We Study Billionaires - The Investor’s Podcast Network - BTC223: Tether's 13.7 Billion in Profits w/ Paolo Ardoino (Bitcoin Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey everyone, welcome to this Wednesday's release of the Bitcoin Fundamentals podcast. On today's show, I have Paulo Arduino, the CEO of Tether, which has over $113 billion worth of dollar stable coins. And during our conversation, I try to get Pollo's thoughts on Tether's competitive moat, considering U.S. banks are likely to start playing in the stable coin space now that the SAB 121 is in the process of being rescinded. After that, we get into Tether's much broader and strategic plan as a company.

Starting point is 00:00:32 I look at Pollo's thoughts on the newest announcement of Mining Tether on top of the Bitcoin Lightning Network and much, much more. So this is a conversation you will not want to miss. So with that, here's my conversation with Paulo. Celebrating 10 years, you are listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pish. Hey everyone, welcome to the show. I'm here with Paulo and dang, we got some serious things to talk about here. You got a million different things going on. I should say you have a billion different things going on. So welcome to the show, Paulo. Thank you for everybody, Preston. Let's start off with what I think everybody wants to hear about, which is the financial results for this past year. You have this pinned on your ex account, $13.7 billion in profit. I was doing a little bit of research. It looked like $7 billion of that are coupons, and then the other $5 billion-ish is from the

Starting point is 00:01:42 unrealized gains on Bitcoin and gold holdings. Is that kind of accurately represented or would you break it down? Yeah. Okay. Just in general, what are your thoughts on being able to produce this much profit? I think for a person who's looking at this from the outside, especially traditional Wall Street person that's looking at this from the outside, they're looking at your head count, They're looking at the CAPEX of the business, and they're looking at the profits and they're saying,

Starting point is 00:02:08 this may be the most efficient profit-producing business that's ever existed. Is that fair to say? What are your thoughts as the person sitting at this organization? So definitely the Stipholing is always been run as a lean operation. So the most important personnel in the StipoCoin business is their serve management. and the compliance team that include also the investigation team. So on one side, you want to make sure that you can properly manage the reserves. You need the most important thing that the stable coin issue needs to do is to give back the money to anyone that asks them.

Starting point is 00:02:48 So at any point in time, you get future narration, 20, 30, 40, 50, and so on percent. You need to be able to pay that immediately. So that is why I think our finance and reserve management team is incredible, starting from 2022. We remember we had been attacked by fear three and a few others publicly saying that we didn't have reserves. They wanted to cause a bank, but we were able to process $7 billion for redemptions in just two days and $20 plus billion in just 25 days of a redemption.

Starting point is 00:03:22 So there was 25% of our reserves. So there is basically almost no banking institution that was a huge. able to survive through even 10% redemption. So that is basically the team of a stable coin is very lean. And then for, because on one side, you issue a token. So there's a bit of technology there, of course. But on the other side, you need to buy FBELs and other liquid assets mostly is gold and a few bitcoins.

Starting point is 00:03:47 And it's it. Right. So it's very easy from the accounting perspective and the resource management. That is also over collateralized by $7 billion, so around 5% of the total reserve. So we are 105% collateralized. It's very unique as well. And that's not talking about the retained earnings of the business. That's just, okay. So that you would effectively be even more over collateralized than if you would include the retained earnings of the business. We would be another $20 billion. Yeah. Over collateralized. Yeah. Yes. So again, it's a very unique

Starting point is 00:04:22 situation. I think that in this world, everyone tries to do two things or copy two things. One is Theta or the other one is Biker Strategy. And I think that the good thing about Tether is that with portion of the earnings and the profits, we are keeping them in the stable coin to further collateralize the stable coin. Now we have 1005%. But we are very methodic in that exercise. And with the rest, we have been buying Bitcoin and investing in great companies like Brambole and others. So I think that the latest of the station that they're had around, he would take 90,000 Bitcoin and around 45 tons of gold. So I love the fact that on one side we can, we are basically the most important company

Starting point is 00:05:07 when it comes to the US dollar Germany, but on the other side, with the profits we get, we are investing in assets that are resisting to inflation much better way than the US dollar, that are gold and Bitcoin. more especially, is actually the best assets in the Walter to have. And the beauty, again, is that on top of that, our user base have the lecture being exposed to these two assets, that whatever happens in the worst case scenarios of the world, they will appreciate in value against any other currency. If the world goes towards that Weimar Republic, like in the 1920, then Bitcoin and gold

Starting point is 00:05:46 would go to the moon. And I think that having a little bit of sprinkle of those in our reserves is something that makes better much more appreciated than any other stable coin in the world. Because A, we are over collateralized. Even if Bitcoin goes to zero, basically, we would be fully reserved as a stable coin. But since the Bitcoin going to zero, it will be unlikely. If on the other side, if Fiat goes to zero, our users have much better chances rather than anyone else, any other stable coin holder. Whenever I look at the current situation, it reminds me of this

