We Study Billionaires - The Investor’s Podcast Network - BTC015: Bitcoin Peer to Peer Decentralized Lending w/ Max Keidun from Hodl Hodl (Bitcoin Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey, everyone, welcome to our Wednesday release of the show where we're talking about Bitcoin. A few weeks ago, we talked about Bitcoin borrowing and lending on a centralized platform like BlockFi with Zach Prince. Today, we're talking about the same subject matter, but we're talking about doing it in a peer-to-peer decentralized marketplace. My guest today is Max Keaton, and he's the founder of the borrowing and lending platform, Hoddle-Hoddle. Throughout the show, we talk about the differences that peer-to-peer lending might offer. for the market, how risk is managed when you're lending to a person you don't even know or have any idea what they're using the funds for. How this type of platform is riskier and also less

Starting point is 00:00:41 riskier than centralized platforms and what this might all mean for the future of finance. I learned a ton through this discussion. So sit back and enjoy this fascinating conversation on the new world of finance that's being constructed right before our eyes. You're listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pish. All right, so here I am with Max. Max, welcome to the show. Hey, Preston.

Starting point is 00:01:23 Thank you for having me and us, our team as well. So, yeah, thank you very much. This is where I want to start, Max. It's just really kind of the basics because I had Zach Prince here on the show a couple weeks ago. He's obviously talking about a much more centralized way of lending and borrowing. And you guys are going about this in a completely different way. You guys are going peer to peer. And you're just providing the platform for two people to come together and to lend and borrow. So talk us through what this really means and just give us the basics.

Starting point is 00:01:59 We've launched the lending platform, which is called Lend at Hodel, in October 2020. It's actually based on technology that we've been using for three years before that in our trading part, which is multi-sick, Bitcoin multi-sick, two out of three. So basically, the multi-sage has, you can call it also an S-pro. Let's call it like that. It's easier to understand, especially for non-technical people. So it's an escrow with three keys. Each key is distributed between the parties that are involved in this specific contract, whether it's a trading contract for a lending contract. Let's talk about just lending part.

Starting point is 00:02:37 It's peer to peer, peer, and there are three keys. One key goes to the lender, one key goes to borrower, and one key goes to platform, hoddle, hoddle. In case there is a dispute, we can engage in that dispute. We can understand who is the right person, who is the wrong person. And we can, together with another party, we can allocate funds towards the winner. So basically, escrow works in a pretty simple way. You need two keys out of the three in order to release funds from that escrow.

Starting point is 00:03:11 So it's basically there's a game theory in that. So you need to reach a consensus in dispute, for example, in order to do something with this funds in this escrow. What does this means? It's also called non-custodial. It means that hodle hoddle itself cannot move your funds alone with our one key. And it also means that we don't have any hotball instead as custodial services do, like block fee or any other custodial platform out there. So you're not effectively depositing your Bitcoin that you will use as a collateral to our system.

Starting point is 00:03:46 You are effectively depositing it on the Bitcoin blockchain. The address is unique. It's generated each time for each lending contract. And why it's peer-to-peer? Because you can go on our platform. you can post your own offer with your own terms, with your own interest rate, whether you want to borrow, whether you want to lend money. You just need to find a counterparty, which is also most of the time, it's just individual retail person. We already actually see some interest from institutional players that are approaching us as well, although it's only three months since the launch, a bit more.

Starting point is 00:04:22 So, yeah, and that's why it's pure to be. So basically, you are becoming effectively a lender or borrower, and you can become, it on your own terms. So you can publish, for example, I'm ready to pay 10% interest. I need to borrow 50,000 worth of USDT or USDC or whatever, and I want to do it for, let's say, six months. And you publish your offer and it's purely peer-to-peer interaction. There's no central authority. And hoddle-hoddle in that case only provides the technical tools for you to perform all actions that you actually need to perform. So that's how it works.

Starting point is 00:05:00 I'm curious how many times you guys have had to step in as the third party in a dispute to release funds. Has that happened since you guys have launched? Actually, we're lucky, but there wasn't any dispute yet on the landing platform. On a trading platform, they are there because it's like a trading platform, there's a higher frequency of trades, their high frequency of different contracts. And people sometimes, there's also some kind of level of not very honest people on the platform, which is any peer-to-peer platform they have this issue.

Starting point is 00:05:35 So there should be a dispute resolution system, which we have in place. But most of the time, disputes are solved between two parties because there's, again, there's a game theory. One party doesn't want to leave Bitcoin on an S-Pro. Another party wants to preserve reputation or whatever. there's always some kind of interest in that. So most of the time we're actually not needed and we don't even consign this because they solve this issues between themselves. Let me ask you this. So most people that are accustomed to this decentralized finance,

Starting point is 00:06:11 this defy, that most people when they hear that they immediately think Ethereum or Binance or whatever, how are they solving a dispute in escrow when the two parties can't come to an agreement that funds should be released. What's their method for doing that? I actually don't know. I know that some platforms are using the same approach that we have. So they have a key and they effectively try to solve the dispute and how well, they bring an arbitrator in and they're trying to solve this dispute.

