loop and so this is an arbitrage that a lot of people are doing right now um and maybe after this episode a lot more people are going to try it but uh also guys like understand the risks of using a custodial account um like something like a wallet of satoshi where you might not know like it's not a kyc thing they might shotgun kyc you at any time

they could rug your account um but you can also do this with you know like a kraken or someone where you know you you might have it's like regulated in your country um but anyway the like basic custodial arbitrage is you open a channel with say you know we'll say let's say kraken for this one sorry kraken you open a a channel with kraken so you take your whole bitcoin now instead of splitting it up to your whole bitcoin open a channel with kraken you deposit one bitcoin over lightning to your kraken account so now you have one bitcoin in your kraken account and one Bitcoin of inbound capacity from your Kraken channel,

you withdraw that on-chain and then you go open a channel to loop. And loop is what we call a sink. So loop, a sink means that funds are always, Lightning funds are always flowing into loop on net. Because what everyone's doing with loop is they're sending over Lightning and they're sending over lightning and then they're receiving on chain so all the lightning

flows are in the loop it's like a black hole of lightning liquidity and so basically what you do you pushed sats to your across to your kraken uh channel and then you open a channel with a loop and now eventually what's going to happen is you sit around you wait and you whatever fees it costs you to do that Kraken thing, you know, it might cost you, you know, 200 PPM or something net to do your little custodial loop out. Then you can go open your channel with loop and you can charge, you know, 500 PPM or 600 PPM. And you just wait and you wait for somebody to route through Kraken through your loop channel. And there you made a nice little profit. Now the funds are always going to flow they're pretty much always going to flow from kraken to loop and so eventually your

your whole thing is going to get depleted then loop is going to close your channel because loop needs to like harvest those coins to service their swap service but then you can just kind of do the whole thing again um so this is the custodial arb arbitrage that uh people are doing on like nice hash and crack in and wallet of satoshi and um bitfinex basically any exchange that has a uh i think in strike as well any exchange that allows you to deposit over lightning and withdraw on chain is like you know a target for these arbitrages um now the only reason this is arbitrage is because of the fees that these exchanges are setting. There are ways where they could either implement a deposit fee or make the withdrawal fee basically charge you

enough to make it unprofitable. I think they're hesitant to do that because it's a bigger change that'll affect more of their users. So the other thing they'll do is they'll rate limit you. So well as be like okay you can only do half a bitcoin a day on your account um so that's that's the basics of like the custodial arb that people are doing but it's kind of hard because um okay so the hard so you can go ahead and try that what you'll notice is it's not super reliable because you have to once you like have that channel with loop you have to like that broadcast out to the network and then somebody else who's doing a loop out their algorithm needs to somehow pick your like crappy little node as the target for their route

which is like kind of unlikely because you're not you're just kind of a little node with one channel and uh you're new um so instead what my thing offers is like instead of you having to like if you want to do this thing where you're like buying liquidity from an exchange through this arbitrage strategy or you have some other way of provisioning inbound liquidity maybe you as a service like just send a lot and you just have a lot of inbound liquidity um like i think that would be the most natural users like if you haven't a service that is always sending out and creating inbound liquidity for yourself and you want a way to monetize that then um you can open a channel with me let's easy node and instead of you having to wait for your

for the loop channel to drain to buy your liquidity you can just push it to me and i'll pay you for it so then you can sort of get paid at your own cadence and you can sell off your inbound liquidity at your own cadence and for a fee rate that i publish and is available all the time so you can see what you're going to earn from it. So I think a lot of people like that because it allows them to have a reliable earnings strategy. And yeah, they don't have to wait around to hope they route some payments. So the answer to the question, where does the yield come from in this case, is the ARB opportunity that exists via the exchanges in a loop specifically that's where like most of it well that's okay that's so this is like

the if you want like this is like where the high yield comes from um now this is a risky strategy how much how much money are people making to it i mean if you do like a one bitcoin targeted arbitrage strategy you you're making double digit api oh shit yeah definitely on definitely um Now, the caveat there is the risk you're taking for doing like putting money with a custodian. And the other caveat is that the return APY like doesn't scale with the amount of coins. You couldn't do this with 100 Bitcoin because you would then drain all the liquidity and there wouldn't be enough natural routing volume to handle that. And also, so the question of where does the yield come from? I want to answer that better because there's a better way to answer that ultimately all routing profits they come from users of the lighting network paying fees

so that's like the max amount of um profit that the whole network is having is you know someone with their albie account paying someone on stacker news or whatever um and so i think i saw a statistic that was something like i think it was something like 40 million whatever the numbers was of like the estimated routing fees paid it translated to like a one to two percent apy based on the total capacity of the network and so what you're seeing with other nodes that aren't doing like an active arbitrage strategy and just are bigger nodes that are routing payments, it seems like they're getting closer to like a 1% to 2% APY, which is literally just, these are nodes that have balanced flows. So you just happen to kind of position