Starting point is 00:06:22 Jeff Bezos quote that he says, your margin is my opportunity. And when we look at the SAP 121 repeal that just recently happened, I would think every bank on Wall Street is wanting to somehow play in this particular space and kind of take a bite at what you guys have demonstrated in style of what you're doing. So how do you think about that competition moving forward? Do you agree with them with Sab 121, kind of playing an instrumental role in their ability to now participate and play in this space. How do you see some of that going forward? I think there is definitely will be increased competition. But I think that two days ago, we had Ambias Lodore. I had this speech, which title sounds very corky, a bit of noxious. The title is once tether, once in a century

Starting point is 00:07:12 company. The reason why I gave that speech and I talked about Tether in that way is that people don't realize that the success of USDK is not because we were first, of a step out salute. But Tether built and is currently keeping building and investing in the biggest physical and digital distribution network in the world. So it's not about creating a stable coin. Everyone can create a stable coin every single bank. But the problem is that if you issue a stable coin in the US and you focus on its distribution in the US, that is, first of it, is meaningless, in my opinion, in the sense that in the US you have already 15,000 ways of pay people, like PayPal, Zell, cash up, bank wires, petty card, debit cards, pet now, whatever,

Starting point is 00:08:01 ACH, have so many ways to pay people. So the dollars in the US are already digital. So it's not like you are just reinventing the wheel, you are going to sell. a bucket of ice to an estimate. But if you go outside the US, then there are hundreds of millions or, well, several billions of people. They are desperately trying to get on the dollar. They are buying dollar cash, dollar cash, but they would be more happy with the digital

Starting point is 00:08:30 dollar. And that is basically what USAT is about. It's about bringing 3 billion people that are called Aung Bank that never had a chance to have to be part of the financial system. Not because there are bad people, just they're too poor of B or B interest of the banks. Because if you are a bank, you need your every single account holder to generate at least $100 per year in fees. And if your average salary in the 80s, $134 per day, you cannot pay $100 yearly to a bank.

Starting point is 00:09:01 So the bank will not accept you as a customer. Many of these people don't even have a pay sleep. They are not reached. They struggle even with job opportunities. So USAT is the dollar for them. is the only solution for them to be part of the financial system. It's a way for them to grow dollars, not under a pillow, but on a wallet and a digital wallet. And while in the poor countries, they struggle with the financial inclusion, they have access

Starting point is 00:09:27 to smartphone. So a smartphone can host a wallet and can have USATM, Bitcoin. That is the way. But see, this is what we have been building. So we have invested in companies that are building thousands and thousands of and our own or leveraged hundreds of thousands of kiosks around the world, from Africa, Central, South America, Asia. You know, in the past, for the last 20 years, while we were sold with the concept of globalization, any B.C would have, imagine that you are a company and you have owned a distribution network, a physical distribution network with kiosk, you wanted to raise money and you would go to a B.C.

Starting point is 00:10:08 Any B.C. would have told you sell the fiscal distribution network. network, South Georgia, can rent them back. It's a waste of money. But the world is going towards localization. The world is going towards a different place now. And owning or being able to leverage physical and digital distribution networks, this will be the most important thing, not only to distribute stable coins or Bitcoin, but also to distribute education or any other application, any single piece of technology,

Starting point is 00:10:36 we will go through these networks. So we are not just building a physical and digital distribution network for USAT, but also we are building a network that can sell or educate anything, anyone on anything. So that is the fundamental difference between us and someone actually trying to copy our business model sitting on a very nice office at the 40th floor in Wall Street. That is pretty fascinating. So what you're really getting at here, if I could summarize some of this, and we're going to get into a lot of this in more detail. This is your whole punch technology that's peer to peer

Starting point is 00:11:12 that's not relying on any type of server technology or any type of server in the middle to basically censor that flow of communication. This is why you guys are getting into AI and trying to do AI at the phone level or the processing of that data, that private data is happening locally and not in some cloud that some parasite organization is sucking all that. And there's many other the things that you guys are diving into. Would you say that this is the all-encompassing strategy that you're referring to here that you're talking about, that the banks, the Wall Street banks are not going to be able to compete on on a much grander level? Is that what you're saying? Yeah, I'm seeing exactly that. And it says that if you, we recently made different

Starting point is 00:11:54 investments or announcements, investments in Rappell is a social media platform. But then we made investments in, and we have hired among the best teams in artificial intentions. We have ball punch as our telecommunication technology are, all that. You couldn't look at every single investment thinking, oh, well, they're just playing with different toys. But actually, if we look at more deeply at our strategy, what we are building even just take the AI side. So AI at Hedge devices, so the ability to run in doing inference on Hedge devices, imagine every

Starting point is 00:12:32 Every single device can run AI agents that are fully local to the device. They will have their own identity through Bitcoin 309, for example, any Bitcoin identities. And then all these devices can talk to each other without any central server, so I'm using the whole bunch of technology. And each one of these AI agents will have a wallet built by WDK, that is our wallet development key that is an open source library to build wallets. So I think that with Tether, we can build the biggest AI agent network in the world that could consist in billions and billions of AI agents, all talking to each other peer-to-peer, all

Starting point is 00:13:12 unstoppable, all are able to deal with each other and appear-to-beer faction with peer-to-peer money. That will be a grandiose project. It's very, very hard to pull off. But we are building the technology that goes into that direction. There's a way to build AI that is for the people, empowers people, not an AI that tries to steal data from the people, just for the benefit for a few companies. So I think that everyone of us should leverage AI, should have AI that can take on part of our tasks that are the most boring.