Starting point is 00:06:40 Some contracts on Ethereum are, I wouldn't say they're a bit more sophisticated, but they're a bit more difficult. So there's some kind of level of automation. So basically, if you perform ABCD action, you will be able effectively pull out the astro or something will be performed. So most of the time there's some kind of level of automation to that, which on the one hand is good. On the other hand, as we see from our experience, people always find a way to negotiate terms that they like both. That's the basically idea. I wouldn't say that Lent on Hodelholl is purely decentralized because we still have a,

Starting point is 00:07:20 website and we still have some central points of our infrastructure and system, but we are moving in that direction. I would say we are semi-decentralized and we're not trying, honestly, we're not trying to compete with other Al-coin-based solution. We're trying to compete here with custodial solution that actually majority of solution in Bitcoin. And if you are familiar with core principles of Bitcoin. The one core principle that everyone should know is not your keys, not your coins. So obviously, what we're doing, we're trying to bring very complicated, non-custodial solution to mass market so that people actually can educate themselves, learn, and understand what is the way. So basically, by the words of Mandalorian, this is the way,

Starting point is 00:08:10 you know? And so what you're really getting at is you have a key. And in a lot of these other services that you're outsourcing that trust to them in order to manage. And although it takes two out of three keys in order to complete the transaction for borrowing and lending, you've said that since you've launched, you've never had to adjudicate or step in to be that third key. The other party has always supplied it. I'm kind of curious, how many loans is that, that you've never had to step in as a third party in order to adjudicate the escrow?

Starting point is 00:08:41 Yeah, we recently published our results for first three and a half months, actually for first four months. So it's more than the loans that were issued through our peer-to-peer platform. And again, not by us issued, but it's peer-to-peer. This is the important thing. It's more than three million of USD value already issued for first four months. What would you say the normal loan value is? 10,000. The average value is 10,000. And actually, with Bitcoin price rises and the appetite's also rising. So people are, for example, we have now outstanding demand for, we have a borrower pool for as we're willing to borrow one million effectively. So they're available.

Starting point is 00:09:33 And the APR is actually around 16%. So it's one million for a year and it's fixed 16%. With the average LTV around 50, 60%. So that's the numbers we're talking now. Anyone listening to this is immediately saying, who in the world is paying these interest rates? Because the interest rate that you're saying isn't just for that one particular million dollar loan. You can go out, you can create a contract for $10,000 and you're fetching these kind of interest rates of 16%. Correct? That's basically the average. So there are short-owned loans, obviously, with obviously, with fire APR. So there are some short-term loans like, let's say, one month. And APR, I saw them.

Starting point is 00:10:18 These are loans that actually in progress. They have APR around 40% or even 50%. People are taking this money in order to maybe leverage their position in Bitcoin, maybe leverage their position in other crypto. We're not asking what they do with this. And we actually don't want to know. Yeah, we don't care. We don't care because it's like, basically, Code is a rule. Of course we have some rules to reach the consensus. Obviously, as I mentioned previously, we're not naive that there will be no disputes. As the volume rises, as the people appetites rises, as there are more and more people stepping in, of course there will be disputes. Not all of them will be unnecessary people are, there's one bad person or good person. There

Starting point is 00:11:04 must be a misunderstanding at some point. It might be. So it's okay. We're used to that. We have a system in place, we're trying to solve that. That's how it goes. So people who are new to all this and they're hearing you and I both say, we don't care what they do with it. Their minds are exploding because that's just not how their understanding of loans work. Typically, there's a loan officer. They're looking at all of your background, whether you're able to repay it. But what we're talking about is an over-collateralized loan. So what I want to do really simply is I just want to role play a scenario here. where I'm going to be the depositor, you're going to be the borrower, and let's just walk through

Starting point is 00:11:46 an exchange on this platform. So I would log in to Hoddle-Hoddle, and let's say I want to lend out $10,000 USDC on the platform. So I would put up a contract that says, I'm willing to lend the $10,000 USD at 16% interest rate for the next six months. And those would be the terms that I would include on the loan that I'm hoping that somebody else will be willing to. to become a counterparty on. So I put that up on your platform. And then let's say you're the borrower, you come along and what do you do at that point? Well, obviously, I found your offer. It's kind of good for me. So I'm happy to pay you 16% APR. I confirmed that I'm interested. Then automatically, the contract is created. Upon the creation of contract, you have this key,

Starting point is 00:12:35 which is called payment password. So basically, you encrypt your key with the payment password. So payment password effectively is an encrypted key to this escrow. So we both enter this key and then system understands that we are serious about that and it creates a unique multi-signature escrow account or address on a public Bitcoin blockchain. And you can actually go and double check this address on any block explorer there is. You can double check that it's fresh. There's zero account in that, zero funds on that. Then, if you're a few, effectively I as a borrower send to this escrow account needed amount of money. Let's say the LTV ratio is 50%, so I'm sending, and I'm saying roughly 20,000 worth of Bitcoin. With the current

Starting point is 00:13:24 price, let's say, 0.4 Bitcoin I'm sending to this S-Pro. Which is double the amount that I'm letting you. So I'm giving you 10,000 and you're basically depositing 20,000 in escrow. Yeah, because let's say your LTV ratio is 50%. loan to value ratio is 50%. You can also set up 70% loan to value ratio, so I will effectively need to deposit less than 20%. So it's

Starting point is 00:13:50 up to you and up to me to decide which LTV ratio is fine. So I sent Bitcoin to that S-Pro. As soon as it gets three confirmations, we inform everyone. Basically, the contract is moving to another stage and we inform everyone, hey guys,

Starting point is 00:14:07 Bitcoin's are an S-Pro. It's safe to proceed with the loan payment. And you sent 10,000, let's say, USDC, as you mentioned, to my stable point address. I received that. I confirmed that I received that, actually. There's always double checking, you know, when you send, you attach the transaction link and you confirm that you've made a payment. I, on the other hand, need to confirm that I receive these funds. And only after we do that, the contract is in the process. And we're good to go. And in six months, I repay you of the amount that you've landed to me with the interest. I can also repay it earlier. I can also do