yourself over time. Maybe there's a little upfront cost of like establishing these channels, buying some liquidity. But the way that most nodes kind of run is they'll have 50 channels and they just have balanced flows. You'll just see flows coming like into Kraken, out to Kraken, out from Wall of Satoshi, into here, over there, other people rebalancing. And you'll just get the natural users of the Lightning Network, the circular economy, just some of that passes through your node and you can get like kind of a one, maybe up to 2% APY. And that's with no active like crazy arb stuff the crazy arb stuff where you're getting like the higher yield what you're mostly doing is you're kind of like siphoning money from the custodial exchanges

because a lot of them they like treat it as a loss that because what the exchanges will do is they will get may have people trying to arb them so they'll get a lot of deposit volume um, over lightning, but then their inbound liquidity gets depleted. And then they probably get some customer support issue complaints that are like, Hey, I can't pay over lightning what's going on. And they don't want to have to deal with that. So what they all do is most of them have like automated loop outs where they'll just pay the loop out price, you know, every night to like replenish their inbound. So then they're, they're sort of taking a loss in terms of their, fee revenues. And that can be taken advantage of by arbitrageurs who basically kind of exploit

them right now. And so, yeah, it's kind of a cutthroat thing, but also the fix is like pretty easy. You just have to set your fees right, your liquidity, your fees properly. But yeah, I don't know. So do you think this is an ARB that will be relatively short-lived so i think that this particular arb is going to be short-lived for each particular exchange but i think there will be a lot of new exchanges that come along and the arb will be available there for a time and then i think other arbs will emerge and i think just we're going to forever be in a arbitrage game um and the the game's going to evolved just like back in 2017 you know there was huge arbitrages available for international um

you know the korean uh price of bitcoin was like a thousand bucks higher or a few hundred bucks higher than the u.s price and you could just i think that's how i think that's how sbf made his is they called it and they called the kimchi trade or something like that yeah yeah something like that um so but that's like not available anymore and so i think that's how this is going to play with this is that there's these arbitrages available right now eventually they won't be but other arms will come about and it's going to get more competitive um and it's going to be competition fascinating god i'm i always think i'm up to date on what's going on this is completely new to me uh but with all that being said like what you just described all this loop in loop

channel balancing small nodes versus large nodes versus exchanges versus routing setting routing fees to the layman out there who may be listening in and thinking about Bitcoin scaling and using the Lightning Network to do that all this long wind not long winded wrong way to describe it all this complex interactions that exist on the Lightning Network many may point to that and say hey this doesn't seem very scalable it doesn't seem like a good way it seems very complicated what would you say to people giving that feedback on on how the lightning network currently works with all this channel balancing and fee arb and small nodes versus

large nodes like how do you see this this playing out my view is generally that arbitrage is um um a positive thing because it makes the markets more efficient and it it it can put pressure on like what people are pricing things but ultimately it makes the markets more efficient and i guess what i would say is um this is like you know the under the hood deep dive like what's going on behind the scenes but if you actually just pull out you know your cash app app or your you know moon wallet and you go pay over lightning it works pretty well right now um and part of that is because you know the your app you know is able to so a very hard part a challenging part of lightning is this pathfinding and so what's what this arbitrage

kind of enables is like these arbitrageurs they come in and they kind of they kind of like well move they move the liquidity around but anyway um it's hard to say i guess i don't know where i'm going with this other than like when it all comes together and you open your app and your app needs to find a route to the destination it's going to go through the the larger nodes because those are the most likely to succeed and generally right now that's succeeding pretty well and i think part of that is due to the markets becoming more the liquidity markets becoming more efficient and the arbitrageurs have uh facilitated that liquidity they have a role to play in that as well there is i mean

there is also the there there is the school of thought or the you know the argument that the arbitrageurs are siphoning liquidity from exchanges and they should be it should be frowned upon. But I think it's kind of a hardening for the network is that, you know, if these price discrepancies exist, people are going to exploit them. We might as well do it now and get people, get exchanges to harden their liquidity operations and their pricing so that they're more durable for the future. Yeah, I would agree with that. But again, maybe I can rephrase my question another way does the perceived barrier to entry to operating a lightning node due to the complicated nature of everything you just described uh perturb the potential of lightning to be sufficiently

distributed ah this is a good question so one of the things that i'm trying to do is to help hobbyists run their first ever node and start earning um and so i i think that my my goal and what i've been working on with this dz platform is to make that easier so that the liquidity is distributed um and that anybody can come on and put their coins on their node and possibly they can choose how much risk they want to take in terms of using a custodian arbitrage strategy as well or not or literally just self-custody the whole time and earn a yield that is proportional to your coin's value which is hard to do right now but we're getting there in terms of making it easier and that's one of my focuses is to make it