Starting point is 00:13:45 This AI should have a wallet that is through Stodial, can interact with other AI platforms, all in a fully pure decentralized way. No one is thinking about that in this terms for the very same reason that if you go to a VC and you tell them, oh, well, I'm building an AI system where I don't have a control, the PC will kick out you out from the office immediately because without control you cannot make money. So you need to have incentives. You need to create in the eyes of the VC, you need to hold your customer by the boss in order to make a return on investment.

Starting point is 00:14:23 But we teller we are very much in the sense that the $13.7 billion that you talked at beginning allows us to be a unique company. So on one side, we have the philosophy that is the Bitcoin philosophy. On the other side, so we have three things. We have philosophy, we have capital, and we have tech vision. So if we had the only philosophy, so apart with the Bitcoin ethos and the tech vision and we didn't have the money, it would be very impossible to do anything because VCs will create You're playing a much longer game.

Starting point is 00:14:55 You're playing a way longer game with a much big, yeah, yeah. Exactly. We don't have to create shortcuts or we don't have to misalign incentives with freedom. So we can, our incentives to create the most important and widespread networking platform peer-to-peer for AI agents and for people to communicate to each other and send money to each other, to be resilient to any sort of catastrophe. So apart of the privacy aspect, it's very important. You don't want to give your most importantly intimate thoughts to open AI.

Starting point is 00:15:31 The other most important topic is if something happens, something bad happens in the world, you want this system to continue to run. And that no technology todays will make that happen unless you go fully peer-to-peer, which we are doing. So we might be able to make less money. to be it, but it's just the right thing to do. And we can do it just because we have the capital from the stable-coyne business in order to build these crazy things. Wow. I was going to add, so I'm going to ask this question anyway, even though I think that you just explained why maybe

Starting point is 00:16:03 this isn't the case. So here's the question. Do you feel like you're at a slight disadvantage, not being a publicly traded company because you can't access public markets and basically do what Michael Saylor is doing by issuing more shares, transmuting that into Bitcoin, either in preferred convertible debt markets, common markets. I think I know what your answer is going to be for this, but I'm curious to hear it. Ciner is a very, well, has a very coolier company, right? Strategy B now is called. Yeah.

Starting point is 00:16:32 He can be a public company because his main role is executing the micro-starchage play. So just accrue more Bitcoin. That's fun. But the software side of the business is basically kind of left the side. So that is not core. Tether on the other side is still able, without issuing any debt, to buy a good amount of Bitcoin. I would call 90,000 Bitcoin not achieve change. But we feel that our mission is Tatter is to build something that is complementary to Bitcoin.

Starting point is 00:17:04 So if in life we have only Bitcoin and we have Bitcoin that is held for the vast majority in public traded companies or ETFs, imagine like the worst-case scenario would be 21, 1 million Bitcoin held into public traded companies and ATFs. How Bitcoin will look like at that moment, when people need the most, will people be able to use Bitcoin if it's all captured within public traded companies and ETFs? So of course, Bitcoin will remain Bitcoin, but at the same time, people might not have access if there is a Third World War, how people can't access to Bitcoin or use Bitcoin if it's all captured and out in few private companies?

Starting point is 00:17:46 And also, even if you have Bitcoin available and that scenario of Bitcoin being captured by a few traded public companies would not be realistic. Even if people had Bitcoin but if people didn't have the ability to talk to each other in a peer-to-peer way with the same precondition of Bitcoin but for telecommunications, how the world would look like. So if I have freedom of money that is Bitcoin but alone have freedom of speech, I don't have freedom of communications. Are we really free, even if you have Bitcoin?

Starting point is 00:18:16 I don't think so. So there is so much to build, especially now that Bitcoin is almost like the four phases of acceptance. We went through, as Bitcoiners, we went through, first no one cared about us, then they mocked us, and then they fought us, and then they accepted us. Fine. In 2004, they accepted us. Okay, now what?