Starting point is 00:14:46 part-tail repayments or in case if I don't have stable points anymore, let's say I spend them all and I don't have them, but Bitcoin price increased significantly. I can cover your loan with Bitcoins from escrow. This is how it works. So now my concern as the person who made the deposit is, let's say the price of the escrow is going down significantly. And it's coming down to the value of my initial deposit of 10,000. How quickly am I able to get the escrow to be released to me before the value actually of the escrow starts going below my deposit? Talk us through the speed at which something like that takes place. We sent four different types of notifications to borrower because he's the man in charge in that

Starting point is 00:15:36 case, who needs to understand what he will do. Effectively to avoid the liquidation, what he can do, he need to balance his LTV ratio, because as soon as LTV ratio will go to 90%, he will be effectively liquidated. What he can do in order to prevent this liquidation. Real fast, when you say they'll be liquidated, when the value gets to 90, which is LTV gets to 90, which is approximately 10% higher than my deposit. So if my deposit... It doesn't work like that. It's a bit different, different math. You can actually check it out in our frequent-ask questions.

Starting point is 00:16:13 There's a pretty simple guide. What does the 100% LTV equate to as far as over-collateralization? We have the four types of alerts, margin collars. One is 75% of LTV, another one is 80% of LTV, another one 85% of LTV, another one 85% of LTV, and 90% is a final forced liquidation floor. Now, you have basically time to react until the ratio reaches 90% of LTV. After the LTV ratio reaches 90%, the contract will be automatically transferred into forced liquidation stage and the collateral will be automatically liquidated.

Starting point is 00:16:55 When you say an LTV of 90, the loan is still over collateralized, but it's getting closer to my deposit of 10,000. It might be at 11 or 12,000, whatever the 90% LP means. Yeah, it's true. It's true. And we have all the calculators. Basically, you see in your contract, you as a lender also can be prepared for that. You can see that as well, how the loan to value ratio changes. And we actually are going to add some interesting features that we're also going to inform with notification the lender prior to the actual liquidation. So he can be prepared for that. If you're hedging your risk, you obviously want to do, perform some actions.

Starting point is 00:17:41 Because you need to sign the release transaction from this multi-sigaspro. As I mentioned during the previous conversation with you, we're working upon adding more automation to this feature. So the liquidation can be done fully automatically. we're going to improve this process in, let's say, two, three months. So, yeah, because that's basically how it works. The interesting part is actually that you can avoid being liquidated. And we have, I think on the market, we have one of the few companies that actually

Starting point is 00:18:15 platforms, let's say, that actually have different types of options how you avoid, how you can avoid that liquidation. So first one, which is obvious, adding more collateral to the escrow. So you can just effectively send more Bitcoin to the escrow and your LTV ratio will go lower. Now, the second part is you can do an early repayment, which is another obvious thing. So you can, if you see that you will be soon liquidated and you want to avoid that, you want to have your precious Bitcoin back in your pocket or in your wallet, you can do the early repayment.

Starting point is 00:18:49 Or you can also balance in that sense that you can make part-tail repayment. Let's say you don't have, I don't have 10,000 that I owe you. I have three, four thousand. So I can send three, four thousand. The system will automatically recultulate LTV ratio and I will be good to go. So we actually experienced that already when there was like some loans with higher LTV ratio, 70%. And some of clients was actually pretty close to liquidation rates. So they just, some of them just added more to collateral.

Starting point is 00:19:22 and some of them that just did an early repayment or partially repayment. I can tell you as a person who first started just looking into this, experimenting, whatever you want to call it, the LTV ratio was a little bit confusing because when I hear LTV of 50% I'm thinking that the escrow is 50% of my deposit, but that's not the case. It's double the amount in escrow than my deposit. it. Good thing for lenders is that all loans that are issued through the Hodel Hodel Lending platform are over collateralized. And also the good thing that in case of liquidation, you will not only receive the body of the loan, so basically the amount that you've transferred, but also you will receive the full interest that borrower actually owns you. You got to love that.

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Starting point is 00:24:14 slash WSB. That's Shopify.com slash WSB. All right. Back to the show. And again, the good thing about the lender, that lender doesn't pay any fees. We consider that lenders are liquidity providers and the only person who pays for basically origination fee or any type of fee are borrowers. So because they need money. So you need money, you will pay. And I'm providing money so I don't need to pay. I'm just giving you my liquidity. I love the logic on that.

Starting point is 00:24:50 That's awesome. And then like you said, it encourages more people to provide more liquidity to your system. Let's go back to why the rates are so high. I know from a lender standpoint, it's just like just like, just the, doesn't matter because everything's over collateralized, then they're going to, the escrow will be liquidated if it's going down to include the interest. But what are some of the things that you're hearing that people are doing with the borrowing? Are most people going levered into Bitcoin? Would you say that that's the typical trade or do you just really have no idea? We actually saw the

Starting point is 00:25:21 interesting case is that three days ago, there were published a borrower. He published his offer, which was stated in description that I want to borrow money for my wedding. So, the guy was obviously borrowing money for his wedding. But most of the cases, of course, as with most of the defy platforms, people are just leveraging their position into Bitcoin or other outcoins. But there are also cases where people just, they don't want to sell Bitcoin and they just want to have some puns to, I don't know, to convert the stable coins to Fiat and then move to their accounts.