I wrote a guide that was like how to get started on Voltage and how to start earning. I'm also working on this co-pilot type of thing where you can basically use something like Voltage to spin up a node in the cloud with a few clicks and then hopefully be able to just plug in the DZ co-pilot, which then will, my goal for it is to have it just manage your node for you without having access to the keys. And the way this would work is I have some demo code out, but it's basically the copilot. It listens to recommendations from the DZ central sort of intelligence,

but then it can only take certain actions. like open channel closed channel or rebalance but it can't like send funds off can't pay an invoice uh right cannot pay an invoice only an invoice to itself um at like a max fee rate and so i'm trying to think of ways to do that because ideally anybody would be able to spin up a node start earning basically getting yield on their coins in their own self-custody um i think that that would be a really cool future to have. And right now we're getting there. I think Voltage has been huge in making it easy to have a cloud node. Umbral has made it huge if you wanted to host your own hardware. But we're still at the point where you have to have some pretty technical

knowledge of opening channels and managing your fees. And I'm hoping just to make that easier for people so that's something that i do i'm i'm planning on focusing on so would you describe copilot as an iteration on autopilot just done better um yeah yeah i would say and i think one of the things the trade-offs that the the copilot thing might do is that it it may at least the way i have it now is it will have like read access to your node so whereas the lnd autopilot there's no data gets sent back to lightning labs like you can have full privacy and kind of trust their logic i think the product that i would offer is you give up your privacy to my service but that helps my service like uh have better predictions on what fees to set stuff

like that um and so i think that's sort of the realm that i've been going for is kind of operating in this area where there is some trust involved and but you have to make the if you decide if you want to make that trade-off like for my swap service it requires trust but it's a little bit easier and you know this custodial arb strategy requires trust it's a little easier and so i think that's sort of the role that my kind of services are coming in is like a little bit trust a little bit easier and if you want to make that um if you want to make that decision that's on you that's up to you and if you don't that's encouraged as well um but yeah yeah how does something i forget what it's called but the the project where they're separating the private

key from the node um yeah so there's a couple okay so there's like remote signer which is um yeah so i think yeah lnd has this remote signer thing which people use which it puts the way i understand it is a lot of the, you know, peer in logic happens on one instance of an LND node. And then, but the private key is stored on a private node over here and all the signing happens on that private node. So you don't have the private key on a device that's like pretty close to the cloud. You can keep like the peer logic in the cloud and your keys at your house oh yeah yeah i think you can do that as well um now my thoughts on remote signing and then addition to so the remote signing some people like that the i think the criticism to

the remote signing is that i think it's like blind it's a blind designer in the sense that it doesn't validate what it's signing necessarily i could be wrong please call me out if i'm wrong um but i think currently it doesn't do like validation because to validate what it's signing it needs to like have some knowledge of you know what channels what channels this what like channel update is is happening um so there is there also is a project uh validating lightning signer which yes this is what i was thinking about yeah oh yeah so that i think this was a spiral grant as well we're validating lightning signer this i think has more of a more of a promise because it puts the thing with these signers is you want them to have some type of policy so they're not

just blindly signing stuff but they're verifying before they sign like okay you know i've sent i've sent this is like the you know i've sent another bitcoin to this address like maybe i should slow down and stop sending to this address or you know i'm not gonna uh it allows you to encode like you know rate limits or you know ensure that somewhere you're sending is like uh it's hard it's really hard to do policies though is the other thing and this is one of the things i sort of learned at at bitgo when i was at bitgo before cash app where you know there's uh they have hsms um and there was a big thing about how to get the policy on the hsms and um yeah it's it's just very hard to do policies around signing because you need all

this knowledge of what's going on outside and like you can have you know if you're a business and you put in some rate limits as a policy and then you have a really big day and your business here your policy might your signer might shut down your volume on your best day because you had a you know more volume than you expected and now all of a sudden you hurt your business because your policy was like not correct or it was like not you know your rate limits were too low It was too, yeah, it was too conservative. Yeah. So policies are hard, but you do want to,

the validated lightning signer I think is the way to go where you have some type of policy on the signing device. So, yeah, what was our, we had some reason for talking about this, but what was it? I'm trying to figure out. Allowing smaller node operators to participate in the distributed layer of the lightning network to start it with a barrier to entry question yeah so i guess also my thingy with like

separating the signer is like it's kind of good but also like there's other sensitive information um when you're running a lightning node like you know there's other ways you can lose all your money other than leaking your private key like you can leak an old uh state channel state yeah exactly and then you know attacker if attacker has access to an old channel state and they broadcast that the peer can come in and it's just yeah justice action so there's a lot more than just the private key that you need to protect um and so that would be a dickhead attack like hey i'm gonna find your well it could be the person on the other side of the channel it would have to be that yeah the person on the other side of the channel otherwise

you're just like the joker chaos yes exactly yeah um so but yeah also like i don't know another thing is this the protecting these hot wallets is super important these lightning nodes is especially important for the big honeypots you know the river financial with 400 bitcoin on their nodes or like um you know the big big nodes this becomes a huge deal but if it's if you're like um if we have a bunch of smaller nodes and there's not as many honeypots and then you don't want it doesn't mean you can be more relaxed about your security but uh you are less of a target if you're not a big node and so i kind of like this i like this concept of having a lot of smaller nodes and having ways that you can plug into the liquidity networks

