CD182: ALEX B - ARKADE

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Transcription provided by Podhome.fm
Created: 10/29/2025 11:20:58
Duration: 4686.1
Channels: 1

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What is up, freaks? It's your host Odell here for another solo dispatch

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live from Lugano

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well, in person from Lugano. Another non live audio only rip because the vibes are high.

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I got good friend

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and arch aficionado,

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Alex b here. How's it going, Alex? Well, it's good. Great great spot to be recording.

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I mean

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the listeners aren't going to be have the privilege to see this view, but,

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it's pretty kick ass spot.

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Yeah, man. Indeed. The vibes are high.

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Kicked off the week the week a couple of days ago with our

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arcade day launch,

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and,

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the feedback's been insane so far.

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So,

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it's it's still early,

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but I think

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I think the entire industry needed some validation that,

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there was indeed

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some sense of progress possible,

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technology,

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you know, technology wise without

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having to, you know,

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without needing soft force, without needing,

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all of these very complex bit VM type of fraud proof systems. And,

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I feel like we're finally you know, we we could've spent six more weeks

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pushing,

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the limits of, like, our implementation,

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polishing, polishing, making more tests before

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putting it out there. But at the end of the day, you know, we've

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we went live in Riga,

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for a test event,

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couple of months back.

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It went super well. We spent the last three months,

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you know, again, polishing, doing a lot of testing.

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But, ultimately,

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it's happening within the confine or, like, a circle of, you know, four, five, six devs.

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And so at the end of the day, you're getting to get this out there to the people, get them to play around. I I would very much say it's, you know, it's kinda like ARK's

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hashtag reckless moment right now.

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I mean, interesting comparison because

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I always

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I kinda always hated the lightning hashtag reckless.

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It's like bros. Like, you you just say hashtag reckless and I'm just like aping him with a ton of money. But,

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I I appreciate it. I like the idea of building in the open. I mean, so

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our I mean

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so I I thought this would be a good follow on conversation to my conversation with Francis. Yeah. Because he's very bullish on what you guys are building. Right.

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And

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because I've been watching from the sidelines for a bit, but my general premise in Bitcoin

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is that I ignore

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everything as hype Mhmm. Until I can actually use it in person.

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And you guys proved it out

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that it at least works,

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in Riga, and I wasn't there, but I saw it from afar.

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And Francis actually has it working in an experimental mode in his wallet, in the blue wallet.

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So, like, that's enough validation for me that, like, this thing's actually, like, functioning. Yeah.

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So, I mean, let let's just

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let's just jump high level first. Like, what is ARC

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and why should people care?

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Is this is this a replacement for lightning? Is this a new layer two for bitcoin that

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that that competes with Lightning? Like, how how should be people be thinking about it? Yeah. I think interestingly,

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if I were to only answer those two questions, I would say it's lighter, these two.

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It's certainly not a replacement for Lightning.

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And

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I,

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I mean, I have

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a pretty peculiar opinion as far as that's concerned, but I don't consider ARC

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itself to be a layer two.

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ARC is more so, I would say, a set of technology,

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a new protocol certainly,

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that has been introduced to Bitcoin,

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which we can use to build,

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layer twos.

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But what is ARC fundamentally,

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is

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the system that allows you to create

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off chain

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execution, meaning an off chain layer just like lightning is able to process transaction off chain.

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But what's truly unique about ARC

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is the way that it settles

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the transaction that are happening off chain

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into the layer one.

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And this is the concept of what we've been calling transaction batching.

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So

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instead of,

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for example, when you're using Lightning, you're closing a channel, you're putting a you're you're putting a transaction on chain,

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what we allow you to do

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is to settle

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potentially thousands

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and, of operation

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into a single output,

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but that single output

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is,

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coordinated

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between

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a large number of participants. So lightning is only two individuals

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creating channels,

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creating a channel between one another. Right. It's it's it's two parties doing a two of two multisig for batch Bitcoin transactions is lightning. Right? Exactly. Exactly.

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Whereas,

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with with with Arc,

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you have a a more of a multi party dynamic, but interestingly,

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it's also a two of two setup. Right? So what happens really is, like,

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think of ARC a bit, as you would just a contract where you deposit your money into,

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and the contract is sort of administered

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by, an operator, The ARC server, originally called the ARC service provider. Right. And that that operator,

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when,

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you deposit your Bitcoin into, that contract,

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will coordinate

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a batch transaction on chain. So that batch transaction will have an on chain footprint,

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and that batch transaction

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will create an output

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with spending restrictions.

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Okay. And

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your bitcoins

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that you deposited

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are going to be encountered by those spending conditions.

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There are two main spending conditions.

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One being a collaborative spending condition

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where you and the operator

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sign off on,

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the spending of your funds. Like a friendly close in lightning terms. I mean, it yeah. Exactly. Close. Close. Yeah. Exactly. It's well, in this case, it's not a close. It's just

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a method by which,

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you spend,

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your money. Because when you're doing a collaborative

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spend on ARC, you're not moving your money back on chain. You're actually collaboratives

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collaboratively spending

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your money off chain

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by way of the operator. Oh, but I'm staying off chain. You're staying off chain all the time. But collaboratively.

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Yeah. Exactly.

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Because

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what happens is the operator

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Wait. So let's say you're the operator. Correct.

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And I'm a user. Yes. And I'm paying another user. Yes.

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Me and the operator are signing to pay the user c. Right? Exactly.

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Exactly.

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So what happens is I'm going to and it works exactly like Bitcoin works. Right? Okay. So it's a system of inputs and outputs.

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So what you're gonna do is you're gonna have, once you've deposited your Bitcoin into that contract,

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what you get is this notion of virtual UTXO's. Right? Now you have a sort of abstraction of your on chain UTXO in this off chain environment. Okay. And you can spend it just like you've spent Bitcoin on chain. So you're gonna give me a VTXO as an input and you're gonna say I'm gonna send it,

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to my friend over there,

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and I'm gonna sign off on that transaction,

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and I'm going to create what gonna happen is we're gonna create a new output

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for,

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whoever you're sending the money to, the recipient. But you're also gonna have a a change output just like on Bitcoin. Okay. Right?

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And so

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that system allows you to continue chaining

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those off chain transfers

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in the same way. So once the recipient has his own virtual UTXO, which you've just sent to him, he can also

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send it to someone else. The operator is going to cosign

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and so on and so on and so forth. But what happens here, now it's really important to understand, of course,

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is that

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the,

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the reliability in these payments depends on the operator

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not signing conflicting transactions. Right? Okay. Because

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if you

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spend the same VTXO

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that you previously sent to a recipient

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and I double spend problem. I the yeah. Exactly. I, the operators

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say screw the recipient you previously send your money to,

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send your money to me now. Right. If I sign that transaction,

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then what happens is now we have two virtual UTXOs that, exist off chain. Right? That are spending the same original Bitcoin. Exactly. Exactly.

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So what's likely to happen

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is that,

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you know, you the original recipient,

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was double spent basically, but there's a bit of a race condition. Right? It's like who gets to put their money on chain first,

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but it's not an ideal scenario. Who settles?

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What's that? Like who settles first? Yeah. Exactly. It's who gets to put pull that money. It's really who settles not more more more like, in this case, if you're double spending,

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you're gonna want to bring that money on chain. Like, pull it out of the system completely.

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So this is also something that's viewed in a lot of ways as the state chain trust model. Right? Yeah. It's this idea that the previous sender

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can collude

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with the operator

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to again sign a conflicting transaction. Now

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the way there's different ways that we address this,

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with with ARC and specifically with our arcade implementation.

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One of the way that ARC generally is able to address this, unlike state state chains,

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is once you've received an off chain payment,

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you can treat it exactly in the same way that you treat,

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a zero call Bitcoin transaction. Right? Yeah. You can decide, okay. Actually,

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perhaps this payment is very valuable. It's a high volume a high amount transaction.

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I'm not gonna trust that payment

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until it gets confirmed into a block. Right. Now how do I confirm it into a block? Well, obviously,

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you could decide to bring that money back on chain,

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and turn it into a UTXO.

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But

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you have the option

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with the operator

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to include the payment you received into a new batch.

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So the operator is always

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creating batches of transactions because there are new people that are depositing money into the arcade contract. You're like anchoring it on chain. Exactly. Exactly. It's a it's a bit of a on chain commitment.

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But but so, I mean,

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Francis explained this to us. It's actually probably better

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so correct me if I'm wrong. I I think it's actually probably better than a zero confirmation

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Absolutely.

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On chain transaction. Because a zero confirmation on chain transaction, specifically if it's in a high fee environment,

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I'm more trusting who is paying me

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because they might immediately send a higher fee transaction to themselves or something. Right? And then a miner is just gonna be economically

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rational and just find a higher transaction fee. With this,

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if if you wanna cheat me, if the if the payer is trying to cheat me, I have a restaurant. We're in Lugano. There's, like, 300 restaurants that accept Bitcoin here. Yep. I'm at a restaurant, and I'm paying them a CHF120

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bill. Yeah.

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They they're just banking on the fact that the the payee, the person paying them Yeah.

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And operator

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of ARC

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isn't colluding

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to to fraud them. Right? It's a little bit different. Right? Like, the two parties would have to collude

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It's very in order to to,

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to make a fraudulent payment. Exactly. And it's very, very,

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different indeed as you explained because

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we expect miners to be economically rational. Yeah. And miners

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are a globally

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set of decentralized entities

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with which with whom you have no kind of contractual

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agreement. There is no sort of, like, business context

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where their

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revenue line, their cash flow depends

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on their trustworthiness.

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Right? Yeah. And that's completely the opposite for the ARC operator. Right? Yeah. The moment that the ARC operator attempts to collude with a a user to double spend a transaction,

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all of that is very transparent. Is there proof there's proof of fraud, basically? Exactly. It's immediately apparent to everyone in the system. And So the merchant could, like, publish a cryptographically verifiable proof that's, like, I got defrauded by this operator. Exactly. I mean, we put safeguards in place

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even within our own system where

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we actually have an architecture

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with Arcade where

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we separate

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the signer module, which we call the arcade signer, which is kinda like a separate module within the software stack Yeah. Whose role is only to cosign these transactions,

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and the rest of the operator stack

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operates in a different environment.

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So in theory, because, you know,

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there is the scenario where

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the operator is not necessarily malicious, but perhaps the operator was hacked or something. Right?

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And somehow someone is is trying to It's a very real scenario. Exactly. Exactly. So

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we try to isolate the signing environment

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to make it as secure as possible,

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but we have also plans for safeguards in place where the actual operator software

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is going to immediately

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notice

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if there's an attempt to double spend and ideally will shut down the entire system. Right? So then everything comes to a halt.

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But obviously,

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the the the neat thing with, something like our, Arc and Arcade

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is that if the whole system comes to a halt,

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at least

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every user

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has a unilateral spending path,

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to get their money back. Now, of course,

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in a scenario where,

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you know, the the system so, like, perpetually stops,

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then it's going to be a bit of a mess for people to kind of enforce

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their spending conditions on chain. Right?