Starting point is 00:25:58 or there are actually already multiple options with payment cards where you can top up the payment cards with stable coin, and you can just use it as any other payment cards. And I think that's one of the use cases that many people who are bit skeptical about stable coins, they're undervaluing this use case because there will be more and more stable coin-based payment cards. And there will be at some point there will be no difference between topping up your, payment card with stable coin or with Fiat. Actually, it will be way more easier with doing this with stablecoin because it's faster, it's peer-to-peer.

Starting point is 00:26:37 You can prove that you actually send this. And I think there's already, I saw that there's already some major companies, whether it was Visa or MasterCard, they already signed with Paxus, which is a stablecoin that I so supported in our platform. They already signed the agreement that they are going to go that way. You're bringing up a really fascinating point that I've had a lot of discussions online with people saying, and you hear this narrative, and I find it a really funny narrative, people are saying, oh, as soon as central banks come out and issue their tokenized dollar or their tokenized euro, it's going to put an end to Bitcoin. And I'm just smiling and laughing, thinking the exact opposite. Because what they're really doing with these coming into the central bank digital currency realm is they're providing a token that has immediate clearance. the traditional fiat has many hours, if not days, to clear. And that's the reason why a platform like yours is using tokens of stablecoin tokens is because you know when somebody sends it,

Starting point is 00:27:38 that you have a public address that confirms that it has cleared. So you've had private market come in, and the private market has provided the solution to a situation that the market desires, which is immediate clearance, and these central bank digital currencies just haven't, they're just late, right? They just haven't got here yet. So I'm of the opinion that these central bank digital currencies are only going to speed up the rate at which Bitcoin is becoming a dominant store of value because they're providing these on ramps.

Starting point is 00:28:10 Because if I have a central bank digital currency that's in dollars, I'm going to prefer that every day of the week over a USDC token, right? And so the things that would start flowing onto your platform would be the central bank digital currencies instead of these tokens being issued by private entities. And I'm assuming you agree with that. We agree with that because it will effectively mean that there's a fiat on top of crypto technology. So as you mentioned, there will be a clear ledger that will allow you to understand that actually the payment was made or repayment was made. And again, I'm not advocating for central bank digital currency. Don't get me wrong here.

Starting point is 00:28:52 Because I still believe that building some new fancy stuff on top of broken system doesn't work. They're going to continue to be debased. And I think that's the thing that most people aren't thinking is it doesn't matter whether they tokenize it or they keep the system that they've got right now. It's going to continue to be debase in order to make up for all the fiscal issues that exist all over the planet. And that's the reason that the debasement's happening.

Starting point is 00:29:17 But what's going to be nice is you're going to have a token that's going to immediately clear, which is what you need for a platform like this, especially when you get into the over collateralization process, right? Like if I'm making a deposit of $10,000 and my escrow is dropping down below the value that I deposited, I want to be able to get that back immediately. I don't want to have to wait for it to clear. I want immediate settlement. Talk to us a little bit about what you guys have in the works for streamlining activities. because one of the things, when I'm going through all these comments that people left me on Twitter,

Starting point is 00:29:50 one of the things that they commented on was how can it feel more like a centralized system and not so peer to peer so that it's ease of use and things like that are a little bit easier. Talk us through some of your initiatives. We already announced that it's a public roadmap that we're going, first of all, we're going to build API for a landing platform. It's actually already in the process. So hopefully by in two months from now, we will be, be able to release the API, which will effectively allow you to automate many things on your own then. So institutional players, they will be able to switch to our, like basically to connect with our API and automate a lot of things that are currently, they are enabled to automate. Also, the retail guys who are like more sophisticated building terminals or building several

Starting point is 00:30:38 types of software, they will be able to do that. Also, I think the API for Hodel Hodel the lending will effectively make us one of the few Bitcoin-based lending platforms that actually have an API. So you will be able to build your solutions on top of total-hottle lending markets. And this will effectively mean that we will become lending platform or the core of the lending, Bitcoin lending, peer-to-peer Bitcoin lending, which we're aiming for. We're also making some more like streamlining automation process, more effort towards the education. We're going to publish actually in a few days from now. Very simple through guide through how to publish your own offer, how to make a contract, how to make an

Starting point is 00:31:25 offer, how to again, how to do whatever. So it's going to be simple. We're going to simplify our UX UI. We're going to add more automated feature like matchmaking, for example, when you publish your offer and we know that there's on the other side of the list, there is an offer which match your criteria. So then it's, you don't need to browse the offer list. It will just, it will just effectively send you the request, hey, here's another offer. It matches your offer like, let's say, 95%. Just click, accept, and you're good to go. So we're working on that, and I know that people are asking,

Starting point is 00:31:58 we need to simplify, we need to simplify, we need to simplify, it's good, but to be honest, you guys need to check at custodial lenders. And you need to go through onboarding process with custodial lenders, and then you will be back and you will understand how simple we already built the system because there's a difference. Of course we cannot or it will be hard for us to automate like some things because it's still peer-to-peer market. It requires your own education and some manual work. But it also increased your security level, your privacy level. Well, basically as we see, it also secures your profit level because from the standpoint of the lender,

Starting point is 00:32:40 if you compare us with peer-to-peer lending, with custodial lending, at some point we actually have double the rate that you have a new custodial platform. The risk is really on the technical side, whether you actually have the technical competence to perform all the actions you need to perform. I would say it's even simpler. We are trying to decrease that risk as well, because I saw that you have some comments And one of the major comments is actually what we should do in case if Hodel Hodel is down, how do we retrieve the escrow?

Starting point is 00:33:14 So we already published the guide for that. So there's like four steps. I can just guide you through this. So let me just first explain what you're getting into here. So the big risk that a lot of people were commenting on is what happens if your website goes down? If the servers, let's say there's an attack against your servers or whatever, What in the world does a person do, either counterparty do, in order to adjudicate the loan? So there are steps.