of other nodes without having to give up custody to them, which is kind of what I'm trying to do with the DZ service. Yeah, it's fascinating. It's like you're on the cutting edge. So as an engineer who's been working on Bitcoin and projects that weren't Bitcoin before, what does this landscape on top of Lightning Network mean to you? like it seems like you're excited it seems like you're driven you're hopeful for the future

of the lightning network as as an engineer like is this stuff oh yeah with yeah it's super fun i feel like something happened like i don't know about a year ago where i just felt like the momentum was really picking up with lightning and it's just i don't know maybe it was just because i started working on it at cash app but uh um not to say that that's why i just say like because my personal like you know time was spent now really diving in full-time to lightning it's just felt like it's really growing and the thing that's so cool about it is it's so international like you know our little network of node runners there's just people from all over there's you know Switzerland and some guy from South America, a guy who's running a merchant business for

someone in El Salvador. He's writing the note for a business in El Salvador. And yeah, it's just someone from Sri Lanka and it's just like someone from the Philippines. And it's just like all of these people from all over the world are connecting with this one monetary network that anybody can be a part of and you just get a sense of how international it is which i think is so cool so no it's awesome it feels like it's happening what um what what do you worry about like because it seems like pure like you said it's international do you worry about regulators stepping in and fucking ruining this party at any point in time i don't worry about that too much because like I feel like like I feel like regulators could make it really annoying to be

in the U.S. which would suck but I don't think the rest of the world's going to care that much like because they're out of the U.S. jurisdiction or I think which is the beautiful thing um so I'm not like too worried about the regulation um i guess yeah i'm kind of worried what am i worried about there are still some like just known kind of attack vectors on lightning like you know channel jamming um where you can sort of like lock up people's channel capacity by doing probes and then you know make them have to force close and um or just i mean i'm personally worried about getting being the target of cyber attacks like as soon as my notes started growing like

the people are coming after me i know it like i get emails of like oh you know uh thanks for registering with password checker like somebody's like trying to get access to my email by seeing if my password has been leaked anywhere. And so like, I can see you guys, I can see you, but come on now. So I worry about, uh, but that's an incentive to not try to be a big target yourself, like not try to centralize the network because you don't want to be a target. So it makes me want to figure out ways to work in a more decentralized way. Um, but yeah what else i guess the other thing that i worry about is i worry about capital coming on this isn't a huge worry but i think what could happen is more capital gets excited

about lightning than the natural yes exactly and tries to really extract too much uh but even then like the worst thing that's going to happen is somebody comes in with a lot of bitcoin they buy a bunch of inbound capacity but and then they're not able to be profitable selling it which is fine like it's not not a huge deal i do worry though about it's funny because you know like this whole like crypto yield farming thing that was like 2019 2020 sushi yams all that stuff yeah i hate to say it but i worry that that's coming that's that's sort of what people are might i worry that i'm the one enabling this now i'm like they the yield fire we got lightning um but it has limits right as you described right it's not

like you're getting loans the risk you're taking with most of this is custodial exchange risk which is we're just simply losing money on fees that that you wind up paying yeah so you can lose money on on fees but even then it's like pretty capped it's not like you're like leveraging up your coins which is i think what all this yield farming stuff was yes um yeah so to me it feels like lightning will probably go through these actual like speculative you know cycles of how much can you earn um and it's going to go like this but it's not going to be like 30 negative of 50, it's going to be like, you know, 1%, 2%, 5%, 6%, like 0%, 1%. Like it's going to kind of be like somewhat metered. It feels like, um, but yeah, that's, I love it. I'm getting all

jazzed up right now. And it's actually, go ahead. Oh, I was going to say, you know, what's kind of great is that, so one thing that you might worry about is that, you know, you just get some big company to come in with a thousand Bitcoin and just become like a massive hub on a network. And then it kind of hurts the centralization or it makes everything centralized. But the, the funny thing is, is all these like highly regulated us companies, they are seeing like cause they're seeing compliance roadblocks to becoming

that big node that they want to be. because a lot of these compliant us conservative compliance teams and cash app is one of them but i also i've also heard from other big companies that you would the other big you know broker crypto brokerages um they have the same concerns of like they don't want to connect to they want to have like all their peers be vetted so they're like they don't have the access to all the international nodes because that's not like part of their policy and so that's kind of like a it's almost like the opposite of a um regulatory moat it's like a regulatory chain of big companies and so it gives an opportunity for the smaller you know more risk seeking in terms of uh like legal

risk seeking i guess a chance to become a bigger part of the network which is cool yeah and to prove like hey this works better if you cooperate with your international counterparts and individual it's crazy that like any individual can like you're just some dude who worked at cash app and bitco is like yeah i'm gonna start deezy and you're interacting with people from switzerland sri lanka venezuela el salvador yeah it's it's nuts like and you mentioned and you mentioned too like the like i think my thesis has always been and correct me if i'm wrong like we run a node here at tftc eventually if we go to a bitcoin standard i think that there is going to be like a dedicated job title of lightning network node manager within like each company and that alone