Starting point is 00:18:35 And what we learned from Bitcoin that we can apply to the rest of the world or the rest of the technology? That I think is the biggest achievement and strategy of Tether is trying to apply the philosophy of Bitcoin and the tech vision of Bitcoin that is peer-to-peer money, but being peer-to-peer 10, bring back the internet as it was before, bring, create a system that empowers people to be free and keep control over the own data rather than just keeping control their own money as with Bitcoin. So I don't want to be a public company because I don't want to have to report every three

Starting point is 00:19:09 months to a junior analyst, that will tell me, oh, Paolo, but you know, you could have to make much more money if you have done that, that, that and that. No, I want to be able to be free to build the technology for the world that I see happening rather than having to squeeze every single last trouble profits from the company. Yeah. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year, bringing together

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Starting point is 00:23:29 Go to Shopify.com slash WSB. That's Shopify.com slash WSB. All right, back to the show. I want to frame this for folks just so they can kind of understand where kind of the root of that question comes from. So if we just look at the profits that were generated from the treasuries that tether sitting on, it was about $7 billion last year, taking out the gains that were attributed to Bitcoin's growth. So if we just look at those, which I would attribute to the quote unquote operations of tether, which is about $7 billion.

Starting point is 00:24:02 This is about 70 times larger than micro-strategy's profits, just to kind of put, and I should start calling it strategy. But that company makes about $100 million a year. And if they're not, if Tethers knocking out $7 billion, that's about 70 times more profit that they can allocate and direct anywhere that they want. And I think that that's important framing because when we look at how much Bitcoin microstrategy or strategy has been able to accumulate over the past year or two years. years versus how much Bitcoin tether has accumulated over that same period of time, even though

Starting point is 00:24:38 their profits are 70x, that of micro strategy, there is a very large difference in the amount of Bitcoin that's being accumulated by both of these companies. And so I would say that they were able to do that simply because they were a publicly traded company. He's able to tap into all these very financial engineering type methods in order to attract more Bitcoin onto his balance sheet. And that was kind of the root of the question. But I want to go to this idea that you're building something that is way bigger than just tokenizing sovereign securities. And what the, I guess when we get to the essence of what it is you're doing, is there just a desire to build freedom like technologies for the world? Is that the driving force of the company and the

Starting point is 00:25:28 founders and the owners? Or did you start working on hold punch technology? And it's like, oh, well, we can use it here and we can use it there. Talk to me about the essence behind this grander strategy that you guys are trying to perform. The world is going to be more and more predictable in the next decades. And I think that everything that we have in our hands when it comes to technology will fail us. So anything that you have on the smartphone today, if there is a catastrophe or if there is a war, a global war, will stop working. Everything will happen that you have had in your phone will stop work. Why, as humanity, we built for the last, well, let's say only 20 years or 30 years in technology,

Starting point is 00:26:10 we built technology that will fail us in the moment we need the most. How can we can be the most intelligent species in the world if we build something that the moment we needed the most, it would fail us? I mean, the reason why we did that is because in order to make money, you need to have a control over technology. And if you need to have a control over technology, you need to make it the way that it's set a device around you, around the company. So the entire incentives for technology that should be a common good, have been misaligned

Starting point is 00:26:42 with actually the people and we're only aligned with the corporates. And so when I think about technology, this is being a lover of sci-fi, the only being a lover of sci-fi, always thinking about what would happen in the worst-case. I'm like, I need to build something that they know that will be a legacy, even if Tether dies. So when I look at Tether in general, I think, what if tomorrow Tether dies, everything that we have been building will disappear? Well, that is my fundamental question, right? So will that happen? And when I look at Google, if tomorrow Google will disappear, so the search engine will die, the email will die, go. The dogs will die and so on. But if we build technologies like Whole Punch or our

Starting point is 00:27:24 peer AI and similar, if the company, our company disappears, humanity can still leverage that technology and keep using it because it's open source. So I think what we are with tender, we exceeded our expectations in how much money we could make. Like in 2014, if you were asking me, what would be the biggest number in market cap that the USAT would achieve was between 100 million dollars in one billion, but one billion was already, I would have already exceeded really multiple times. It was just practically like one billion. But now we are 141 billion in counting. And so the amount of our insurance we made on that market cap is just insane. To 2022, we did make little money because interest rates were low, but now interest rates are

Starting point is 00:28:10 very high. So at some point, you have to look at yourself. You look at the company and you start thinking, okay, fine, I got, I'm in this position, I have an important, very important graph flow, I know how to build technology, what is tomorrow, how I can make technology be resilient to me? Because when I say technology needs to be resilient, should also be resilient to ourselves as a company, right? So even with Tether, in the stable coin business, we create USDT, that now yields around $7 billion per year, right? without doing much. But also we created Tanner Gold that is now very small compared to the SDT.

Starting point is 00:28:52 But Theta Gold, if successful, would yield zero profits to that. The reason why we created that gold, and EBC would have told you or any HADDRED company would never have that die. Because why a company should create another product that could, if successful, cannibalize its entire profit margin? There isn't why we did that is simple. If someone has to do, every single company should build products that potentially will, could put out of business the company, because if they don't do it, someone else will do it.

Starting point is 00:29:23 And that's how we think about Tether. We should always challenge ourselves before challenging others when we build any piece of technology or every new product. And it's for the best of humanity. Again, we don't have you ops. We don't have plays. Who cares? I mean, we are simple people.