Starting point is 00:33:39 This isn't something that actually prevents the exchange from happening. So walk us through those four things. So first of all, you need to understand one crucial thing. We only have one key. So even if we will go down, you still effectively, both lender and borrower, they have their own keys. And they have two keys in some, which effectively can release funds. That's the first thing you need to understand. Second thing you need to understand, comparing to custodial platforms, you can impact that process.

Starting point is 00:34:08 If custodial platform goes down, like, for example, Mount Gobs, you cannot do anything. So basically, you just need to wait for them to resolve this issue. And obviously, you need to wait. Now there are people who are waiting years and years that the issue will be resolved. And also, the thing that actually you were on the podcast with Peter McCorment in American Hodel. and he mentioned that if the custodial lending platform will go down, and even if they are insured, most probably you will receive back part of your funds, but you will receive it in Fiat. You won't receive your bitcoins, because that's how it works.

Starting point is 00:34:43 So in this case, you will be able to retrieve Bitcoin. Now, the steps that you actually need to do, if, for example, there's a doomsday and we're down, and there's still funds in escrow. So first one, you need to open a browser console. you do it by pressing F12 and watch the data being sent to the server when you create your payment password. The payment password again is your key. Now, after you enter your payment password, you will see that amongst other things, and this is pretty important, encrypted version, Hotto Hotto doesn't know your payment password,

Starting point is 00:35:16 and if you will lose that, and I'm trying to warn people, if you lose a payment password, don't think that we're acting as a custodial platform who can just, hey, here's your payment password, do that. We don't know that. That's also the part of being non-custodial and being your own bank. Nobody told you that being your own bank is easy. It's pretty hard, to be honest. An encrypted version of the private key is being sent to the server.

Starting point is 00:35:42 You actually can copy that encrypted key and using the same algorithm which other photo users, decryp the key using your payment password. You need to remember that your counterparty actually needs to do the same. So what we suggest if you're over paranoid and you want to be safe and sure, when you're engaged in contract, just exchange contact details like emails. So in case the platform goes down, obviously the lender wants to receive his repayment and obviously the borrower wants to receive his Bitcoin back from the collateral.

Starting point is 00:36:15 Now, the fourth step, you will then need to write some code that would actually construct a release transaction and use that key to sign it. and then broadcast the signed transaction. And as I mentioned, however, your counterparty needs to reproduce the same steps. And in fact, the transaction cannot be broadcast until it's fully signed. So step four assumes that you already have a partial assigned transaction. The fourth step is actually the most complicated because you need to construct some kind of code and you actually need to have a technical thing.

Starting point is 00:36:46 Now, we thought about it as well and we received some requests. So in upcoming months, we're about to release, let's call it, emergency. Doomsday software, which is effectively allows you to retrieve coins from escrow, even if we're down at some point. So the only thing you will need to do that, you basically go through our security guy, you write down your encrypted password, and you just contact your counterparty, and there will be a software that will help you to release this coin from the Nespro. When I hear these kind of conversations, I always try to put myself in the audience and say, what are they thinking the next question is from what they're hearing? And all I can really say is,

Starting point is 00:37:27 based on this conversation we're just having, we are so early. We are just so early in this process of where this is all going. And it's just fascinating for me to be sitting here watching this entirely new system being constructed right next to the old legacy system. And you can't expect any of it to be just foolproof as you're literally constructing and engineering and building this stuff in real time. And here we are talking about what's being made. And it's just fascinating to me to see how something as catastrophic as a site going down, even though a simple solution doesn't exist today in a couple months, there will be things in place that are allowing two parties that don't even know each other. I don't even know what you're doing with the funds that I'm lending,

Starting point is 00:38:16 but yet I'm still being protected through over collateralization and the fund's sitting on the blockchain that neither one of us are touching this escrow fully, right? But yet all these checks and balances are in place and we can still allow the release of funds even with the website going down. Now, like you said, it's a little complicated today, but in a year from now, it's not going to be. It's just amazing to hear some of this stuff and just to kind of see the direction that's all going.

Starting point is 00:38:45 I had a comment, actually, yesterday also. I checked the post that you mentioned that you are talking with us today. and there was one guy who told that, hey, I was recently on a conversation in Clubhouse with one of representatives of custodial lending platform. And he effectively said that non-custodial multi-signature tech is basically worthless because you still don't have access to funds. You still need to have a second key. Here's there actually pretty simple answer. Non-custodial doesn't mean that you have a full access over your funds, especially, if you're engaging with other counterparty, because the counterparty actually have their own

Starting point is 00:39:24 interests. Non-custodial effectively means that you are removing full control of the funds from the third party or from another person over your funds. So this is what it means. It doesn't mean that trading, lending, borrowing non-custodial, you will have a full control over your funds. It means that you will have some leverage to avoid being fully controlled by other parties. That's what it means.

Starting point is 00:39:51 And also in lending, the important thing, it means no rehabilitation risks. So basically your Bitcoin, there stays in collateral. They're not giving away to some guys who are trading with them, who are lending them at a higher rate, or doing whatever they are doing. And I'm not saying it's bad. Obviously, all these processes on the serious custodial platforms are being protected and maybe they're even insured, whatever. but it's like what we are trying to build here is actually tools that will allow you effectively

Starting point is 00:40:24 become your own bank. As I love to say, nobody told you that being your own bank is easy. I'm a former private banker for 10 years. I know how difficult and how complicated the banking system is sometimes, especially within. But you want to have some freedom. You want to have financial freedom. You want to have a privacy. You need to learn.