that trend which i think will develop you know you have two paths that either develops or you have companies depending on large lsps but i can see just from the ability to profit that you've been describing that would be worthwhile to pay somebody to manage a company's node which would support a further distribution of the lightning network i think so i i think it would be i think actually be like sort of the latter where you might have like i the way i could see it is you guys have your btc pay server and then you install some plug-in that's like node manager and you're just good to go and they might take a little fee but they're also going to be earning you more than you would have earned otherwise on routing fees

um and which yeah i think is great because it decentralizes the custody like the decentralizes the capacity across different nodes reduces honeypots what i do maybe worry about is that the data on the network could become more centralized so i was thinking about that for myself you know if if i get go go further along with this dz co-pilot thing and people are willing to give up the data of their node in exchange for like routing and autopilot recommendations um that could be a great business to be like a central hub of intelligence on the network um because that's another big thing on the network is that data is very useful and it's very private and so a company like river who has massive nodes and has routed a ton of payments

they have like a huge advantage in the data that they have um because to get that data you have to have a big node that's routing payments and so i also my node has a advantage as well from having routed a lot of payments and other people too um and so i guess what i kind of what i do worry about thinking about you know trying to make some service that has a centralized uh you know channel fee recommend channel recommender autopilot thing if all the data becomes centralized in that one hub can that then be a target for state like you know coercion of turn over your you know your data and let's so we can triangulate where this payment you know was routed to or from yeah is there any privacy enhancing route improvements on the horizon that could prevent this

i i think so like uh but even okay so there's like so the current state of like privacy is that the um as the receiver of a payment you are giving up your identity here's how you find me here's where i am because you have to say here's here's where i am here's how to find me now what you can do is you can be tricky and you can make like a you can pretend you're like somebody further back and then who your actual node is can be you can say oh go through that guy to me but that guy you have to go through that's like who you actually are so you can sort of hide yourself a little bit as a receiver but it's kind of hard to do right now um but the good thing is a sender

can pay without revealing who they are um so well you marty as a receiver of funds you you're not going to be able to identify who sent you the funds um now okay so the i think what's on the horizon i believe is like this trampoline routing which i i'm i think my understanding is that that makes it so the risk oh right so then marty for you you are though doxing what your note is when you give an invoice for a a payment you're doxing what your note is i think with this trampoline routing that's where you as the receiver can protect your identity because i think the way it works is that you can say oh just make it to you know that that daisy node out there and they know how to find me or like so i think that's a

that's on the horizon for uh receiver privacy now that said i don't think this problem i was talking about was if the if the data if the routing information becomes you know given off to some central service that gets to peek in at a lot of nodes like i don't think that helps with i don't think the trampoline would help with that because they can still see where the actual forwards are going um but i think maybe yeah yeah i don't know there's also like uh i know there's like point time lock contracts the ptlc which my understanding i don't understand it too well but I think it has like a, right now, like a single payment, I think uses like the same payment hash or maybe across all the different

parts. Whereas the PTLCs can use different payment hashes. So it like decorrelates them. Yeah. You can just pick apart of that electric elliptic curve or something like that. Yeah. Lalu explained it to me at one point and my eyes kind of glazed over. I was like, yeah. Yeah. Privacy certainly needs to get better. And it's good. I mean, as somebody building out a service like Deezy, it's good that you're thinking about this early on. Well, yeah, you know, I'm stuck with the, I have the, you know, incentives to try to make a business that's profitable. And then, so I have to check myself to not get dragged into, you know, doing what I think is going to be most profitable versus what doing what I think is going to be good for the network.

and so i hope that people will always keep me in check or call me out if i'm not acting properly so why do you do this why bitcoin just stepping away from from lightning why bitcoin yeah i just i mean basically ever since i found out how the federal reserve worked i was just like this is a major scam and this is really bad like we can't have this anymore we need to have a sound money system and we can't have first of all i think the governments are way too big way too powerful um terrible at their jobs corrupt like you know a lot of probably pedophiles up there i'm just gonna say it you know i don't know what the hell what the whole epstein thing was but i think something's going on there's smoke there there's smoke in that epstein story somewhere

president president's got a little little sniffing problem but anyway no yeah i think that it's it's scary to me to see how powerful governments are and how bad they are at their job and how corrupt they can be and i think our best chance to take back ownership of our world is is through having a money system that is decentralized and because ultimately like what do we all want we all just want to cooperate and thrive and i think that money is the technology of cooperation and we have not had cooperation between countries or um between countries within countries even but yeah i think bitcoin allows countries to cooperate with each other which might be a huge thing like i just love to see a world where you know you can go travel somewhere

and nobody asks for your passport you just go because it's a free world that's another big sigh uh passports were created like less than 100 years ago everybody's like no you need a passport you need one we need to know that you are yeah like no how about you just Just charge them a little payment. Yeah. We're going to win. We're going to win. I think we're going to win.