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It's probably going to create a bit of a fee event. Do you know an Elphrat? What's that? Do you know an Elphrat?

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The Elphrat? Yeah. The she's her I just discovered her balcony's right there. Oh, okay. So we have a we have a I have Alex. I have Alex here. We're talking about art. Hi there. Hi. How are you?

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We have we're we're recording a podcast.

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You're on the podcast now. Is this the middle of a podcast? Yes. We're in the middle of a podcast. You're good. You're good. It's a pleasure to meet you. I don't think we've actually met in person. No. I mean, it was great. Fair enough. Well, we'll meet actually in person soon. Far as soon as There we go. To see you later.

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So, yeah, let's talk about

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yeah. By the way, Friggs, we're just sitting on a balcony in

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in Lugano,

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and,

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everyone's getting an education on Arc right now.

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I, yeah. So let's talk yeah. Let's talk about the so so the whole point of Ark,

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similar to Lightning,

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is that you have cheap,

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fast transactions

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for Bitcoin as a payments use case. I think that's, like, the main.

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Right? This is, like, the main I think this was the original intention. Yes.

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And it's certainly one of the one of the It's a key value prop. Right? I would argue it's not. I would argue it goes beyond that. I would say that the ability to make payments

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in a cheap and fast way is only one application.

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And this is kinda like the

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way this is where we,

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our collabs and and arcade, as our implementation

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of the ARC protocol,

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perhaps diverged a little bit from,

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I would say, the original,

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design, if you will, or kinda like the original vision.

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Because we were very much working towards implementing this, and as we were doing this, we realized, well, hold on. Like, this off chain environment

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is great, yes, to do cheap instant fast transfers,

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but it also allows you to do all kinds of interesting

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programmable

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setups,

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things that people were trying to do on Bitcoin originally

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by spending UTXOs

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with different script configurations,

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doing things like escrow,

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and and and doing things like, you know, okay, maybe a Satoshi dice that's not for everyone. It certainly does doesn't belong on chain. It's a bit of a waste of block space.

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But,

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ultimately,

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it's the ability to use the UTXO model and use Bitcoin in a way that is native, in a way that doesn't require

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putting your money into a bridge, putting your money into a side chain federation,

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maintaining the unilateral exit property,

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but building on top of that primitives that allow for a bit more

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versatility

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in terms of,

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programmable environment, in terms of Bitcoin finance.

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So a lot of ex you know, there's a lot of applications of that obviously we can we can get to. I get but there's a bunch of there's a bunch of there's a bunch of things to unfurl here. Yeah. Yeah. First.

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Okay. So,

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so the cool thing to me is and the freaks already know this if they listen to the rip with Francis is the cool thing is, for better or for worse, the ecosystem

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has kind of been built around lightning. So so the cool thing here is that you can use an Arc Wallet with Lightning swaps, and you don't have to deal with network effect or whatever. You get all the benefits of Arc, and then you're just automatically

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paying and receiving from Lightning and and settles in Arc. Right? So we get that going for us.

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But the number one thing

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and so so he's doing a similar setup to this with Liquid. Exactly.

294
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But the problem is with Liquid, you're reliant on the swap provider to be able to get out and get your Bitcoin out. And the cool The federation.

295
00:19:05.575 --> 00:19:07.355
Yeah. And one of the cool things about

296
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ARC is that I can exit without permission. Exactly. So can we just go real quick, like,

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00:19:13.815 --> 00:19:22.920
how does that look? Like, how do I how do I I've yeah. I've let's say, you know, you say hashtag reckless, but let's say I'm just reckless. I put in a Bitcoin. I'm trying to get my Bitcoin out.

298
00:19:23.380 --> 00:19:26.840
You know, I got a 100 I got a 120 a $110,000

299
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stuck in Arc. How do I get that money out? Yeah. I mean, it works exactly how lightning works, really.

300
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So like I mentioned to you before Yeah. When you're depositing

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your Bitcoin into that our contract, if you will, you're signing a set of spending conditions. Right? Yeah.

302
00:19:44.015 --> 00:19:49.110
The major one, the optimistic one is the collaborative one with the operator. Right? 99%

303
00:19:49.110 --> 00:19:53.690
of the times, the operator is gonna sign with Exactly. Yeah. But then the other one,

304
00:19:53.990 --> 00:19:58.365
you know, the emergency case one Yeah. Is the unilateral exit.

305
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So when you deposit your Bitcoin there, you sign a transaction

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that says, hey, I can put my pull my money on chain. It's like a pre signed It's a pre signed transaction. It's a pre signed transaction.

307
00:20:09.645 --> 00:20:11.105
No. You can spend it to,

308
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to to to really I mean,

309
00:20:14.070 --> 00:20:23.769
yeah. You you Am I delegating the address ahead of time? Is my wallet delegating the address ahead of time and saying this this on chain address is my exit address or something? Not necessarily. No. Not necessarily.

310
00:20:24.149 --> 00:20:27.370
You can what you do what happens is you can spend that output,

311
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the share of that output, right? Yeah. That that what we call the batch output. You can then spend it however you want to.

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And so, you know, that's basically the gist of it is you have a pre signed transaction which you can which is a valid transaction

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that has been mined into a big And the operator could be offline like And the operator could be completely offline

314
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just like your channel counterparty could be offline or your LSP could be offline.

315
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The only caveat,

316
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What's the caveat? The caveat is that What's the catch?

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There is

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potentially more transactions. So it's not only a single transaction. So I'm paying huge fee burden? Is that what it is? I mean, yes.

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I mean, it depends really how big,

320
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the

321
00:21:14.880 --> 00:21:27.825
because all your transaction is basically in the tree of transaction. Right? It uses taproots. Right? Right. So There's a shit ton of transactions in in one transaction. Exactly. When you're putting your money in that contract and sending spending those signing,

322
00:21:28.465 --> 00:21:29.925
signing those spending conditions,

323
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there are other people that are doing the same thing at the same time. So you're collaborating

324
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in a big

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transaction with the operator

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and other people.

327
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So depending on how many people are in that transaction,

328
00:21:45.260 --> 00:21:49.635
in that on chain transaction with you, you might have to put, you know,

329
00:21:50.115 --> 00:21:52.295
from three to eight transaction

330
00:21:53.235 --> 00:21:59.975
on Oh, not a ton. Not a ton. I mean I mean, again Is it like a thousand transactions or Well,

331
00:22:01.075 --> 00:22:01.575
theoretically,

332
00:22:02.355 --> 00:22:12.580
it could be a thousand transaction. Yeah. But that's something that's manageable because basically what happens, right, is when you're spending your money off chain,

333
00:22:13.200 --> 00:22:14.740
you're creating a new vtxo.

334
00:22:15.920 --> 00:22:24.675
So you're expanding the tree, Right? Initially, you have a an, a tree that is inscribed that is, you know, committed to on chain in that original transaction.

335
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And then as you're spending

336
00:22:27.215 --> 00:22:27.875
your VTXOs

337
00:22:28.175 --> 00:22:34.650
off chain, you're expanding the tree further, but it only exists off chain. But every additional step

338
00:22:35.430 --> 00:22:40.410
creates an additional transaction potentially. Right? Okay. So you're chaining those transactions,

339
00:22:41.430 --> 00:22:53.485
and it is the case that you could be adding to the cost of unilateral exiting. But this is also why this notion of anchoring is important. Right? Because you can build your applications and your wallets

340
00:22:53.945 --> 00:22:57.485
so that the wallet is going to recognize

341
00:22:58.345 --> 00:23:04.850
that eventually the depth of the transaction chain is too large, and this is creating a risk where,

342
00:23:05.230 --> 00:23:09.810
yes, if you have too many transaction to publish, it might actually be on an on economical

343
00:23:10.670 --> 00:23:23.355
to actually get out. Right? It's like you're trying to spend 5 you have a $5 UTXO, but now it costs you $20 to spend on on change. Which is fine. I think that's a fine trade off. Yeah. Well, yeah. I mean, that trade off exists in lightning as well. Yeah.

344
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And so Yeah. You can't have, like people are like, oh, the beauty of lightning is like I'm receiving

345
00:23:29.530 --> 00:23:33.070
five sats or whatever. But you can't. Yeah you can't economically

346
00:23:33.370 --> 00:23:36.830
enforce that on chain. Exactly. And so what happens is

347
00:23:37.210 --> 00:23:39.950
by way of being able to periodically

348
00:23:40.330 --> 00:23:47.885
incur again So basically you have think of it as like you have a UTXO set that exists off chain, right? Right. And you're making a bunch of transactions

349
00:23:48.665 --> 00:23:53.965
and then your UTXO set evolves over time but eventually you want to have

350
00:23:54.300 --> 00:23:59.440
better assurance. Right? You don't wanna have this dependence on the operator for security reason,

351
00:23:59.740 --> 00:24:01.440
but you also don't wanna have,

352
00:24:01.900 --> 00:24:10.685
an increase in cost of your potential unilateral exit. So what you do is you take yours your set of UTXO's off chain, your VTXO's,

353
00:24:11.625 --> 00:24:12.925
and you commit them

354
00:24:13.465 --> 00:24:20.950
by joining a batch. Right? So again, the the operator is creating batches all the time. You tell the operator, hey, I wanna commit my UTXO

355
00:24:21.410 --> 00:24:23.190
to, to to Bitcoin.

356
00:24:24.130 --> 00:24:25.510
I'm gonna join the batch.

357
00:24:25.970 --> 00:24:29.830
And then by doing that, you get a fresh set of UTXOs.

358
00:24:31.330 --> 00:24:36.615
Obviously, it's the same exact amount that you put in settled. That you put in minus some fees,

359
00:24:37.554 --> 00:24:42.215
and that is now settled. That's exactly we we call it a settlement process.

360
00:24:42.595 --> 00:24:45.174
And by doing that, you remove the security dependency,

361
00:24:45.635 --> 00:24:46.534
but you also

362
00:24:47.475 --> 00:24:48.934
don't have any chain

363
00:24:49.410 --> 00:24:54.790
transaction anymore. So you have a set of VTXOs that haven't been spent in the past,

364
00:24:55.090 --> 00:24:55.830
and therefore,

365
00:24:56.370 --> 00:24:59.510
you know, maybe now instead of adding eight transaction

366
00:24:59.810 --> 00:25:09.465
to put on chain 10 transactions, you're back to to e four. Right? So you can always kinda, like, periodically do this, and it doesn't have to be, like, an active process.