Starting point is 00:40:47 These are trade-offs. So let's talk a little bit about Lightning Network and interest that might be kind of a competitor. I don't know if you would view it as a competition, but when I'm thinking about, hey, if I have Bitcoin, how can I collect interest on it? I really kind of arrive at two solutions. I can do what you're offering here with Hoddle-Hoddle. And then the other one is going to be on my full node. I open up a channel.

Starting point is 00:41:11 I basically plug those bitcoins into the channel. and then the network can use and route those via IOUs between other nodes. And I'll be able to collect interest off of that. What kind of interest rate do you actually kind of foresee in the Lightning Network by opening a channel relative to the interest rates that you might get on a platform like yours, Hoddle, Hoddle. So the main difference is that we don't offer Bitcoin landing. So you can only borrow against using Bitcoins, basically, use it as a collateral. Now, the Lightning Pool technology, which you're talking about, is actually the first technology since Lightning was introduced that I'm actually pretty excited about.

Starting point is 00:41:54 And we are speaking with Lightning team. We actually in some workgroups around Lightning. So I'm pretty excited about that. I'm not sure what will be the rates there and what are the rates there because I'm leaning more forward than that non-custodial Bitcoin lending will earn you. less than custodial Bitcoin lending. Why? Because there's less security risks. So there's a trade-off. You want to hold your keys. You want your Bitcoin to be non-custodial. If you want to stay partially in charge of what is happening with your Bitcoin, most probably you will receive

Starting point is 00:42:31 less interest than you will do it with depositing your Bitcoin and giving away to third party. I would say that even with 2, 3, 4% annual rates on your Bitcoin, but still being able to keep it non-pestodially, this will be a perfect offer because you will still earn some interest. You will keep your Bitcoin and you will actually support the Lightning Network as well. What we are looking at is that we're going to introduce during this year multiple solutions how you can lend your Bitcoin using our 10. some of these solutions will be actually pretty stupid in terms of technical development, let's say like that, but they're a bit more wiser in terms of cash flow management. So some of this solution will be actually effectively using other productal levels like liquid and lightning.

Starting point is 00:43:28 So what we want to build, we're also looking to the lightning pool technology. We were pretty excited about that. I think this is the way to go, but I'm also hoping that we will be able to release other types of solutions. So the person who is less sophisticated may go to Hodel Hodel and choose what he wants to do with his Bitcoin, whether he wants to land it in one way, in another or in the third way. Some of these solutions are still pretty a long way to go because we are waiting for other protocol level improvements in order to be able to build them. some of these solutions will be already presented in a few weeks from now. But I'm excited about Lightning.

Starting point is 00:44:10 I saw many comments. People are saying, hey, the rates will be crazy on a Bitcoin landing, non-custodial. No, guys, I think the rates will be low, two, three, four percent. But the main advantage is that you will keep your keys. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up. and customers now expect proof of security just to do business.

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Starting point is 00:47:46 Back to the show. Yeah, I think that makes sense. The logic that you're going about thinking, because really it's just a risk profile, especially as this gets more mature. Like maybe in the interim, you might see some of the numbers be different, but just intuitively that makes a lot of sense what you're saying. So here's the question I got for you. If we could just warp ourselves into the future,

Starting point is 00:48:07 five, 10, 15 years into the future, describe the environment that you think that all of this is going to look like. Definitely my, maybe it's naive, I don't know, vision, but I truly believe that in landing, if we're talking about lending. Let's talk first about landing, and then we can go on more like broader use cases. So in lending, I think that there is a significant chance

Starting point is 00:48:33 that peer-to-peer lending will hit a huge chunk of custodial lending that we have now. So non-custodial lending can potentially disrupt the custodial lending. It won't be necessary bigger than custodial lending because you still have like institutional big players. They have a huge liquidity pool. But again, as I mentioned, there are some institutional big players that are already approaching us, and they are also considering to offloading their liquidity because they see the rates are

Starting point is 00:49:01 higher and they're happy to provide some liquidity to retail markets. I don't think that in terms of trading, for example, I usually compare trading and lending. So in terms of trading, I think custodial exchanges still will be bigger than non-custodial. Why? Because they have a huge liquidity pools and there's a frequency of trading. there you can faster complete your orders on custodial trading. And that's what important for day-to-day traders, for example. I do believe that decentralized trading or non-custodial trading will rise, and there will be some technologies that will actually effectively make it happen better.

Starting point is 00:49:38 Like, for example, there's a technology which is called RGB, which is built on top of lightning, which is actually a layer three already, which will effectively allow you to construct different types of decentralized applications. I think that there will be more and more peer-to-peer, more and more decentralized solutions, but they will just coexist with the custodial solution and centralized solution. Because there's always two types of people. Those people who are happy to trust the third party, and they just use to that, what I think that amount of that type of people will be lower and lower in future,

Starting point is 00:50:13 because people will eventually educate and people will eventually sell some shifting from being custodial to non-custodial. I think the user interface of a lot of these platforms are going to feel like they're custodial, even though they're not. That's actually one of the things that I'm looking forward. We're constantly improving the user interface, and we're actually considering to building,

Starting point is 00:50:38 at some point we might start building some high-frequency decentralized exchange as well. So that could be something. We're looking into that. we've been approached by several protocol developers. They know us. They want to work out with us. They know that we can actually sell complicated non-custodial solutions to the market

Starting point is 00:50:58 and then they trust us with that. But that's the future. And again, I do believe that in 10, 15 years, Bitcoin will grow bigger. It will definitely will have it as a, let's say, digital gold standard. I would say, though, that there will be more and more side-chain solutions with different use cases, like example, liquid. It's actually a side-chain, which is perfect for traders, because you can effectively send huge amount of money between exchanges.