I do too. I mean, the world is run by a bunch of innoble men right now. Men who are not noble. Yeah. Corrupt. Many pedophiles. Many people doing backroom deals. Just fucking, just smashing us, smashing us, smashing us.

it's time it's time to flip the table and just say all right we're gonna go create this bitcoin system walk away from you crazy pedophiles yeah it's a monster it's a monster of i don't think anyone knows how the current thing works and it's just an abomination i mean it was built you know you know i i don't know if there's any one person to blame you know people built what they thought they they wanted to build or had to build you know i think part of it was that gold was gold did not adapt to the gold got cucked yeah well it didn't it couldn't hang with the uh telecommunications revolution right as soon as yeah and so that's how fiat got its way in and

we're seeing the we're seeing the uh results of that but you're looking around where you are right now like you're seeing it yeah could you hear that fly that was behind me or no no i couldn't hear okay never mind it's um it's not a fly that's uh that's a government drone that's not happens what you're saying right now yeah exactly birds birds aren't real birds are not real neither are the flies funny you say they're gonna fly right here right now but yeah it's it's time to break free from these tyrants that's what they are at the end of the day tyrants i just want to hang out with my sons my wife my family talk to cool people like you the government is making it harder and harder i think they will dissolve i i hope they will just sort of quiet i don't know if it

will work that way i think it's a question of how ugly it's going to get but i think we are going to win inevitably but the question is how ugly will it be or easy how easy or hard it will be where do you what do you trend toward ugliness or shockingly peaceful you know i'm optimistic i'm optimistic that the united states is going to do the right thing eventually um i think we have enough i think we do have a lot of people that care about freedom care about the american dream still um and we have enough powerful people who are into bitcoin and i think we're starting to see i mean it was pretty cool honestly to see how when was it the was it the covid bill or something that was totally frozen for weeks

because of the two sentences about you know bitcoin mining in there that just people you know threw what we're up in arms about and all the congress people had to stop and realize how many people cared about this stuff and had to try to change some things so that makes me kind of happy me as well yeah i go back and like i have two i can see getting very ugly like the government throwing bitcoiners in jail showing up to where my miners are and unplugging them shooting them but i can also see like you said all these governments are so massive they're getting so big and so bloated more importantly i can just see them completely collapsing in on themselves and just not being able to handle the weight of the social unrest and the collapsing

confidence that's happening as they fuck up the money the energy the food social programs they're messing up the bonds now i think there's i think that's something that a lot of bitcoiners discount actually has this potential that you just have a even though everybody followed the covid lockdowns restrictions like a bunch of sheep uh i do think there is a diminishing marginal return on that type of control in the quick succession that they're trying to do it and if you have all these cornerstones of society falling at once there's going to be a collapse in confidence that leads people to be like all right we're the other options we cannot turn to these old decrepit pedophiles anymore to fix the problems they created i think so yeah i mean

right in the thick of it right with uh didn't we see with the the guilts when the gilt market started having problems that bitcoin volume was super high kind of record purchases out on the uk yeah that was particularly fascinating because volumes were something like four or five x what they were this time last year when bitcoin was going towards 69k um and bitcoin has been hovering in this 18 to 20k range for feels like four months now And so you had that increased volume without any... People weren't chasing price. They were seeking Bitcoin as a safe haven.

One of the theories, nobody knows for sure exactly what was going on, but it wouldn't be hard to believe that that was the case. Yeah, and watching Japan closely as well with the yen, because i feel like they were the first they kind of pioneered the central bank craziness so i feel like it makes if they were kind of the first place for things to go wrong but it wouldn't surprise me at all yeah yeah we started in japan in the 90s freaks look it up we haven't even gotten to tauwale yet i know yeah that's true this seems like i mean number one it seems very cool very good design good aesthetics i want to give you props for that

off the bat well i gotta give the designer who i've uh just an acquaintance with but she she's fantastic she crushed it yes but it seems to me like i reached out to you i mean i even hopped in the thread when you announced all the ideas that you wanted to go after for this project And it seems like one of the most, I think you're thinking about, I think you've really burst open, like how to approach building a lightning network wallet or a platform. I don't even know how you would describe it, but, and like what you can plug and play into that platform or wallet. So I'll let you take it from here. What is Tau? How would you describe it?