367
00:25:10.004 --> 00:25:16.024
The wallet The wallet solution is consolidated. Exactly. I was talking to Francis, you know, they have this, model

368
00:25:16.470 --> 00:25:16.970
in,

369
00:25:17.350 --> 00:25:18.010
in liquid

370
00:25:18.470 --> 00:25:18.870
with,

371
00:25:19.510 --> 00:25:25.130
so like they've graduated wallet model. Right? Where if you have if you have too much money in liquid,

372
00:25:25.590 --> 00:25:26.090
eventually

373
00:25:26.630 --> 00:25:39.825
this the wallet is going to kinda like auto swap to an on chain balance. Yeah. To protect you against that exposure. I like that. So you can create the same type of model with ARC where if you have too much exposure to the operator,

374
00:25:40.205 --> 00:25:45.265
you're going to swap, you're going to settle into the next batch, and now you're clean again.

375
00:25:46.030 --> 00:25:47.070
I like that. I,

376
00:25:48.350 --> 00:25:48.850
okay.

377
00:25:51.630 --> 00:25:54.850
I mean, one of the cool like, in practice, like, the

378
00:25:56.270 --> 00:25:57.010
in practice,

379
00:25:58.155 --> 00:26:01.295
we're just giving everyone with a balcony a free podcast.

380
00:26:01.915 --> 00:26:03.055
In in practice,

381
00:26:03.995 --> 00:26:04.735
you have

382
00:26:06.235 --> 00:26:12.895
the user like, the user's wallet's gonna automate a bunch of this stuff. Exactly. Right? They're not even gonna be thinking about this.

383
00:26:13.730 --> 00:26:15.510
That's probably the coolest part.

384
00:26:17.090 --> 00:26:18.150
So I just wanna

385
00:26:19.170 --> 00:26:23.830
flip the script a little bit. Like, a lot of the people that listen to the show are

386
00:26:24.690 --> 00:26:27.315
developers and they're building product. Yeah.

387
00:26:27.794 --> 00:26:29.254
And they're thinking about

388
00:26:29.715 --> 00:26:31.414
the issues with building

389
00:26:32.514 --> 00:26:36.855
self custody lightning wallets. It's very difficult. I think lightning has

390
00:26:37.475 --> 00:26:44.110
clearly found product market fit as, like, this kind of glue that Yeah. Connects different wallets together

391
00:26:44.809 --> 00:26:46.670
and this, like, standard interoperable,

392
00:26:48.010 --> 00:26:51.470
protocol that allows you to pay and receive very easily.

393
00:26:52.090 --> 00:26:54.110
You know, if you're gonna pay from, like,

394
00:26:56.035 --> 00:26:58.295
Stripe to River to Binance,

395
00:26:59.075 --> 00:27:14.740
to or to Primal or something, it just fucking works. Yeah. And you just know it's gonna you know it's gonna work. But at the end of the day, when, like, the actual builders are trying to, like, make a self custody experience, it's very, very difficult. Yeah. And so a lot of them are looking currently at Spark

396
00:27:15.200 --> 00:27:16.020
Yeah. And,

397
00:27:16.320 --> 00:27:18.340
probably to a lesser extent, Arc.

398
00:27:18.960 --> 00:27:21.460
I think there's a lot of excitement about Spark.

399
00:27:22.080 --> 00:27:30.115
So what is your to to the builder out there, to the person who's, like, building a wallet, what is the how should they think about the differences between

400
00:27:31.135 --> 00:27:31.635
Spark

401
00:27:31.935 --> 00:27:38.400
and Arc? And this is, like, me also dog feeding my own question because I've been thinking about this a lot as well. Sure.

402
00:27:38.860 --> 00:27:41.680
I I mean, I would say the major difference is,

403
00:27:42.780 --> 00:27:45.200
what we've been discussing. Right? Is the

404
00:27:45.660 --> 00:27:48.480
security model underlying the entire system.

405
00:27:48.895 --> 00:27:49.715
So in a

406
00:27:50.015 --> 00:27:54.035
way, we share a lot of similar properties. Right? The off chain transfer

407
00:27:54.495 --> 00:27:56.115
of our v t x o's

408
00:27:56.495 --> 00:27:59.955
is the exact same security model as the off chain transfer

409
00:28:00.255 --> 00:28:01.075
of Spark

410
00:28:01.920 --> 00:28:07.700
Bitcoins. Right? They don't call it GTXs but it's kind of the same. Right? It's pretty much more or less the same.

411
00:28:08.240 --> 00:28:12.740
Where the major difference lies really is that once you're in Spark,

412
00:28:13.520 --> 00:28:14.340
you're perpetually

413
00:28:14.800 --> 00:28:17.035
exposed to the operator dependency

414
00:28:17.415 --> 00:28:17.915
of

415
00:28:18.375 --> 00:28:20.155
trusting that he does

416
00:28:20.615 --> 00:28:24.635
not double spend your Bitcoins. But is it not the same trust model?

417
00:28:25.015 --> 00:28:27.835
Where is the trust model breakdown compared to ARC?

418
00:28:28.295 --> 00:28:30.875
Well, the difference with ARC, right, is that

419
00:28:31.530 --> 00:28:32.510
depending on

420
00:28:33.290 --> 00:28:33.950
the application

421
00:28:34.330 --> 00:28:37.150
or depending on the value you're receiving,

422
00:28:38.090 --> 00:28:39.310
you have the option

423
00:28:39.610 --> 00:28:40.350
to settle.

424
00:28:40.810 --> 00:28:44.350
But doesn't doesn't Spark also have unilateral exit or no?

425
00:28:44.995 --> 00:28:48.294
Spark has unilateral exit, but unilaterally exiting

426
00:28:48.595 --> 00:28:50.215
is fundamentally different

427
00:28:50.995 --> 00:29:08.670
than having the ability to settle. Because when I'm settling Yeah. I'm not exiting the system. You're staying in the system, but you're getting better security guards. Is that what's happening? Exactly. Exactly. So Spark is like almost all it's like all or nothing? Is the Spark difference in that regard? Spark Spark is either you trust the operator

428
00:29:09.850 --> 00:29:12.910
or you go back on chain. Or you exit. You exit completely.

429
00:29:13.534 --> 00:29:20.755
Which obviously, I think, ultimately the option, you know, I think we're building those systems because we imagine that eventually

430
00:29:21.294 --> 00:29:22.835
the cost of exiting

431
00:29:23.294 --> 00:29:26.595
is going to be rather prohibitive. Expensive. Yeah. It's gonna be expensive.

432
00:29:27.360 --> 00:29:30.420
So for me that's kind of like the major difference.

433
00:29:31.680 --> 00:29:32.820
Something else that,

434
00:29:33.600 --> 00:29:36.180
for I think builders that are a little more,

435
00:29:38.160 --> 00:29:39.460
I don't wanna say ideological

436
00:29:39.840 --> 00:29:41.460
but kinda like conscious

437
00:29:41.760 --> 00:29:42.260
of

438
00:29:43.915 --> 00:29:44.415
the

439
00:29:45.515 --> 00:29:46.495
sort of holistic

440
00:29:47.595 --> 00:29:50.255
parts of the Bitcoin system is that

441
00:29:50.555 --> 00:29:52.015
when you consider a system

442
00:29:53.035 --> 00:29:57.490
like Spark where you're moving that money off chain Yeah. You're transacting

443
00:29:58.110 --> 00:30:02.610
all the time but you're not, you know, ideally you're not going back on chain. Right?

444
00:30:03.070 --> 00:30:06.129
But the problem is there is no feedback mechanism

445
00:30:06.429 --> 00:30:06.929
between

446
00:30:07.389 --> 00:30:08.370
the off chain

447
00:30:08.750 --> 00:30:11.955
and the on chain layer. And what I mean by that

448
00:30:12.255 --> 00:30:13.315
is that spark

449
00:30:14.015 --> 00:30:28.809
creates little to no demand for the Bitcoin block space. No on chain burst. That's a benefit and a curse. Right? I mean Depending on how you look at it. If you're if it depends on who's paying the the cost of this block space consumption, of course.

450
00:30:29.350 --> 00:30:31.450
But in a way, for the system,

451
00:30:32.070 --> 00:30:32.809
it ultimately

452
00:30:33.110 --> 00:30:34.250
is a bit of

453
00:30:35.190 --> 00:30:36.890
a downside. Right? Because

454
00:30:37.270 --> 00:30:39.049
you would expect to have something

455
00:30:39.590 --> 00:30:40.090
that

456
00:30:40.955 --> 00:30:42.015
sure does not

457
00:30:42.395 --> 00:30:44.095
require a single individual

458
00:30:44.875 --> 00:30:45.775
to effectively

459
00:30:46.155 --> 00:30:50.975
pay the security budget of Bitcoin. Right? Right. Because we all know that's very unlikely to happen.

460
00:30:51.515 --> 00:30:52.015
But

461
00:30:52.315 --> 00:30:55.295
you have this expectation that these layer twos

462
00:30:56.120 --> 00:31:04.300
are going to kind of, like, feed back some sort of economic demand. Like, even with Lightning, like, every Lightning channel is an on chain transaction.

463
00:31:04.600 --> 00:31:08.520
Right? At least two it's probably two on chain transactions, an open and a close. Yeah.

464
00:31:09.400 --> 00:31:12.515
But the interesting thing that we're seeing seeing with Lightning,

465
00:31:13.295 --> 00:31:20.355
we all had this notion that sure, as Lightning gets more popular, indeed, it's going to result perhaps in more,

466
00:31:21.215 --> 00:31:22.435
you know, on chain,

467
00:31:23.455 --> 00:31:26.595
like channel opening, channel closing, kind of rebalancing

468
00:31:26.975 --> 00:31:27.475
operations,

469
00:31:28.390 --> 00:31:28.970
and all of

470
00:31:29.350 --> 00:31:39.370
that. But what we're, I think, noticing right now. Right? Because I think Lightning has never been more popular than it is. Yeah. Regardless of whether you wanna make the case that a lot of the usage is custodial.

471
00:31:39.670 --> 00:31:40.730
Mhmm. There is,

472
00:31:41.590 --> 00:31:42.250
there is

473
00:31:42.725 --> 00:31:44.505
significant adoption of Lightning.

474
00:31:44.965 --> 00:31:46.745
But what we're seeing is that

475
00:31:47.525 --> 00:31:48.985
when you think about the optimal

476
00:31:50.405 --> 00:31:51.465
use of Lightning,

477
00:31:52.565 --> 00:31:54.025
you know, it's a bidirectional

478
00:31:55.045 --> 00:31:56.025
channel system.

479
00:31:56.669 --> 00:32:04.590
And the sort of mathematically optimal use of that those channels is perfectly balanced. Right? There's people receiving and sending. People

480
00:32:04.990 --> 00:32:05.809
each counterparty

481
00:32:06.190 --> 00:32:09.090
is receiving and sending to the other counterparty

482
00:32:09.885 --> 00:32:11.105
equally. Right? Yeah.

483
00:32:13.005 --> 00:32:17.585
And because the only reason why you would need to do channel closer

484
00:32:18.125 --> 00:32:19.665
or reopening channel

485
00:32:20.285 --> 00:32:21.105
or rebalancing

486
00:32:21.740 --> 00:32:28.640
is because you have an imbalance. One side is paying too much. Exactly. Saving too much. And this was the case early on with Lightning.