Starting point is 00:29:39 So we exceeded our expectations. We are going to use all our resources to build something that we will be proud of in the future. I want to get into this new announcement that you guys had about routing Tether on top of lightning that happened recently in El Salvador. This, as a Bitcoiner, this is exciting. I'm curious how you think through the reliability of the Lightning Network, whether you think that this is going to take much of your market share of the issuance of Tether. My understanding is that a majority of tether issuance is happening on Solana and Tron, and a smaller portion is on Ethereum.

Starting point is 00:30:16 And now you're going to start issuing tokens on the Lightning Network via the Taproot Asset Protocol. Talk to us about this decision, how you see this kind of playing out moving forward, mostly from an incentives standpoint. So when I'm thinking through the routing of this, I would think that it's just as fast as those other networks, but cheaper from a cost, from the user's standpoint, like if I'm going to route tether from a wallet that I have to yours over the Lightning Network, the fees associated with that, I would imagine, are significantly less than those other networks. And so do you see that incentive driving further adoption, or how do you see that kind of playing out?

Starting point is 00:30:54 Network is very in line. The structure, the core idea around Latin Network is to create peer-to-peer channel and some people. And you haven't been hearing me saying peer-to-peer multiple times in this discussion. So from a pure technological standpoint, if you want to scale to the world, right, it's always cute to make a technology that can serve 10 million people or 100 million people, but what if can that really scale to 7 million people and let's say 50 billion AI agents or machines in the next 10 years? So because we shouldn't only think about us as humans. If machine to machine payments are going to be fundamental and machines will do much more high frequency payments than us. And so can any existing technology sustain 100 billion

Starting point is 00:31:41 payments per day or 1 trillion payments per day? I think the only way from a pure technological perspective, I think there is no doubt it's anyone that says differently. I think they have, again, their incentives are wrong. The only way to do it is beer to beer is creating channels among people. The problem of blockchain layers, I don't even sign Bitcoin, but the problem with blockchain layers is that they have a single share state where every single node needs to know the entire state to make sure there is no double spending. That is incredibly inefficient. So even if you make the best layer one super fast with a very short long time and so on, that will not eventually be enough because there is always more need. There will be always more need for through. Then you

Starting point is 00:32:27 can say, well, then it will create a layer two, whatever, three, a layer four. The actual intelligent way to solve things is to create your fear chance, where why someone else should receive the status update of what a transaction and I'm setting to you, Preston, why they should care, right? As long as we have a way for us, you and me, to entrustly verify that I'm not cheating you and you don't cheat me, why someone else should care. And the fact that someone else now is involved in looking everything that the others are doing is what is limiting. Because if you even take Solana or Ethereum with all these faster chains, they still have a single

Starting point is 00:33:06 share state and that is very limiting. And the layer 2s are single sphere state as well, so they will be limited and so on and so forth. And their trade-off of these layer 2 is that they just reduce their security and they will concentrate validators, ended up with one single validator, so completely against the entire premise of decentralization of blockchains. The only way is going to appear. So what the thing will happen is that the USD3 is that the USD on Lightning will be for a very, very fundamental change, can actually take over all the machine-to-machine payments if properly implemented. That is where you need the most scalability.

Starting point is 00:33:46 And on top of that, though, is secured by the Bitcoin network. So on one side you have your channel that will use basically inputs and outputs on the Bitcoin network that is most secure network in the world. So even if there will be one trillion at USDT, on the Bitcoin network. It would be safe because the underlying economics of Bitcoin will be enough to make it to not create incentives for people to cheat the system and try to double spend or create issues with settling the channels, the Lightning Challenge.

Starting point is 00:34:16 So, in my opinion, is technologically is the right way to do it, peer channels on top of the Bitcoin network. Now, the question is how soon and fast people will realize the necessity. of moving to this layer. And so there will be a requirement of a lot with patient. Because in this moment, there is still little usage of blockchain technologies, but that will change in next year. So it's not evident yet, at least to normal people, it's not evident yet that there

Starting point is 00:34:47 is an issue or scaling issue that will become apparent in the future on standard blockchains. So it will need that creation will need patience to see that growing. That's part of my frustration with a lot of the discussions that are happening in government bodies right now is I don't think that they understand that point at all. And I'm just worried that they throw some of their weight behind some of these other protocols without really kind of understanding what sound engineering looks like 10 years from now. And those are going to be lessons of pain if they continue to lean into some of these other protocols, in my humble opinion. But yeah, that's really exciting. Have you guys issued anything on taproot asset yet? And

Starting point is 00:35:25 if not, when are you guys looking to do that? So we're in Steam Explorer remote, right? So the technology became available very recently so we'll need to do some very heavy bottle testing and so support but we took our decision as also as bit fennix and tenor we are supporting another problem local rchb kind of a similar ethos and philosophy just different type of implementation and the preconditions but we plan to support bitcoin tech and keep investing bitcoin tech i believe that i would say that tatter and bitfinex are probably the two with the full core funds we are the the three biggest investors in anything that is Bitcoin 10. Do you, with the recent acquisition there with Rumble where you guys have a controlling,

Starting point is 00:36:09 I think what I read it was about a $7 or $800 million deal and then you have a controlling interest in the company, would you say that this- It's not controlling? It's not controlling. Okay, I'm sorry. Would you say that this relationship is for kind of implementing some of your ideas with a whole punch technology into what they already have in order to kind of leverage the social graph that they've already built out? Or how would you describe that from a strategic sense, if you don't mind sharing how you guys think about it from that perspective?