And how ambitious are you looking to get with it? Yeah. Yeah. So TAO, TAO, TAO, TAO, TAO, TAO is kind of still an idea. There is code. There's actually a lot of code. Um, basically, so the idea behind TAO is to have just like a really elegant, super easy to use Bitcoin wallet that also can be a USD wallet. So you can get your, your usd if you're into that um and but also the goal is to have it also be highly configurable on the back end so that um you can choose you know anything from self-custody to um like self-custody own channels lightning enabled to fully delegate your custody to

somewhere else and maybe even get yield on whatever that is now i say all that that's like what sort of my hope for the project is it is not that right now um and so i don't know if this is gonna come to fruition or not but there is a super cool logo and some a cool couple animations so well let's talk about the idea what because again i think you're approaching this whole idea of like lightning wallet or again i don't know what you're going to describe it as but like you have ideas for like how to implement dlc's over lightning correct i'm trying to think of everything you put in that thread yeah quieter integration yeah so i guess basically the idea is like

there's a lot of really cool tech going on and i feel like each tech is building their own app right so you have you know um fetty mint with the uh chami and e-cash so you can have a a mint that gives you private like totally private access to bitcoin integrated with lightning freaking phenomenal huge fans of that of that uh the app and that project they have their own app then you you have like you know collider um which is uh perpetual futures exchange so you can do like a stable sat which is um a way to get a synthetic us dollar exposure but only using bitcoin and the bitcoin usd futures market which is settled in bitcoin um and uh you have something like that you have ln markets which is a similar thing to collider

i think they were around a little earlier um same thing you can and they have lightning enabled send and receive um you have that you have wallet of satoshi custodial app very easy to use works very well um so you have all these different ways where you can access bitcoin and lightning all with their different trade-offs and i just think it would be cool and then the other thing is there's this need from people in other countries that are experiencing hyperinflation um then they just want dollars like they don't care about bitcoin sorry they just don't i mean some people do but some people don't some mostly because they don't a lot of people don't know but i think the dollar could be our little trojan horse to get

people into bitcoin and so i would love for there to be like a very easy to use uh bitcoin usd wallet and i also wanted to mention the bitcoin beach and galloy with their stable sats where they have like there's a community bank that handles the custody and the hedging of the USD. And then you can have Bitcoin and UST in the Bitcoin Beach app. So there are a lot of ways to do Bitcoin, Lightning and stable coins. And so the initial thing that I built with Tau Wallet is I just used the LN Markets API and then kind of like made a little wrapper around that and wrote this little library

that you can send and receive over Bitcoin Lightning. You can swap to USD. And the way you swap to USD is it like takes out a contract in the LN markets, the futures market thing. So you get this, you can like create the synthetic USD like right within your little app. it's now that's a uh liability of ellen markets so to have your usd you're trusting ellen markets um but then my hope was that you know tau wallet the library could be extended to also use like

collider or maybe it could plug in with the fediment like achami and mint or because realistically you could have this the same app where a person can go into the settings and pick how they want their back end to be um and it's possible so and then that gives you the extensibility to upgrade because like sort of what i like right now it's hard it's really hard to do self-custodial lightning on a mobile app which is i think why you're seeing a lot of these uh different approaches like the chami and mint like there's not enough there's not enough block space for everyone to have a lightning channel if everyone for everyone in the world i don't think um and so we need these sort of trade-offs of a little bit of custody a little bit of trust um so yeah and i also really

like the stable sats concept which is uh i think bitcoin beach and uh gala was the first to do this which is this concept of there's no need for a stable coin like just you know use use these bitcoin futures markets to create a synthetic usd and then whenever you want to send and receive there are no there's not really any us native usd sending rails anyway you have like ach you have credit cards you have whatever all that stuff and then who knows how that works in other countries so why not just use lightning as the settlement layer um and you can have your usd just kind of like as a the synthetic hedged thing in your wallet um and when you need to spend you just close out part of that position send over lightning and let your counterparty decide

if they want to open up another position and keep that synthetic or just keep the sets exactly and so i think that's where we're sort of going with lightning is that if you want to do any type of other coin that's just going to be your business on your app and even that's how taro works from uh lightning labs as well is that it operates at the edges so if you wanted to do a taro stable coin from circle usdc on taro whatever you can do that but when you go send it's just converting it into bitcoin and going over lightning um so optionality a lot of optionality out there it's beautiful to say yeah so i guess yeah my so i guess a little so the tau wallet you know basically i wrote this little library

uh got my designer friend uh to make a couple cool designs launched a little twitter account shielded a little bit but the cool thing has been there's a lot of people who are excited about it And so we have like a discord, we have a telegram, uh, just in the last, over the last weekend, we had three independent, uh, contributors each build their own version of a web wallet. Um, so we have now three versions of a web wallet. Now they're all work in progress, but one of them works to send and receive Bitcoin, uh, already. And so it's like, it's, I think I just wanted to have some type of open source project that

hopefully could inspire people to collaborate on like a single project that's open source that can solve this USD problem and a lot of people are excited about it now the one thing though is like there is existing stuff that's really good like Galway's Bitcoin Beach app is open source their whole stack is open source and so like I've been looking more and more into that lately and just thinking wow they've already done all of this and it is fantastic and so like i'm thinking maybe we'll try to collaborate with uh some existing things you're looking at the work that uh fetty is doing with their uh the flutter mint app where they're making a really elegant uh app for her to integrate with these chami mints um i don't want to like repeat code like