487
00:32:29.020 --> 00:32:33.600
We had a we forced a lot of applications, a lot of use cases into these

488
00:32:33.995 --> 00:32:35.295
sort of very convoluted,

489
00:32:36.395 --> 00:32:37.375
lightning network,

490
00:32:38.795 --> 00:32:41.695
flows where all the money was going in one direction.

491
00:32:42.315 --> 00:32:45.855
And then that node is sucking up all of the liquidity in the network.

492
00:32:46.270 --> 00:32:48.610
And the only way for that node to redistribute

493
00:32:49.230 --> 00:33:00.530
or rebalance is to hit on chain Yeah. And then and then generate transaction. But now we're getting to a a stage where I think the lightning network is getting getting a lot more healthy.

494
00:33:00.875 --> 00:33:01.855
We have better

495
00:33:02.635 --> 00:33:06.415
balanced relationship between those channels. And as a result,

496
00:33:06.795 --> 00:33:08.415
it actually doesn't create,

497
00:33:08.955 --> 00:33:11.935
on chain demand. Right? Well, those are because, like, the

498
00:33:12.810 --> 00:33:21.230
the b cashers were kinda right. Like, we have kind of hub and spoke to Oh, yeah. No. A 100%. No. The b casher were absolutely correct in that. And, like,

499
00:33:21.610 --> 00:33:22.590
they're like,

500
00:33:23.210 --> 00:33:26.030
like, async can manage liquidity better than

501
00:33:26.985 --> 00:33:30.425
me managing my lightning. Oh, I mean, yes. Exactly. So,

502
00:33:31.065 --> 00:33:32.125
so you know, this

503
00:33:32.425 --> 00:33:39.405
But yeah. So like so so what the result is you just don't see that much on chain activity from the lightning channel. Exactly. Exactly.

504
00:33:39.769 --> 00:33:44.669
And so But you still see some. I mean, it's paying for a bit of a negative thing. You still see some. And to be fair

505
00:33:44.970 --> 00:33:45.450
with,

506
00:33:46.169 --> 00:33:47.629
with something like Spark,

507
00:33:48.970 --> 00:33:49.789
you also

508
00:33:50.490 --> 00:33:55.485
Yeah. What would the on chain activity be on Spark? Basically, they need to create also kinda like,

509
00:33:56.585 --> 00:33:57.725
fees settlement transactions?

510
00:33:58.105 --> 00:34:02.445
There's there's I mean, it's not exactly what I would call settlement transactions.

511
00:34:03.145 --> 00:34:04.445
But with state chains,

512
00:34:05.625 --> 00:34:09.180
at least for now without, you know, covenants or anything like that,

513
00:34:09.579 --> 00:34:11.839
but eventually the state chain expires.

514
00:34:12.300 --> 00:34:15.359
Okay. Right? Because the state chain is based off fresh?

515
00:34:15.660 --> 00:34:18.559
Yeah. Yeah. The state chain is based on decrementing

516
00:34:18.859 --> 00:34:19.599
time locks.

517
00:34:19.980 --> 00:34:26.435
Mhmm. And eventually, you run run out of time to decrement. Right? So they need to kinda, like, swap

518
00:34:26.815 --> 00:34:28.435
this into a a new,

519
00:34:29.695 --> 00:34:30.275
a new,

520
00:34:30.735 --> 00:34:34.915
state chain tree, if you will. Mhmm. But that is kinda very minor,

521
00:34:36.655 --> 00:34:44.140
sort of footprint on How often are they doing that? I I don't know how often they're doing it right now. So how often is how often is Arc hitting the chain?

522
00:34:44.600 --> 00:34:52.400
Well, I mean, at the moment, you know, we're just bootstrapping, so it's it's negligible right now. But what I envision, what we envision Yeah.

523
00:34:52.840 --> 00:34:54.375
What I envision is that,

524
00:34:54.775 --> 00:35:06.955
Arc is going to be Arcade is going to be a significant driver of demand for Bitcoin block to the tune of So is Arcade the company? Creating transaction. No. So ArcGods is a company. Okay. But ArcGid is the implementation

525
00:35:07.575 --> 00:35:14.400
of Arc. This comes back down to what I was saying earlier. Right? Is that Arc is not a layer too because Arc is not a network.

526
00:35:14.700 --> 00:35:16.800
Like Lightning is a network. Right?

527
00:35:17.260 --> 00:35:17.760
Arc

528
00:35:18.140 --> 00:35:21.180
is more like and this is going to require some,

529
00:35:22.275 --> 00:35:28.855
knowledge outside of Bitcoin, but ARC is more like roll ups. Okay. Roll ups and Ethereum and other networks

530
00:35:29.315 --> 00:35:33.895
are a same kind of architecture like ARC. They are client and server

531
00:35:34.480 --> 00:35:43.060
sort of system. Right? Okay. All a massive users connect to the same server and interact with each other. The servers keep in the state. Exactly. Exactly.

532
00:35:43.600 --> 00:35:44.500
And so

533
00:35:44.880 --> 00:35:52.175
just like roll up is not the layer two, the layer two is base from Coinbase. Right? The layer two is Arbitrum,

534
00:35:52.715 --> 00:35:54.255
the layer two is OP

535
00:35:54.555 --> 00:35:55.055
Optimism.

536
00:35:55.915 --> 00:36:00.734
So in the same way that there is going to be different Arc implementation,

537
00:36:01.115 --> 00:36:02.175
there is the guys

538
00:36:07.760 --> 00:36:10.099
also their own flavor of a layer too,

539
00:36:10.480 --> 00:36:14.260
but if they call it Arc, it's going to be a little bit confusing

540
00:36:14.905 --> 00:36:37.750
because ultimately ARC is the technology underpinning the so they might I mean, their own reference implementation is called bark. So maybe they call it bark. Right? And there's So we're gonna have ARC, it's bark and Well, I I mean, so the one of the reason why we also kinda not pivoted, but, you know, when all in in the arcade direction is we felt then that we were able to kinda, like, own our entire narrative

541
00:36:38.290 --> 00:36:44.585
and kinda, like, control That's why you keep saying arcade, arcade, arcade. Arcade. Yeah. I mean, it's important for us because all like I said, ARC

542
00:36:44.885 --> 00:37:01.569
has evolved quite a bit from what it was originally proposed as and what we feel like is the best application of it. But Okay. But I interrupted you. I interrupted you. So on and I'm gonna interrupt you to find people that I've interrupted you. Yeah. So how often do you think

543
00:37:02.349 --> 00:37:05.170
at scale, like, how often is an ARC operator

544
00:37:06.270 --> 00:37:11.170
I think your name? I I I think the ARC operator is going to be creating commitment transaction

545
00:37:12.135 --> 00:37:12.635
every

546
00:37:13.335 --> 00:37:14.155
five seconds.

547
00:37:14.535 --> 00:37:22.395
Oh, shit. So, like, a bunch of block. Oh, so we're gonna be filling, like, the the the the the shit out of the block, you know? Because basically,

548
00:37:23.255 --> 00:37:27.435
depending on what the user is doing That's interesting. I mean, you know, all ultimately, globally,

549
00:37:27.830 --> 00:37:31.930
you know, and what I'm talking about is a is a perspective where, like, you know, we have

550
00:37:32.230 --> 00:37:39.690
a a fucking a trillion dollar economy in arcade. Right? Right. Right. And so what happens then is you have different set of users, different set of applications

551
00:37:39.990 --> 00:37:42.255
that are all looking to settle

552
00:37:42.635 --> 00:37:44.255
their off chain balance

553
00:37:44.555 --> 00:37:47.375
at different times. Right? But does that not get prohibitively expensive?

554
00:37:47.994 --> 00:37:51.535
No. Because you're advertising the cost of settlement across,

555
00:37:52.715 --> 00:37:57.120
a 100 A billion users or something. No. Well, not not a billion. Hundreds or thousands of users.

556
00:37:57.580 --> 00:37:59.600
So so when you're creating one batch.

557
00:37:59.900 --> 00:38:22.210
Right? Yeah. Right now and it's so it's still early days. But right now, you know, we're we've been able to do test. We haven't necessarily pushed the limits, but we're feeling pretty confident about adding, for example, like, around a 100 user in a single batch. So it's a 100 user that are splitting the cost of a single on chain transaction. No. That's not bad. That on chain transaction is a vanilla

558
00:38:22.510 --> 00:38:23.010
Taproot

559
00:38:23.950 --> 00:38:29.170
one out one input two output transaction. Right? So it's it's very cost efficient

560
00:38:29.869 --> 00:38:37.875
and, you know, obviously No. Yeah. So that's not that bad. Yeah. Exactly. And that's the big thing like if you get CTV or something, that would be cheaper. Right?

561
00:38:38.734 --> 00:38:42.994
It would not really be cheaper. No. So what is the soft fork change?

562
00:38:44.015 --> 00:38:45.395
The soft fork change,

563
00:38:46.655 --> 00:38:48.755
it depends who you ask. But

564
00:38:49.530 --> 00:38:50.030
really,

565
00:38:51.050 --> 00:38:52.030
from our perspective,

566
00:38:52.730 --> 00:38:54.670
what it would allow us is

567
00:38:55.210 --> 00:38:58.110
probably a little less overhead. So, yes,

568
00:38:59.370 --> 00:39:03.630
you know, we'd probably be able to squeeze a bit more people in, like, a batch.

569
00:39:04.065 --> 00:39:05.525
Per transaction. Per transaction

570
00:39:06.145 --> 00:39:07.365
because we're also removing,

571
00:39:09.345 --> 00:39:09.845
like,

572
00:39:10.704 --> 00:39:12.165
a round of communication.

573
00:39:12.545 --> 00:39:28.589
Okay. Right. Because when we're creating that transaction, the operator say, hey, I'm creating a batch. Who wants to join that batch? Right? And then the users say the user register for that batch. Right? So it's almost like a coin join coordination. Right? Yeah. Like the user has to be online. There is exactly. There's there's some interactivity

574
00:39:28.890 --> 00:39:30.109
required there. Right?

575
00:39:30.410 --> 00:39:32.109
And so it as anything

576
00:39:32.435 --> 00:39:33.815
that involves interactivity,

577
00:39:34.355 --> 00:39:38.855
if you introduce a covenant soft fork, then you're removing some of the interactivity.

578
00:39:39.234 --> 00:39:48.560
So they might not have to be online to be a part of it. They're gonna be online they have to be online to kinda, like, declare their attempt to join the batch and specify the settings,

579
00:39:49.100 --> 00:39:52.080
but they're not going to have to stay online as long

580
00:39:52.540 --> 00:39:54.640
to wait for the feedback from

581
00:39:55.100 --> 00:39:58.080
the because all they're gonna do is they're gonna sign the transaction.