Starting point is 00:36:35 So the investment is interesting. So Rumble will not share Rumble wallet. Not many people know that Rumble has a very peculiar user base. They have 70 million active users. They have basically the entire wealth of America, almost the entire wealth of America. They have, that through their channels who they were able to sell over the last two years, $800 million worth of gold, matching a Rumble wallet with Bitcoin could what could do. So that is one. On top of that, I think Rumble Cloud is a great product. And they build their own cloud solution because they were attracted by for such a long time

Starting point is 00:37:18 by the former establishment, Fibbushand down. Remember, when Parlor was shut down, they were threatened as well, but they survived because they had their own cloud solution. But there is a step further, using whole package technology to create a resilient video distribution network is going to be a game changer, I think, for companies like Ramble. So there are many things that we could develop within Rumble together. We have both great technologies within the two companies. And so the opportunity is just insane.

Starting point is 00:37:50 Even for the educational part of the Rumble wallet, educating people that you could have a nice simple wallet with Bitcoin and Stable Corners inside, without 80 Alcoin or puppet dumps, that would be a refreshing change, right? So that's how we are talking to things. We want to use all these investments as a way to educate people, but also building better technology. Let's take a quick break and hear from today's sponsors. No, it's not your imagination.

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Starting point is 00:41:25 charges, and expenses. This and other information can be found in the income funds prospectus at fundrise.com slash income. This is a paid advertisement. All right, back to the show. All right, I want to try to cover AI. And just for me to try to understand the comments that you had earlier because I find this really fascinating localized AI processing and then somehow networked with all the other localized AI processing in order to have a bigger, better model? Is that kind of what you were saying earlier, that we're basically able to leverage these various localized AIs in order to have a better collective response for harder questions? Is that my following you there with what you were saying earlier?

Starting point is 00:42:10 Kind of. So you have to see this from multiple points of view. So first of all, DeepSik was quite interesting and kinaries and entertained. The reason is that DeepSik, obvious is not a direct word and not say, oh, everyone could have done that. So the team behind Deep Sip is great. But the approach that they have is to a technological engineer should be the obvious one. It's divided and impure. So you don't have one single model that does everything and is a gigantic monolithic model, but you split the model in multiple that are more refined and more vertical. It's the concept of monolithic versus modularity is not new.

Starting point is 00:42:52 It's something that is very, very obvious. So it's just crazy that companies like Open AI, the fact that Open AI and the others didn't do that yet or in a proper way is just because they grew so much so fast. They prefer to workforce AI rather than actual do the right type of engineering. and intellectual, challenging work to make AI great and usable and sustainable for the future. They prefer to announce 500 billion dollars of investment in new data centers. So think about the increase rate. So how pure economic point of view.

Starting point is 00:43:26 You can hire 1,000 researchers paid $1 million change, right? That would be $1 billion per year. And you have 1,000 of the best researchers in the world. Or you can buy 15,000 GPUs. more with the same amount of money. What do you think is the best? It's already the most intelligent strategy. It's trying to buy another 15,000 GPUs to try to

Starting point is 00:43:48 broad force and just add a little bit of capacity, or trying to solve the problem in a better way. Of course, you should try always to solve the problem in a better way. That is exactly what dips it did. Rather than announcing terabytes of data centers, and millions of GPUs and so on. That is, it feels like really going back to the history of computing, like where you didn't know how to solve a problem, you just another other server.

Starting point is 00:44:15 But I think I'm not sure if in the last interview that we had on me, we discussed about one of my most preferred books is the Cathedral and Bazaar of Eric S. Raymond, that explains it from the 90th book explains the problem of operating systems that are building monolithically as cathedrals or operating systems and technology built in a more, more, more than a more modular way as bazaars. Cathedrals are beautiful, but if you remove one pillar, the cathedral will fall down. Instead, with bazaars, even if you bomb a bazaar, that will just move 50 meters away and will just reconstruct itself because it's made by people.