Starting point is 00:51:32 It will cost you like one, five-cent, maybe like that, and it will be delivered almost instantly, so pretty fast. Now, lightning, on the other hand, is actually evolving. my personal opinion as a payment solution for retail investors. So you can just, the funny joke about coffee, buying Bitcoin with a coffee, you know, you will be able to do that with Lightning. And as soon as there will be many different types of payment solution, payment cards that are supporting by Lightning, we will see that this thing will involve. But everything will eventually evolve around Bitcoin. And I'm just hoping we will be able to absorb the best practices

Starting point is 00:52:13 from other like blockchains, we will be able to build languages and solutions that will compete with those that exist at the moment and eventually we will beat that because I believe that the Bitcoin product have the best people. I'm not trying to like say bad things

Starting point is 00:52:31 about other protocols. There's also smart people out there. But I think the good thing about Bitcoin is that we have the biggest liquidity pool at the moment. So basically in terms of capitalization and Bitcoin also attracts a lot of very, very smart people. I saw the trend that they're amazing young developers that are actually shifting the industry. There's this guy, Ben Kaufman, who is doing the Spectre wallet.

Starting point is 00:52:57 He's 19 years old. The guy reinvented multi-signature wallet as it is. So he's like 19 years old guy, if I'm not mistaken. So the industry will evolve. The Bitcoin will be here. Just take it or leave it. you can close your eyes and then think that it will disappear, but it will not. So effectively, I think I listen to your podcast with Zach from Blockfeed, and there's a right direction of how he thinks that custodial solution will be more towards institutional interests and non-custodial solution will be more towards retail interests.

Starting point is 00:53:35 And we don't know which interest will be effectively bigger. We believe that at the moment, institutions are bigger. Yes, but the recent beef with the Wall Street bad guys game stopped so that actually if you have a huge movement, you can destroy effectively any institutional interest that is out there. So when you guys started the platform, and you had previously mentioned that Bitcoin is pretty much used as the collateral between the two parties, a lot of people are asking when am I going to be able to take my Bitcoin and deposit it and collect interest on my Bitcoin?

Starting point is 00:54:14 When is some type of capability like that going to be enabled? We're talking about Bitcoin lending. As I mentioned, across this year, we're going to release some features that will allow you to do that. It's really hard to perform. We're looking into different protocols, not only on-chain Bitcoin, but also, as I mentioned, light being in liquid. What makes it difficult? Because to me, it's from the outside, I'm just looking at it like, well, what's the difference between me depositing one Bitcoin versus one USDC? What makes it complicated?

Starting point is 00:54:46 The difference is pretty easy. You know, when you deposit, why you can collect interests on your Bitcoin on custodial platforms, because you deposit with them and they just lend this Bitcoin to institutions or to other players. And these players are using complicated trading strategies or lending strategies, they're earning actually more on top of your Bitcoin, and then they're just paying you part because they're using your asset in their own strategies, different types of strategies. Now, with non-custodial, your Bitcoin stays in multi-signature escrow. And effectively, we cannot do that anything. We cannot send this Bitcoin to trading OTC desks that can perform. So it's a bit more complicated. So with lightning, for example, with lightning pool, you can

Starting point is 00:55:33 already provide the liquidity, you can be non-custodial and you can earn some interest. But we are actually working on different types of solutions with different types of networks and we're trying to figure out the ways that you can actually still hold keys to collateral. Let's name it like that and still earn interest on top of that way. So we are actually going to present a few of the simpler ways and solutions in upcoming weeks, let's say in March. And we're going to build more complicated solutions like in six to nine months from now. And hopefully you will be able to collect interest on top of Bitcoin as well. So when you think of scaling your platform, what is priority one or two on the list for scaling? The current priority number one, and we actually

Starting point is 00:56:27 we received an anonymous letter from one guy who wrote us, like, I think two weeks ago, there was a letter from one of, I don't know whether he's user or he's just like, check it out. First of all, he mentioned that this is the simplest, most complicated platform I saw, because like he smiled and he's, I didn't saw that kind of simplicity, which is wrapped around the complicated things for a long time. So that was his comment. And then another thing he mentioned that I think that you guys built something that could be potentially Amazon in 90s. So this could disrupt massively the lending markets in the future. But he mentioned the one thing that we are actually aware of and we're working on that. It's not a technical side.

Starting point is 00:57:13 It's actually liquidity. As I mentioned to you, we have outstanding amount of borrowers that are willing to borrow money at the bigger rates than they're custodial. So basically 16% average APR. And the liquidity is actually, like, when we see a huge liquidity provider coming to the platform, like let's say huge liquidity provider, half million. His half million will be eaten in three, four days, with easily taken by multiple parties and allocated through multiple multi-signature accounts. We're working actually at the moment on partnering with some liquidity pools and liquidity

Starting point is 00:57:52 providers who can actually have float liquidity in stable coins to the retail market. That's one of our top priorities apart of we're building API, apart if we are building new interesting features and building the Bitcoin lending stuff. Do you run into issues with people coming to the platform from a legal standpoint? So like, hey, I've got $10 million I can give you. But I run into these legal restrictions that I am a company that isn't allowed to be dealing in lending and borrowing type services because that's financial type services. Is that any type of concern or issue that you're running into? With peer-to-peer markets and as we are non-custodial, we leave all the legal stuff upon counterparties. So basically, for example, on trading part, we have the market

Starting point is 00:58:42 decide how it performs. We just provide technical tools for people to make a safe trade. There are actually traders on our trading platform that do KYC. These are like OTC desks that have licenses, and they just use it as an SRO agent. So basically, even not as an SRO agent, I would say as a technical tool provider. So they believe that our escrow technology is pretty safe. They're using us, but they're doing all the legal stuff, taxation and all that stuff by themselves. Same with peer-to-peer. Same with lending.