582
00:39:58.460 --> 00:40:00.795
And because we have covenant, they're gonna say,

583
00:40:01.194 --> 00:40:05.775
this is a transaction that I want. This is the output that I wanna give my take care of it. And

584
00:40:06.075 --> 00:40:12.415
the operator is not gonna be able to change any of that. Either he takes it or leave it. Mhmm. And then that that's over. Whereas

585
00:40:12.875 --> 00:40:21.020
with the, you know, without Covenant, there's a bit more interactivity. We really don't think that it's a big deal because, ultimately, it's also, like,

586
00:40:21.560 --> 00:40:22.220
the interactivity

587
00:40:22.600 --> 00:40:24.060
is a problem if you're

588
00:40:24.600 --> 00:40:27.100
thinking of your set of users as strictly

589
00:40:27.585 --> 00:40:40.085
users that are on mobile phones, maybe with spotty connections and whatever. Yeah. Absolutely, those those users exist and, you know, there's gonna be a need to create solutions, improve the efficiency of the system

590
00:40:40.385 --> 00:40:42.565
to better address this.

591
00:40:43.080 --> 00:40:43.740
But ultimately,

592
00:40:44.040 --> 00:40:47.820
especially for what we're building which goes beyond, you know, retail payment,

593
00:40:48.440 --> 00:40:58.155
really, it's very possible a large set of our users are actually people running servers already. Really? Why? I mean, for example, think of Nobody runs servers.

594
00:40:58.855 --> 00:41:07.755
No. That's not true. I mean, a lightning node is a I know. I hate it. We don't wanna run lightning nodes. Well, we don't wanna run lightning node. Well, we don't wanna run lightning node. But lightning node infrastructure provider,

595
00:41:08.470 --> 00:41:09.550
right, can use

596
00:41:09.990 --> 00:41:15.050
So they're running it. So they they might be running a server, but So if I'm using Bullwala,

597
00:41:16.390 --> 00:41:17.690
they're running the server.

598
00:41:19.510 --> 00:41:31.224
Well, I mean Is that what you're thinking in your head? I don't know which server you're Well, no, no. I'm saying it's still early, but I'm saying in a year in five years or whatever, if BullWallet is using ARC,

599
00:41:31.845 --> 00:41:33.545
and I'm using Bull on mobile

600
00:41:33.845 --> 00:41:41.780
Yeah. You're saying they're running the server? The ARC server? Whatever. I don't know. The interactivity that you need on the Verizon server. No. I mean,

601
00:41:42.800 --> 00:41:47.700
they're going to run a piece of software on their server that will allow you,

602
00:41:48.045 --> 00:41:49.025
yes, to perhaps,

603
00:41:49.565 --> 00:42:10.589
get that the mitigation is what I'm saying for the loudness? Like, is that how you're thinking about it? Or Yeah. There are things like that. I mean, I'm on the average user isn't actually gonna be running a server. Like No. No. No. No. There's zero expectations that the average user is running a server. They're gonna be on mobile actually probably. Like, if you wanna talk about, like Yes. Yes. And no. It depends on the a 100,000,000, a billion people using Bitcoin, they're gonna be running it on mobile. They're not gonna be running

604
00:42:10.890 --> 00:42:12.670
it, server twenty four seven.

605
00:42:13.130 --> 00:42:16.010
Yes. But that is only the perspective of,

606
00:42:17.369 --> 00:42:23.435
only a section of the market that we're building for. Right. Fair enough. A part of our market is also going to be market makers creating,

607
00:42:24.375 --> 00:42:41.530
markets Like, DeFi shit. DeFi stuff. Right? Yeah. And the DeFi stuff guy is going to have a desktop running. Most likely, he's never gonna turn it off. Okay. So let's talk about the DeFi stuff because we've been mostly talking about payments. Yeah. Like, what do you see there? I mean, there's a lot of low hanging fruits. Right? We're thinking about, like, just Bitcoin back loan.

608
00:42:42.230 --> 00:42:43.930
Obviously, you can do that on chain in very sort of, like, conventional multi signature escrow if you wanna get a little

609
00:42:44.869 --> 00:42:45.369
more

610
00:42:50.285 --> 00:42:53.345
Huddle Huddle or something. Exactly. Huddle Huddle, Debitfy,

611
00:42:53.645 --> 00:42:54.145
Firefish,

612
00:42:55.325 --> 00:42:56.625
and and all of them,

613
00:42:57.485 --> 00:43:04.069
or you can do DLCs if you feel a little more fancy, you know. Yeah. Like, what Lava is doing. But ultimately,

614
00:43:04.450 --> 00:43:06.869
you know, when you're instantiating those contracts,

615
00:43:07.250 --> 00:43:14.069
you're required on chain block space. Eventually, that's going to be prohibited. It's getting expensive. It's getting expensive. Obviously, if you're processing

616
00:43:14.825 --> 00:43:16.765
a loan for, you know,

617
00:43:17.464 --> 00:43:20.125
1 Bitcoin or like $5,000,000,

618
00:43:20.585 --> 00:43:24.684
maybe not a big deal. Right? Right. I'll pay a $30 fee. I don't give a shit. Exactly.

619
00:43:25.224 --> 00:43:26.525
Exactly. But ultimately,

620
00:43:27.050 --> 00:43:33.710
there's also kinda like the experience around the instantiation of the loan. Right? If you wanna create a consumer retail application

621
00:43:34.490 --> 00:43:38.750
where you don't wanna have to get the user to wait, you know, for

622
00:43:39.050 --> 00:43:40.109
a block confirmation

623
00:43:40.810 --> 00:43:41.790
to get his,

624
00:43:42.905 --> 00:43:50.285
you know, whatever. They're borrowing US dollar. They wanna you know, they have to wait right now to for the confirmation. UX billing. Exactly. Exactly.

625
00:43:50.585 --> 00:43:52.765
So in ARC, we have this instant

626
00:43:53.065 --> 00:43:55.980
execution environment that allows us to address this.

627
00:43:56.460 --> 00:44:10.735
But it gets even more interesting. Do you think the end user in that situation is running a server? Like, I'm taking a $10,000 loan running a server. Right? No. There's no need for that to run a server. Okay. Yeah. Absolutely zero need for that to to run a server. Server. The only thing running the server is the ARC server.

628
00:44:11.035 --> 00:44:13.215
Right. That's the server that that

629
00:44:13.515 --> 00:44:14.975
everyone connects to. Okay.

630
00:44:15.355 --> 00:44:24.470
So I I can I confused that for a second? I was a little bit Yeah. No. When I yeah. No. When I meant when when I when I said server, I just meant, like, you

631
00:44:25.810 --> 00:44:31.349
you know, the different clients, you know. So you have clients connected to the the client can be also

632
00:44:31.730 --> 00:44:43.035
like a node, you know. The client can be Like, maybe running on a start line or something. Yeah. So yeah. Exactly. Someone that's running a start a start nine. So they're not running the Arc server software,

633
00:44:43.894 --> 00:44:57.830
but they have a device that's always on is what I meant. Right? And it's connecting to their phone or whatever. It's it could be connected to their phone. Exactly. Right? You could have this kinda like watch tower. You could operate your own watch tower. Again, I don't expect most people to do that. Right? Right.

634
00:44:58.790 --> 00:45:02.010
But so yeah. Loans is an interesting case.

635
00:45:02.390 --> 00:45:05.050
And, you know, we can get even more,

636
00:45:05.990 --> 00:45:07.370
fancy with that because

637
00:45:07.725 --> 00:45:13.745
when we're introducing with ARC, in Arcade really is that because we have this off chain environment

638
00:45:14.365 --> 00:45:16.625
that operates outside the confine

639
00:45:17.165 --> 00:45:18.305
of Bitcoin consensus,

640
00:45:19.325 --> 00:45:23.600
we have the ability to enforce spending conditions that are not available

641
00:45:24.220 --> 00:45:27.760
on Bitcoin. Right? Okay. So what we're doing is we're actually introducing

642
00:45:28.220 --> 00:45:32.480
op codes that don't exist on Bitcoin. Okay. We're using the server to enforce

643
00:45:33.025 --> 00:45:33.845
spending conditions

644
00:45:34.465 --> 00:45:35.445
and, you know,

645
00:45:35.825 --> 00:45:38.805
you can think of anything like from UpCats to whatever.

646
00:45:39.505 --> 00:45:42.005
In reality, what we're doing is direct introspection.

647
00:45:42.305 --> 00:45:48.120
Right? So it's more like what the the opcodes that are already on liquid right now. Yeah. So we're getting rid of the inefficiency of

648
00:45:49.880 --> 00:45:50.780
op cap because

649
00:45:51.160 --> 00:46:01.420
op cap is just yeah. Sure. You can do everything with it, but it's actually the the least efficient ways to do it. So we have op codes and script components that allow us to design systems

650
00:46:02.365 --> 00:46:03.345
where, for example,

651
00:46:04.525 --> 00:46:05.265
we can,

652
00:46:07.005 --> 00:46:08.625
if you have a loan market

653
00:46:09.005 --> 00:46:09.505
Yeah.

654
00:46:09.885 --> 00:46:12.385
We can actually create a secondary market

655
00:46:12.845 --> 00:46:13.905
for the collateral

656
00:46:14.780 --> 00:46:15.680
of the

657
00:46:16.060 --> 00:46:27.280
of of the of the users that are taking loans. So you can kinda like say you you've given a loan or whatever, you can trade those loans positions and to the average person that doesn't mean anything.

658
00:46:27.580 --> 00:46:38.065
But in the financial world, this is exactly how these things work. Right? These kind of like loans, these kind of structured products And then they're like a liquid secondary market Exactly. For loans. Exactly. Exactly.

659
00:46:39.585 --> 00:46:44.805
And so Interesting. So this is this is strictly for loans. So do you think that's a bigger market than payments?

660
00:46:45.140 --> 00:46:47.000
Oh, absolutely. A 100000%.

661
00:46:47.460 --> 00:46:49.800
At least in the short to medium term. Right?

662
00:46:50.420 --> 00:46:53.400
I think Or just in general? No. I I think in general.

663
00:46:54.180 --> 00:46:58.760
I think in general. Because I really So it's more like a financial derivatives protocol.

664
00:46:59.845 --> 00:47:06.345
Yeah. I mean, that's what DeFi is. Right? DeFi is financial derivative. And I think the big, big, big,

665
00:47:07.285 --> 00:47:08.905
breakthrough from that respect

666
00:47:09.205 --> 00:47:10.585
is the fact that actually,

667
00:47:11.285 --> 00:47:15.490
the it is the cycle of financial derivative. It is the cycle of financialization

668
00:47:15.790 --> 00:47:21.150
of Bitcoin. Right? When you look at Bitcoin treasury companies and what Michael Saylor is doing

669
00:47:21.630 --> 00:47:26.690
okay. So there's two components to what Michael Saylor has been doing. Right? One which had

670
00:47:26.990 --> 00:47:27.810
kinda like

671
00:47:28.825 --> 00:47:35.885
Ponzi like seemingly Ponzi like dynamics for quite a while, which is this notion that he would just accumulate Bitcoin

672
00:47:36.505 --> 00:47:37.965
and raise more capital

673
00:47:38.345 --> 00:47:46.089
via ATMs or via Yeah. So he's talked about Bitcoin. And and then there's just like perpetual, like, this this flywheel they call. Right? Mhmm.