Starting point is 00:44:55 Bazaars are built on peer-to-peer interaction, people interaction. But cathedrals are just, you know, there is an architect and they cost 200 years to be of a lot of money, and you just need one pillar that is paid for everything to fall down. And so when DeepSig came out and people were screaming about this revolution, it is a revolution, but was the right way to approach technology and in AI development from the get-go. And so imagine if we could expand the concept of DeepSig, not just on single or multipurpose models, but imagine instead of having few verticals, you have an almost infinite number of models with an infinite number of models with an infinite. a peer-to-peer orchestration system without any central servers and with proper incentives

Starting point is 00:45:44 that, for example, imagine that you go to a university, a chemistry university where researchers are releasing research papers on new chemistry developments. The university could build a model that is super deeply trading chemistry with all the most advanced chemistry techniques and that to be part of this gigantic peer-to-peer network of a information. That is what internet. Actually, to me, that is internet, is what internet should have been from the beginning. A very beautiful cause will sparse amount of information that can be researched, that can be also sold, right? So you can have models that can be rented, or you can paper query on a model. The orchestrator could take care of routing payments across this infinite number of AI

Starting point is 00:46:35 agents to make sure that either everyone has the right incentives to have the best information always available within these models. But there is no way, even the amount of information that humanity creates, there is no way to create one single model. It's not sustainable. It will fail people eventually. But we believe that with our capital and with our technology, being open source, we are going to make it the right way.

Starting point is 00:46:59 It's kind of interesting that he is taking this path, the $500 billion that you're talking talking about and the Davis, Microsoft said that they were good for 80 billion and then, what was it, three days later? This DeepSeek thing came out. And for people that aren't intimately familiar with everything that we're talking about, so Deepseek did this for tens of millions of dollars, came out with a model. It's effectively comparable to GPT4O as far as the performance goes. And they did it for pennies on the dollar compared to where Open AI's at. What I really agree with you on, Paulo, is just this idea that in the fine-tuning, And that's really where I think they're going to be able to make the difference is by hiring more people that are going through because in the fine tuning stages.

Starting point is 00:47:43 So just so people understand AI, I'm going to break it down for you the best I can in like 30 seconds. You take all the data. You curate the data. You then go through the development of what's called a base model by compressing all this data. So imagine all the information on the internet. You're going to compress that down. You need GPUs to do this. And the chat GPT folks are saying, let's just compress this, the data on the internet.

Starting point is 00:48:05 internet even further by owning more and more GPUs to the tune of $500 billion worth of the GPUs. But then after you compress all of that data down, then you go into what's called the fine tuning phase of this where you're basically teaching it how to become an assistant. So you've got to take all that compression that happened on the internet. You then have to train it on another AI through this training, which has humans in the loop, people going through there saying this is what a proper response should look like. You do that hundreds of thousands of times. and then you apply that to this base model in order to come up with the AI.

Starting point is 00:48:38 And what Paul is getting at is he's saying that fine-tuning phase, let's say we want the model to be an expert in mathematics or an expert in biology or an expert in, you name it, specialty, spending and reinvesting in those areas to make the fine-tuning and even the curation of the data in the first place. Like, why are we taking all of the Internet's data on communications, the large language models and then applying it to the fine tuning of just biology. We should match all of the data, all the communications in biology to create a base model. Then we should do the fine tuning on biology with experts in the field. And we're going to come up with a way better solution than some

Starting point is 00:49:16 gigantic model that's plowing all this. And Paula, you're way better versed on this than me. So please correct me if I'm saying anything out of turn here or not correctly. But I think that's the gist of what you were getting at. Yes. And plus, what if tomorrow opening a audience appears? What if basically we create a society where every single person relies on chat chagipity and then something happens to open AI? As society, we are going through a change, also in the job market, rely more and more on AI. But if we rely on one or two companies to give us that AI, what if those two companies will

Starting point is 00:49:52 fail? Society will disrupt because suddenly people need to go back to square one and will be almost left-hanging because their skill set will change over time. The only way to make it helping society is to create resiliency in AI, making sure that models can run on a hedge device. Models, people should be able to train easy in their own models. People should be able to fine-tune their own models very easy. Their private information should remain theirs.

Starting point is 00:50:25 That is also another important part. And that when we will have that peer-to-peer network of AI agents, doesn't matter if companies come and go. People that radial in society that with rely on AI will be able to continue to use AI, no matter what. That's, again, very important. We cannot leave the future of our society, especially in such a very drastic change that will bring AI into the hands of a couple of companies.

Starting point is 00:50:53 That will end up badly. We need to empower people. empowered companies to retain control over their data. And even just think about data ownership. I saw an article that I was saying that meta, some employee meta took like 80 gigabytes or 80 terabytes. I don't remember the unit of measure of documents and books from Torrent. Like in the future, people will realize more and more that what the content that they're creating

Starting point is 00:51:21 will be just used and stolen by centralized AI companies to build better models. that we only serve the purpose of making more money for such companies. In the future, people realize that it's very important to build. If they will create content, they should own the content, and that content should be used to train their own models rather than someone else models. Help me understand just from a technical standpoint. If you're doing this localized, like the model that I'm downloading on my phone, I think from a storage standpoint will be okay.