Starting point is 00:59:16 It's up to you to understand what our implications. what are regulation, what are barriers for you in your own jurisdictions, whether you can issue a loan or you cannot, whether you're a corporate or you are not, and how does this work? So if there will be lenders who will effectively say, we want to issue some loans, but we need to do KYC on people to whom we are issued, they will go on a platform, they will post their offers in offer description they'll right, we will need to do, I don't know, verification of you or we will need to do due diligence

Starting point is 00:59:51 of you. And people will decide whether they want to go with institutions or with legal entities, or they want to wait a bit longer and find another partner who is a private individual who can send and give a loan and then make all the necessary tax things and all that stuff. So is there any thoughts on how a person could incorporate insurance into their contract? This is a question from Mark Moss. Yeah, so regarding the insurance, as I mentioned previously, with custodial platform, you might be insured, but you will receive only part of your deposited amount, and you will most probably receive your part in fiat.

Starting point is 01:00:35 So let's say, as with mom goes, the price of Bitcoin significantly increased during past years, people will still receive way more less than the moguls own them. So in our case, the main insurance will be our, as I mentioned, emergency software, which effectively allows you to return Bitcoin from the S-Pro. Because, again, Bitcoin will stay there and you will be able cooperating with your counterparty to return this Bitcoin from the S-Cro. But again, I know that there are some lenders that actually had. their risks. They have some complicated lending strategies. And I think the main insurance that all

Starting point is 01:01:18 loans are over collateralized, they're in multi-sick, and you can actually, by cooperation with your, let's say, counterparty, you can actually retrieve them at some point. So this is the main insurance. It's actually not financial insurance. It's technical insurance. You know, that's what we are striving for to provide a technical tool so you can do all things trustlessly and you can be way more secure and sure that everything will go fine. We've kind of had some companies that have been approaching us in terms of insurance. I don't know whether we are going to observe that and we are going to figure out that. But I think the main insurance is a technical part of our platform. That's the main thing. Max, I can't thank you enough for coming on to have

Starting point is 01:02:08 this conversation. When I think about the most exciting stuff that's happening in this space right now, it is literally you're sitting in the seat of the guy that's making all this, this kind of stuff happen. This is the precipice of where my personal opinion, a lot of this stuff is going. So this was such a pleasure to have you on the show and have this conversation. And I applaud your efforts because this is fascinating stuff that you're doing. Give people a handoff to your platform and anything else that you want to highlight. I want to highlight few things. Like, first of all, educate yourself. Do your own research.

Starting point is 01:02:42 Always do your own research. Whether it's the risks of being custodial, using custodial and non-custodial services, whether it's the risks of issuing loans and several stable coins. Like we have this question, what will happen if teaser will blow up and whether I should use better USDC. We don't provide that kind of advice, guys. It's peer-to-peer markets. It was meant to be like that.

Starting point is 01:03:06 It's Bitcoin, you know. it's peer-to-peer electronic cash. It's what's written in white paper. Some people are wrongly quoting this in their own interest, but that's how it's written there. So do your own research, educate yourself. The system, peer-to-peer systems, non-custodial, of course they might be a bit more complicated than a custodial ones.

Starting point is 01:03:28 But there are always a trade-outs. Like you have a bigger privacy. You have no risks of your Bitcoin being lent or being giving to someone else. And you actually have at the moment higher interest rates and higher APR as a lender. And it's always backed by Bitcoin held in multi-signiture escrow. You need to educate yourself. Please feel free to provide to us any feedback that you have.

Starting point is 01:03:53 Our DMs are open. We're trying to do the best. We know that you want to have this feature right now. But we are a rather small team and we're working really hard on that. We're growing, but we're working really hard. So we actually applaud you for your support. Personally, you Preston as well, because you've been very supportive. Many people that supports us.

Starting point is 01:04:16 The main thing that I wanted to point out, it peer-to-peer market. Nobody basically blocks you for publishing your own offer on your own terms. So if you don't find the offer that suits you, just create the one that you want to accept or you want to land or you want to land or you want to borrow. And with that, we can together grow the liquidity and grow that market because we actually need your support. As for the main land.huddlehuddle.com available globally, feel free to check it out.

Starting point is 01:04:49 Feel free to give your feedback. Feel free to post your own offers. It's free. It doesn't take you much time. Finally, start to becoming your own bank. Max, thank you so much. Hey, so thanks for everybody listening to the show. you enjoyed the conversation, be sure to subscribe to the show on whatever podcast app you're using.

Starting point is 01:05:09 We really appreciate that. And if you have time, leave us a review. So thanks for joining us this week and we'll catch you next Wednesday. Thank you for listening to TIP. To access our show notes, courses or forums, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decisions, consult a professional. This show is copyrighted by the Investors Podcast Network. Written permissions must be granted before. for syndication or re-bordcasting.

We Study Billionaires - The Investor’s Podcast Network - BTC015: Bitcoin Peer to Peer Decentralized Lending w/ Max Keidun from Hodl Hodl (Bitcoin Podcast)

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