674
00:47:47.270 --> 00:47:47.770
But,

675
00:47:48.790 --> 00:47:49.930
interestingly enough,

676
00:47:50.230 --> 00:47:55.290
I think the markets mature and the markets also realize that this this strict accumulation

677
00:47:55.670 --> 00:47:57.369
flywheel was not enough

678
00:47:57.805 --> 00:47:58.465
to command,

679
00:47:59.085 --> 00:48:09.825
an actual higher and not meaning, you know There shouldn't be a premium. So should There should I mean, there should not be a premium strictly off of that. So then it becomes a conversation around, okay, how do you leverage

680
00:48:10.240 --> 00:48:12.640
your balance sheet. Right? Right. You have 600,000

681
00:48:12.640 --> 00:48:14.740
Bitcoin. What do you do with it? Exactly. And this

682
00:48:15.280 --> 00:48:20.820
is The perpetual credit Yeah. The exactly. The preferred stocks where you're creating

683
00:48:21.120 --> 00:48:23.860
fixed income financial instruments that are collateralized

684
00:48:24.240 --> 00:48:24.900
by Bitcoin

685
00:48:25.525 --> 00:48:26.665
that allow people

686
00:48:26.965 --> 00:48:28.025
in the fiat markets

687
00:48:28.405 --> 00:48:32.425
to get exposure to a certain asset that gets them a certain amount of yield

688
00:48:32.805 --> 00:48:33.865
with strong,

689
00:48:34.965 --> 00:48:37.865
you know, backing assurance. So when you think about I mean, ultimately,

690
00:48:38.890 --> 00:48:48.030
regardless of, okay, this is happening in TradFi. We don't necessarily approve with all of the Right. Mechanism behind it. But it's like, yeah, if you have a product that you're you're telling,

691
00:48:48.330 --> 00:49:08.390
someone you're gonna get them 10% yield and this product is collateralized by five x Bitcoin. It's probably pretty damn safe. Right? Yeah. So what they're creating is You're busy after assume that Bitcoin is going to zero or it has no Bitcoin. Or that it's just gonna stall and not grow. Right? Yeah. And what what this is really is credit. You know, more than more than derivatives,

692
00:49:09.170 --> 00:49:17.590
what this is is the the emergence of credit on top of Bitcoin. Right? And I think credit And so ARC is the protocol version of that in a way? I mean,

693
00:49:18.290 --> 00:49:25.985
ARC ARC is ARC is the ARC is the the the financial stack, the technology stack that can enable people to create credit instruments

694
00:49:26.765 --> 00:49:27.905
without requiring

695
00:49:28.605 --> 00:49:30.145
the counterparty risk

696
00:49:30.605 --> 00:49:31.105
architecture

697
00:49:31.405 --> 00:49:32.225
that TradFi,

698
00:49:33.005 --> 00:49:35.985
requires. Right? Because sellers coins ultimately

699
00:49:36.840 --> 00:49:43.260
are It's like six different layers of counterparty risk. Well, exactly. Say they're like a on coin base. Right? And all of that. Whereas

700
00:49:43.560 --> 00:49:45.660
I was having this conversation with Preston

701
00:49:45.960 --> 00:49:49.660
when he came to our arcade day and he was like, what if you have an on chain treasury?

702
00:49:50.040 --> 00:50:08.430
What if you have a contract that is able to create so there's Seller has this, this product that's SDRC, right, Stretch. Yeah. So what if you have a contract where anyone in the world can deposit their bitcoin to it, they preserve you in a lot of low So I guess synthetic stable coin, basically. That's exactly what it is. No. But, like, I mean, people

703
00:50:10.010 --> 00:50:12.670
the problem is is that it's so

704
00:50:13.130 --> 00:50:13.630
obfuscated,

705
00:50:15.369 --> 00:50:22.095
that it's actually way more than just trusting Coinbase. Right? Like, you're trust if you're interacting with it, first of all, you're like trusting your brokerage,

706
00:50:22.395 --> 00:50:25.454
then you're trusting Coinbase, then you're trusting like executive leadership,

707
00:50:26.555 --> 00:50:36.539
MicroStrategy. There's multiple layers of counterparty risk Yeah. In the current setup. No. Exactly. And you can't reduce that significantly. Exactly. Because the game here, if you're introducing credit,

708
00:50:37.400 --> 00:50:40.380
with all things credit is like what is the credit worthiness

709
00:50:41.079 --> 00:50:49.175
of that product. Right? Yeah. And in the TradFi system, the credit worthiness is basically rubber stamped by companies like Moody's

710
00:50:49.555 --> 00:50:55.415
and all these rating agencies, right, that have access perhaps a little bit more, but still remains

711
00:50:56.115 --> 00:50:57.175
super opaque,

712
00:50:58.035 --> 00:51:11.109
you know, financial states. You know, like, so they but again, like you said, there's so many layers of counterparty risk that it's hard to get an accurate pricing in the market. And they've focused on Moody's book about 02/2008. Exactly. Exactly. Exactly.

713
00:51:11.410 --> 00:51:13.750
Whereas if you have an on chain structured product,

714
00:51:14.234 --> 00:51:45.635
it's all there in the open. Like, so you can evaluate the credit risk, you can evaluate the technology risk, and you can make, you know, a a judge. So I'm not saying obviously these things are not for everyone. Right. Right? The average person is probably not to have to gonna have to be concerned with any of this. I would recommend everyone to just buy it. It's, you know Stammable Stacks hats. Stammable Stacks hats. Right? But there are people that are dealing, you know, with specific financial situations where they need to hedge their risk in one way or another. They wanna get you know, what if you just wanna get exposure to NVIDIA,

715
00:51:46.095 --> 00:51:54.434
but you don't you don't wanna have to buy the equity? Because you you currently exist outside, you know, you only have Bitcoin. You ex you exist outside

716
00:51:54.760 --> 00:51:59.420
of the TradFi system. You don't wanna pull your Bitcoin into a bank account to have to buy Nvidia.

717
00:52:00.280 --> 00:52:02.060
Well, what if you can find a counterparty

718
00:52:02.920 --> 00:52:11.345
that's going to collateralize a product that's going to give you immediate exposure to, Nvidia? That product is gonna attract the, NVIDIA stock price

719
00:52:11.645 --> 00:52:14.065
and it's gonna be collateralized with Bitcoin.

720
00:52:14.685 --> 00:52:22.385
So in a way, you're able to ride whatever wave you want wave you wanna ride but, you know, without ever having to

721
00:52:22.685 --> 00:52:38.930
go through the equity purchase product. So we think that's kinda like Injection. The we think this is something that the arcade can do. And again, yeah, sure. It's probably more interesting for large financial institutions and things like that. But ultimately, I mean, there are things where

722
00:52:39.845 --> 00:52:43.144
because like you said, the idea of a synthetic stable coin,

723
00:52:43.525 --> 00:52:54.000
like maybe there's a case to be made. Like we're in Lugano, we're in the home of Tether. What if Tether decides and one of the I I tweeted about this and I think it's fascinating to think about because you look at Tether

724
00:52:54.380 --> 00:53:05.040
who is dominating the stable coin industry at the moment. Yeah. It's like not even caught. Yeah. And one of the thing that is truly special about them is that every competitor that is trying to catch up with them

725
00:53:05.340 --> 00:53:05.805
are,

726
00:53:06.684 --> 00:53:07.585
creating those

727
00:53:08.365 --> 00:53:14.305
systems where they're sharing the yield, right? They're they're they're they're sharing a portion of the yield they get from the treasury

728
00:53:14.684 --> 00:53:22.090
because they wanna incentivize people to To use it. To use their stable coins so that they can grow. Because otherwise, they're just gonna use Tether. Whereas Tether,

729
00:53:22.390 --> 00:53:29.850
they're not sharing so if you use USDT, you're not getting any of your They're all business models that keep the They're keeping everything. Yeah.

730
00:53:30.230 --> 00:53:35.370
But then, what if Tether decides, okay, I also wanna create a system where,

731
00:53:36.525 --> 00:53:37.185
the users

732
00:53:38.285 --> 00:53:53.880
have some sort of yield. Right? I think I wanna share the wealth with them, but I don't wanna touch my treasury yield. Yeah. Well, they have a balance sheet of I don't know how many tens of thousands of Bitcoin. They have over a 100,000 Bitcoin. So they can move that to arcade,

733
00:53:54.500 --> 00:53:56.040
create a synthetic stablecoin,

734
00:53:56.420 --> 00:53:58.280
which actually is not really a stablecoin.

735
00:53:58.820 --> 00:54:07.105
It's, think of it like a neobank. Right? You're depositing your money into that account, and it's a savings product. Right. You get USD denominated

736
00:54:07.565 --> 00:54:12.065
tracking. Right? So it's a stable account balance that tracks USD.

737
00:54:12.845 --> 00:54:13.345
But

738
00:54:14.045 --> 00:54:19.530
what happens is because, you know, this is collateralized by Bitcoin and Bitcoin appreciates in price,

739
00:54:20.010 --> 00:54:20.670
they can

740
00:54:21.050 --> 00:54:24.090
you know, what if Bitcoin has a CAGR of 35%

741
00:54:24.090 --> 00:54:29.630
and they give you new 7% in interest? Right. And they keep Right. Yeah. So if you're strictly interested

742
00:54:30.010 --> 00:54:47.405
in hedging maybe your Bitcoin holdings or for people, you know, that are. So what I what I think is gonna happen is, yes, I fully expect stable coins, normal treasury TBL backed stable coin to continue growing. There's a full trust in TBL. You're gonna have you're gonna have a dynamic where people like Tether are going to be able to collateralize

743
00:54:48.350 --> 00:54:50.030
synthetic stable coin,

744
00:54:50.510 --> 00:54:51.010
systems

745
00:54:51.390 --> 00:54:53.650
that are going to be perhaps as interesting

746
00:54:54.110 --> 00:54:56.290
and perhaps even more than,

747
00:54:57.230 --> 00:54:59.090
you know, the the normal USDT.

748
00:54:59.390 --> 00:55:00.850
So you have two different

749
00:55:01.275 --> 00:55:06.255
dynamics there. And, I mean, I don't know how it's gonna play out, but it's gonna be super interesting.

750
00:55:06.714 --> 00:55:09.855
That's interesting. Okay. I'm gonna change gears real quick.

751
00:55:13.115 --> 00:55:13.855
So so

752
00:55:14.289 --> 00:55:17.430
you have a company called Arc Labs. Yep.

753
00:55:17.730 --> 00:55:19.509
And that's who's paying your salary.