Starting point is 00:51:52 But from a processing standpoint, from a GPU standpoint, for an advanced model, something that's giving you really good intelligence and responses. I would think that that would be really computationally intensive for call it a smartphone. Why is that wrong? So there are different ways to look at this. First of all, if you want to have a model that knows everything, sure, it will be very difficult because then on a smartphone, with a hatched, cutting hatch smartphone, might be able to run between three and seven billion parameters models.

Starting point is 00:52:19 You cannot run a 700 billion parameters model. But I think that what will happen is that, again, if you have instead, more, more, of dataization in terms of knowledge, and also if you have access to a peer-to-peer infinite network of knowledge, then you will seek the information from who has the best, and you can download specific models that will help you in that specific moment in time. So it's not that you will run the entire internet in your token, but you will have control over it. That is most importantly. You will know what's happening. The conversational part will remain because with one billion tokens, you can do a great, you can have a great, generic

Starting point is 00:52:57 commercial sational AI that of course will not have the entire intelligence of the world, but we'll know where to find it. That's really important. Do you find that the demand for GPUs at people's homes to conduct a lot of that processing and then shoot it back over to the phone? Basically, you're offboarding the processing to a localized GPU. I mean, you can do a lot of that through encryption. It doesn't even have to be at your house. Yeah, but keeping my that the GPUs on phones are becoming better and better. Everyone, now, if you compare an iPhone 10 with an iPhone 15 when it comes to GPU, it's like 20, 30 times more powerful. Yeah. And imagine what an iPhone will be, now that everyone is investing

Starting point is 00:53:37 AI in hardware, an iPhone 20 would be insanely powerful so that most of the tasks that you need can be done local. So I think that we are going to be at a point where you can have a local AI that does fine tuning on all your emails and all your charts and become your best pressing assistant. Now, the other option that I think will be very interesting and we are looking into that as well, and our technology already enables out the box is to have an AI box at home, like a sort of like Apple TV, but instead of focusing on TV, you have a GPU, a contain GPU from Nvidia, quite more powerful than what you would have on your phone that can offload

Starting point is 00:54:20 all the task of processing of your family's data, all the photos, tagging the photos of when you go on holiday with your children and all that. By the way, think about it. Right now, you are using someone else cloud services to tag all the photos and you categorize all the photos of your children's. That's kind of scary. Yeah. So you should use your own hardware because your hardware is already capable to do so. You should use backups that you own. And then if you want a further backup in cloud, you should do it in a encrypted way rather than giving all your clean and clear images to someone else. Again, you never know how that information will be used. Okay, real fast. So you guys are setting up shop in

Starting point is 00:55:01 El Salvador. That's where the company has been officially relocated to. I read that you guys are building a 70-story building in El Salvador and hiring, you're doubling your head count at the company, half of which will be people from El Salvador. Anything you want to add on here about moving the company to El Salvador? Al Salvador is a great place. It's a beautiful place. Every single time I go and I go there very frequently. I'm also citizens now in El Salvador.

Starting point is 00:55:30 I go there very frequently. Every single time, the city is more advanced, is cleaner. There are cranes and buildings are happening everywhere. The food is better. Like every, there is investment across the entire society. It's so fascinating to see it last. Sometimes you hear like, oh, Silepo developed over the last 30 years, 40 years. And back then you didn't have smartphones to document all that.

Starting point is 00:55:57 Sure, some TV crews were there and taking like documentaries. But now we live in the digital air. You can see the change. You can feel the change at the daily basis almost. And the Buckele is the representation of what an illuminated politician should be. I unfortunately, I believe in almost all my life in countries where politicians were not that great. Everyone was promising things and never, no change was ever happening.

Starting point is 00:56:25 When I saw Kere, I thought finally there is someone that actually can hold the title of politician and look himself in a mirror a single day. So I think it's very important to support Alessabador in this transition because we'll be an example for the rest of the world. Of course, Bitcoin adoption is great to have in the world. the country. But more importantly, I think the example that El Salvador-Paler safety when it comes to the change and the hope that they can bring to other countries is just incomparable. All right, Paolo, I want to stick to the time that I told you we were going to have the

Starting point is 00:57:01 interview complete. I really appreciate your time. Anything else you want to leave with the audience or things that you want them to check out as we close things up? Just stay tuned. I think that there will be many more announcements in the couple of weeks, all crazy things that we're developing. So just follow us. Well, I appreciate your time and love getting into the engineering stuff with you, as I'm sure people can tell through the conversation. But thank you for your time and coming on. Really appreciate it. Thank you for us and for having me. Thank you for listening to TIP. Make sure to follow Bitcoin Fundamentals on your favorite podcast app and never miss out on episodes.

Starting point is 00:57:39 To access our show notes, transcripts or courses, go to the investors podcast.com. This show is for entertainment purposes only, before making any decision consult a professional. This show is copyrighted by the Investors Podcast Network. Written permission must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - BTC223: Tether's 13.7 Billion in Profits w/ Paolo Ardoino (Bitcoin Podcast)

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