because that's the one thing that i don't like about private software is that it feels like so many people are building different versions of the same thing whereas with open source there can be ways where we all collaborate and make you know this one thing better um but yeah i don't really i'm not totally sure where tau is going and just hoping to inspire people to contribute and work together um and yeah hopefully just like bring i think the goal is kind of like bring an easy usd experience to people around the world and do that using bitcoin and then naturally they're gonna see that this bitcoin thing's better um they'll just close out their position hold stats and watch that rip purchasing power slowly but surely over time

sometimes quickly exactly sometimes it falls but no this is fascinating stuff man i'm happy to see you spreading your wings and going after these projects, your personal projects. I mean, I feel like I've been DMing you and we met finally in Miami earlier this year. And again, like I said in the beginning of the RIP, I don't think people really appreciate

the work that you've done at BitGo. I didn't even realize you were at BitGo, but like BitGo Cash App, and you've touched some of the most important software in terms of consumer facing applications that many millions of individuals have used to interface with bitcoin um so it's cool to see you develop the confidence to go out and build something on your own what's that like is it scary marty no i mean i learned so much from i mean coming into bitco as my first software job and had uh just learned a ton from the people

there and then coming to cash app being able to learn from these like elite engineers who were very experienced with like i mean cash app was already like they already had bitcoin when i got there they already were were super big and so just like being able to watch these people operate learn from them for two and a half years um definitely learned so much and now yeah it's i don't know i mean it's really fun like it's really fun to have the freedom to because anytime i was at a company like i you know i couldn't really like you know drop something and promote it because then it's like oh is that part of the company or is that his own thing or i don't know and then also just having the free time to explore like working working a real job

you know you just have commitments and meetings and uh bugs come up gotta fix them you got assignments you know work assigned you you've committed to but now it's like i just have this freedom to i feel like there's so many cool projects like we didn't even talk about ln bits like ln bits is a super cool thing as well um that's making lightning super easy and just now i have the time to like dig into all of these read code experiment tinker and then just try to figure out like how to connect like the dots because i feel like a lot of people are consumed in what they're building but then and it takes someone and you know not everyone has time to go understand all the things that are being built and so i think one of my roles to play in this

is to step back take the time to synthesize all the things that are being built and then sort of like make the little connections that will give us you know exponential returns on our ecosystem them so hell yeah let's go yeah so again like we're on the cutting edge here freaks if you don't this hasn't been drilled into your head yet it's it's fascinating if like what would you recommend to any developers out there who may want to contribute um to tau get acquainted with dz or just get into developing on bitcoin and lightning generally yeah i mean if you're a developer and you can already code a little bit and you want to just start learning about bitcoin stuff like i have a lot of work that that can help me with my stuff

like my dz stuff which is kind of a personal thing um or the tau stuff which is more of an open source community effort um i would say just like hop in one of our discords the dz has a discord tau has a discord they also each of those have telegrams as well um i'm trying to also i'm do bounties for dz now so um i have a lot of there's a lot of work to be done on the dz platform that i'm like i'm not raising money right now for this thing um i don't have any official teammates or anything um but i'm have a budget from myself that i'm willing to pay out bounties to help help grow my my products um so if you if you want to do some work get in touch with me telegram twitter discord and uh i can find some work for you probably um i'm not at the point

where if you're like trying to learn how to code i don't have i'm not at the point where i can like teach you how to code uh i think eventually i would love to have some type of school uh i guess you know i would give a shout out to um satsy from cat or from uh casa just really a little bitcoin development school type of thing like a web experience where you can learn bitcoin programming and uh nifty nay also has base 58 academy which is another place to learn um those are two things you can check out if you're trying to like learn some of the basics I'm looking more for people who already have sort of developer experience but are looking for cool stuff to work on I'll be happy to pay bounties out for contributions to DZ and then the TAO stuff is

more of an open source if you feel motivated there's a cool community people who are all contributing for free but also the opportunity with with both of these to turn them into real companies I think the TAO thing could turn into a company so if you're like an early contributor you're there like you could end up being part of a team that like raises money or something but um yeah hell yeah we'll link to all of this in the show notes danny this has been a pleasure we hit it all it has been a pleasure yeah i'm so glad we got to do this marty i hope uh hope it was an interesting one i think it was certainly interesting i mean We talked about lightning, pedophiles, Tao.

We hit it all. Yeah. But you got to get your ass to Austin soon. You got to kind of, since you have all this free time, you should come work out the comments for a week. Yeah, definitely. All right. I guess that's all we got today, freaks.

All right. You go enjoy the rest of your Tuesday, sir. Thank you, Marty. And yeah, I hope you can enjoy your Tuesday as well. I hope the two kids now is not too much for you. Two. The jump from one to two kicks you in the face. Wow.

Still adjusting. Adjusting well. I want to change. I want to change the thing. It's incredible. They're starting to interact now. The older one's trying to make the younger one laugh, and the younger one loves when he tries it.

It's awesome. It's awesome. Nice. Go have kids, freaks. I guess we'll end it there. Go have kids. Peace and love. Tiki!

Thank you.