754
00:55:20.130 --> 00:55:20.630
Correct.

755
00:55:21.170 --> 00:55:22.950
What's your role at Arc Labs?

756
00:55:23.329 --> 00:55:26.710
Head of ecosystem. Head of ecosystem. H o e. Okay.

757
00:55:27.809 --> 00:55:28.369
What is

758
00:55:29.645 --> 00:55:38.704
so that's a for profit business. Right? Absolutely. And then arcade and everything else is open source, fully open source stack. Right? Correct. So what is the business model?

759
00:55:39.645 --> 00:55:45.109
Do you have a business model for our guests? I mean What is the business model? Well, I mean, if you think about Arcade

760
00:55:45.410 --> 00:55:49.670
and, the way that it's currently structured, we are the one operating the operator.

761
00:55:50.450 --> 00:55:51.670
We're running the operator.

762
00:55:52.210 --> 00:55:53.750
And so, for example,

763
00:55:54.295 --> 00:55:55.675
when you're running the operator,

764
00:55:56.215 --> 00:55:57.835
you're earning a portion of the fees,

765
00:55:58.775 --> 00:56:08.795
specifically when it comes to settlement. Right? Okay. So we expect the off chain transfers to be practically free. Right? Because this is just the database update. So that's not really a money maker.

766
00:56:09.150 --> 00:56:10.530
Well, the off chain execution

767
00:56:11.069 --> 00:56:15.010
is not necessarily a money maker. Okay. But what happens is

768
00:56:15.390 --> 00:56:20.289
when you're when users are settling, right, because there's this liquidity component that we haven't,

769
00:56:21.115 --> 00:56:32.895
discussed. Right? With with with Ark and with Arkage, which is Which is liquidity component. Yeah. The liquidity component is when the users are settling, when we're creating those batches. Yeah. The person that is putting up the collateral,

770
00:56:34.250 --> 00:56:35.790
you know, creating that on chain transaction

771
00:56:36.250 --> 00:56:43.869
and the associated Bitcoin in that UTXO is the operator. Right. Right? So he's using his own liquidity. And so that liquidity,

772
00:56:45.930 --> 00:56:46.670
is effectively

773
00:56:47.545 --> 00:56:51.565
an opportunity to, you know, you need to charge an interest to the users

774
00:56:51.945 --> 00:57:00.365
that are, you know, using this system. Right? So you get so like a Bitcoin native yield. Right? Mhmm. So you're able to capture value in that way.

775
00:57:01.150 --> 00:57:11.090
What does that look like? What does it it looks like a transaction fee is what it looks like? It's a transact yeah. For the user it's a transaction fee. And it's like what, like the 1% range or something like that? No. It's gonna be probably,

776
00:57:11.790 --> 00:57:13.170
much smaller than this.

777
00:57:14.234 --> 00:57:18.654
Okay. But you think it just scales? There's just so many transactions. Exactly. It's gonna scale with volume.

778
00:57:19.275 --> 00:57:22.575
It's going to it's going to have different profile. It's almost like,

779
00:57:23.194 --> 00:57:23.694
because

780
00:57:24.075 --> 00:57:33.500
imagine I create a batch because, again, that's the other thing we didn't think talk about. And Probably, we shouldn't because this is getting into the details, but there's an expiry aspect. Right? Okay.

781
00:57:34.040 --> 00:57:39.420
And so depending on the batches that you create, it's just like in anything in finance. You have different,

782
00:57:39.880 --> 00:57:43.339
durations. Right? So if the operator has to,

783
00:57:44.165 --> 00:57:46.425
tie up his money into a batch for

784
00:57:46.805 --> 00:57:47.625
six months,

785
00:57:48.805 --> 00:58:01.210
then they're going to charge a higher interest rate because, you know, that liquidity is locked up for longer. If it's short, then that interest rate is going to be smaller. Right. Because then the moment that this batch expires,

786
00:58:01.510 --> 00:58:16.045
they get their liquidity back. They can do you redeploy it. Right? So I mean, it's it's very hard to model exactly how it's gonna play out. Right? Because it's a market. It's impossible to predict how, people are gonna use it. But that is one of the fundamental,

787
00:58:16.905 --> 00:58:19.485
revenue model for for our collabs.

788
00:58:20.105 --> 00:58:20.845
And ultimately,

789
00:58:21.385 --> 00:58:24.300
you know, obviously, certainly it's an infrastructure play as well.

790
00:58:24.860 --> 00:58:26.240
Those are difficult.

791
00:58:27.580 --> 00:58:28.960
They they are, you know,

792
00:58:29.580 --> 00:58:31.280
quite a challenge to monetize,

793
00:58:31.660 --> 00:58:48.365
but I think in a way, you know, and me coming from, you know, originally having worked at Blockstream Yeah. In the early days and, you know, the the original promise of of Blockstream is kinda like this this red hat type of model Yeah. Open source model. Well that was the first thing I thought of when you said infrastructure. It's like the red hat model. It's it's basically

794
00:58:49.065 --> 00:58:50.365
what I hope

795
00:58:50.700 --> 00:58:53.920
happens and, you know, no shade to the Blockstream people, but

796
00:58:54.220 --> 00:58:54.800
I think,

797
00:58:55.820 --> 00:58:57.440
ultimately, I think our class

798
00:58:57.900 --> 00:58:58.400
succeeds,

799
00:58:59.900 --> 00:59:00.400
where,

800
00:59:01.099 --> 00:59:05.655
you know, Blockstream perhaps was not able to, which is kinda like

801
00:59:06.615 --> 00:59:09.275
It's something on, like, the liquid side. Right? Exactly. Exactly.

802
00:59:10.775 --> 00:59:11.275
But,

803
00:59:12.055 --> 00:59:20.715
And what does that look like? That looks like b to b support contracts and stuff like that? Or Yeah. Exact I mean, there are there's interesting ways, you know, it's still early days.

804
00:59:21.240 --> 00:59:27.260
And right now we're gonna be the run running the arcade operator. Yeah. But it's also possible that,

805
00:59:29.480 --> 00:59:30.540
like, say a JPMorgan

806
00:59:30.920 --> 00:59:34.035
comes knocking through our door and say, hey, like, we like your tech,

807
00:59:34.515 --> 01:00:04.555
but, you know, we don't want you guys to be running our We wanna operate it. Yeah. We wanna operate it. Right? Yeah. So then what happens is, yes, you have like a kinda like a service contract agreement where, like, you're deploying, you're maintaining the infrastructure with them, you're advising them on all of that, and they run the operator and it's something like that. Right? But they still want you to kinda manage it. Right? I mean, you I mean, maybe they have a team also internally that manages it, but it's also, like, you know, you're you're creating, you're innovating, you're contributing back. Right? Exactly. I mean, to be clear here, I think

808
01:00:05.494 --> 01:00:07.994
the holy grail would would be

809
01:00:09.815 --> 01:00:12.555
for you to be a sustainable profitable business

810
01:00:12.855 --> 01:00:21.339
that manages an open source protocol. Like, that's fantastic. Because, like, I've I've been in the trenches raising charity charity funding for

811
01:00:21.640 --> 01:00:38.505
for open source software, and it's difficult. It's like a never ending grind. Right? No. No. No. Exactly. I'm a capitalist. Like, ideally, you have a sustainable Yeah. But it's gonna be hard. It's gonna be a hard grind. Well, I mean, we have another there's also there's another component because we're fully convinced of the challenges of this and Yeah. One of the thing that we also

812
01:00:38.965 --> 01:00:39.945
sort of realized

813
01:00:40.485 --> 01:00:41.685
very early on is that,

814
01:00:43.470 --> 01:00:51.010
the most, you know, when you look at the end of the day at the outside of the Bitcoin industry and the crypto industry in general, so the most popular

815
01:00:51.310 --> 01:00:55.010
platforms, some of the most popular products, the most successful ones

816
01:00:55.415 --> 01:00:58.795
have been the ones that also launched with some sort of like,

817
01:00:59.895 --> 01:01:23.180
what you would call like a flagship product. Right? Yeah. So think of something like hyper liquid. Yeah. Right? There's kind of like the hyper liquid blockchain with no one really used. And the hyper crushing like the actual Hyper liquid is the flag ship product and they're just printing money, right? It's like bid max on chain, right? Yeah. Or so imagine exactly. Exactly. So imagine So is that actually on an it's on their own l one? They have their own chain?

818
01:01:23.775 --> 01:01:25.315
Yeah. But, you know,

819
01:01:25.615 --> 01:01:31.795
it's, it's it's I feel like it kinda came out of nowhere. It's it's a it's a it's a blockchain that's run by, like,

820
01:01:32.414 --> 01:01:33.234
like, 10 validators.

821
01:01:33.615 --> 01:01:35.234
Right. It's like Tron. Yeah.

822
01:01:37.040 --> 01:01:45.060
So But anyway, your point is is like they have this BitMex that runs on the chain and that's what everyone Exactly. No. But yeah. Exactly. So my point is it's important

823
01:01:45.920 --> 01:01:54.015
to have a vision of like what is the best application of the technology that we're building. Right? Because if you're building this entire software stack,

824
01:01:54.474 --> 01:01:59.135
it should be especially us. I think and that that I think that was also kinda like where,

825
01:01:59.515 --> 01:02:01.855
you know, Blockchain has been struggling

826
01:02:02.474 --> 01:02:03.454
is they were,

827
01:02:04.040 --> 01:02:05.180
you know, fundamentally

828
01:02:05.560 --> 01:02:06.060
technologist,

829
01:02:06.520 --> 01:02:11.500
engineers They're like little too many engineers about it. They were like, we're not gonna build the apps. Exactly.

830
01:02:11.880 --> 01:02:14.140
Exactly. Other people can build the app. Whereas whereas

831
01:02:14.840 --> 01:02:23.045
our background, when you think about, Tierro, Marco, and the the, like, Kooks now who's our CTO with BTC based server,

832
01:02:23.585 --> 01:02:48.065
like, we have some sense of protocol design and we're developing the the back end, but we're also very much product people. Right? So we we think that because we have an intimate knowledge of how the system works, we also should have the ability to build the best applications on this system. You can monetize that app instead. Exactly. So one of the thing that we're thinking about quite a lot is actually bringing back back, what Marco started with Fuji on,

833
01:02:48.845 --> 01:02:51.165
on on on Liquid, which Fuji was,

834
01:02:51.885 --> 01:03:04.140
the basis, the foundation for Bitcoin backed stable coin. Yeah. But it was based on this synthetic product model. Right? Which could apply which they originally productized to apply to the Bitcoin backed stable coin,

835
01:03:05.000 --> 01:03:06.460
but which we can use

836
01:03:06.839 --> 01:03:12.540
to build an entire financial stack. So our thinking is like okay, what if we find a couple of partners

837
01:03:13.065 --> 01:03:14.845
and we build the next

838
01:03:15.385 --> 01:03:20.925
the true next Bitcoin backed NeoBank. Right? Yeah. Where I mean, you know what I would like

839
01:03:22.025 --> 01:03:40.880
and take this with a grain of salt, like a a proper Bitcoin Poly Market competitor. Like a prediction market. Exactly. Like, I feel like art could be ideal for that. A 100%. We have, like, we have, like, a design, like, scraps of design to how to Like, I've been waiting for prediction markets for Exactly. Fucking a decade. And then, of course, like, it's a Polygon

840
01:03:41.715 --> 01:03:48.515
project that, you know, defines product market fit. Well, what you need, you know, what you need, to to be able to do this is these,

841
01:03:49.155 --> 01:03:53.015
these liquidity pool, primitives. Right? These these AMM primitives.

842
01:03:53.395 --> 01:04:00.750
And you haven't been able market maker primitives. Yeah. So you haven't been able to do to get that in a in a way that is, you know, Bitcoin. Again,

843
01:04:01.050 --> 01:04:06.670
sometimes I hate to use that word, but really I don't know the better alternative, but like Bitcoin native, like close to Bitcoin.

844
01:04:07.130 --> 01:04:09.405
It doesn't require counterparty risk.

845
01:04:09.805 --> 01:04:11.005
And we're able to do that,

846
01:04:11.645 --> 01:04:12.385
on on arcade.

847
01:04:12.925 --> 01:04:28.580
You know, it's on the road it's on the road map. I don't know if we're gonna be the one building it, but yeah. These are the kind of things that we think of it. I think that could be a killer product. There are when you think about it, there are really like I I think I can count like in a single hand or perhaps two, the amount of actual

848
01:04:29.680 --> 01:04:30.180
defi

849
01:04:30.960 --> 01:04:32.100
products and services,

850
01:04:33.920 --> 01:04:35.535
with product market fit.

851
01:04:36.095 --> 01:04:36.595
Right?

852
01:04:37.535 --> 01:04:38.595
And a lot of these

853
01:04:40.335 --> 01:04:42.755
involve, like, a very small set of

854
01:04:43.055 --> 01:04:43.555
technology

855
01:04:43.855 --> 01:04:47.375
premiums. What is it? It's like stable coins, loans Uniswap.

856
01:04:47.855 --> 01:05:00.590
100 x Just swapping. Pressing the 100 x x button and prediction markets. Yeah. Well, yeah. And then yeah. And then swap. And then I feel like a huge product market fit in the space is just like if I had an app that I could just, like, click a 100 x.

857
01:05:01.850 --> 01:05:13.685
Yeah. Like the UX was just like a big like I just load it up with Bitcoin, just press 100 x on it. Yeah. Like a Binance. It was just a Binance, but, The opposite is stay humble success, but there's huge product market for it. A 100%.

858
01:05:13.685 --> 01:05:14.645
A 100%.

859
01:05:14.645 --> 01:05:15.145
Yeah.

860
01:05:15.845 --> 01:05:23.270
But, yeah, your your point is just like and there's some, like, base level primitives that enable all of those. Exactly. It's not like, you know, for a while early on,

861
01:05:23.810 --> 01:05:26.150
even if you were just mildly as an outsider

862
01:05:26.609 --> 01:05:35.575
interested in tracking what, like, the Ethereum ecosystem was doing or, you know, for a while, they were talking about smart contracts, putting smart contracts on blocks to Your refrigerator.

863
01:05:36.035 --> 01:05:40.055
Yeah. Exactly. And then now it's really, like, you know, all of this facade

864
01:05:40.995 --> 01:05:41.495
really

865
01:05:42.115 --> 01:05:46.135
fell apart completely, I would say, like, this cycle where it's very much

866
01:05:46.580 --> 01:05:48.600
explicit that the use case for,

867
01:05:49.460 --> 01:05:55.080
what they've been building with, like, you know, like, what is the biggest app? Pump dot fund or Polymarket?

868
01:05:55.380 --> 01:05:56.680
Yeah. So it's full degeneracy,

869
01:05:57.780 --> 01:06:07.135
and, you know, Polymarket is a bit of degeneracy in its own way. It has different interesting application, actually. You know, it's kinda like leveraging the markets to be able to,

870
01:06:07.755 --> 01:06:09.454
see where the world is going.

871
01:06:09.835 --> 01:06:12.795
But, ultimately, yes, it's just like there really isn't, like

872
01:06:14.460 --> 01:06:21.359
the reality is that we're just rebuilding the financial system and everything that's always existed in the financial system.

873
01:06:22.460 --> 01:06:26.400
But My partner my partner at 10:31 says it interesting. It's it's,

874
01:06:27.385 --> 01:06:29.085
a lot of people say, like, the financialization

875
01:06:29.625 --> 01:06:31.725
of Bitcoin, but it's really the Bitcoinization

876
01:06:32.105 --> 01:06:35.225
of finance. Yeah. That's But you're not really coming

877
01:06:35.705 --> 01:06:39.805
maybe you can make the argument that prediction markets are something novel

878
01:06:40.280 --> 01:06:43.020
that just weren't possible, but most of it is

879
01:06:44.119 --> 01:06:58.725
just improving on what has already existed Oh, yeah. By the way. Yeah. It's it's things that always existed with, different forms of collateral. Yeah. Right? Collateral assets. So what I say is just like it's like twenty first we had we had we have twenty first century,

880
01:06:59.105 --> 01:06:59.605
assets.

881
01:06:59.905 --> 01:07:04.085
We need twenty first century infrastructure. Right now, it's already on twentieth century infrastructure.

882
01:07:04.865 --> 01:07:07.205
Awesome. Okay. And before we wrap,

883
01:07:07.505 --> 01:07:08.005
so

884
01:07:08.490 --> 01:07:11.470
in practice, like, users excited about ARC,

885
01:07:12.250 --> 01:07:12.750
like,

886
01:07:13.130 --> 01:07:22.990
is there a way for people to play around with it now? What's the timeline like? What are we looking at? Yeah. We have our reference wallet implementation available at arkade.money.

887
01:07:23.155 --> 01:07:25.655
Okay. So it's arcade with a k, a r k

888
01:07:26.115 --> 01:07:26.855
a d

889
01:07:27.235 --> 01:07:34.115
e. So you can use that to send, receive on chain, off chain. Is that like a PWA that's a web app? It's a PWA right now. Okay.

890
01:07:34.995 --> 01:07:56.495
And we're gonna be trying to make improvements to that. You know, it's not a necessarily a commercial project for us. We're not really in the business of, like, making a reward product. Yeah. But it's It's like a proof of concept. Exactly. It's useful for us to help us guide also the direction of, like, how we implement the protocol, what are the UX quirks that we need to think about to help the developers

891
01:07:56.875 --> 01:07:58.255
build on top of our platform.

892
01:07:58.715 --> 01:08:07.775
So but people are free to use that. It supports Dolts, native swaps. So, you know, arguably, I would say, okay. Right now, you know, it's still a beta product. The arcade,

893
01:08:08.315 --> 01:08:10.460
main net is still a beta platform,

894
01:08:11.400 --> 01:08:11.900
but,

895
01:08:12.440 --> 01:08:13.980
we're gonna get very close,

896
01:08:14.680 --> 01:08:17.880
especially if someone, I think, decides to maybe port that into,

897
01:08:18.200 --> 01:08:22.540
you know, iOS native or Android native environment where you have a little bit more,

898
01:08:23.025 --> 01:08:25.205
perhaps better security as well, you know.

899
01:08:26.145 --> 01:08:28.324
And if someone decides to do that,

900
01:08:28.705 --> 01:08:34.545
I think, you know, very, very quickly, this is gonna turn into something that rivals all of the best,

901
01:08:35.105 --> 01:08:40.380
lightning wallets out there. Because I truly believe, as much as I respect the people that have been building,

902
01:08:41.000 --> 01:08:43.980
in this in this lightning industry for, forever,

903
01:08:44.600 --> 01:08:47.340
I truly believe that the model of,

904
01:08:48.680 --> 01:08:49.580
user channel,

905
01:08:50.985 --> 01:08:52.125
you know, this paradigm

906
01:08:52.665 --> 01:08:54.364
of retail wallets having

907
01:08:54.665 --> 01:08:56.525
channels open to the LSPs

908
01:08:56.985 --> 01:08:59.485
is obsolete. Yeah. It was,

909
01:09:00.344 --> 01:09:03.005
never going to scale in the first place because the technical

910
01:09:03.465 --> 01:09:03.965
challenge

911
01:09:04.370 --> 01:09:05.990
are one thing and they're

912
01:09:06.450 --> 01:09:06.950
pretty,

913
01:09:07.490 --> 01:09:07.990
consequential,

914
01:09:08.770 --> 01:09:17.990
but ultimately it's a matter of economics and like the economics of it don't make sense. It's gonna be too expensive. You cannot have a Phoenix that operates channels for billion users.

915
01:09:18.594 --> 01:09:37.290
They're just gonna have liquidity stale everywhere. That'd be insane. Yeah. So, you know, and then they're gonna have Even as it is, they have, like, I mean, I don't know how many users they have. They maybe have 50,000 users or something. And it's it's And like load node is fucking huge. Yeah. And it's mildly expensive. Right? I mean, depending on okay. If you're sending $10 $10, maybe

916
01:09:37.590 --> 01:09:42.010
maybe not. But Well, if on chain fees go up, it'll get very expensive too. Yeah.

917
01:09:43.815 --> 01:09:46.235
So so yeah. People can try this out. Otherwise,

918
01:09:46.695 --> 01:09:48.615
you know, arcade0s.com

919
01:09:48.615 --> 01:09:52.875
is our website. Okay. We've got what I think is a pretty decent set of documentation

920
01:09:53.895 --> 01:09:55.755
around, you know, our subjective

921
01:09:57.630 --> 01:10:03.410
implementation of the ARC protocol and how we see the vision evolving, specifically when it comes to building applications.

922
01:10:04.270 --> 01:10:11.090
Because this is going to be really, I think, what brings people because, you know, we had this notion of building on Lightning for,

923
01:10:11.630 --> 01:10:12.530
a long time.

924
01:10:13.365 --> 01:10:22.505
Like you said earlier, like, it just doesn't like, it's it's not a thing. Like, you can realistically, you cannot build anything on Lightning but, like, a wallet or, like, a a back end infrastructure

925
01:10:22.805 --> 01:10:28.100
for settlement or things like that. But in terms of building applications that, you know, people are expecting,

926
01:10:28.560 --> 01:10:31.300
to interface with financial products and all of that,

927
01:10:32.720 --> 01:10:35.220
you know, my goal as head of ecosystem is

928
01:10:35.600 --> 01:10:37.140
to get the people that

929
01:10:37.840 --> 01:10:42.635
moved on and try to build whatever they wanted to build on other networks because they had no alternatives,

930
01:10:43.175 --> 01:10:54.890
bring it all I know it's a bit cliche, but I truly think like there's some talent there that we can bring back to Bitcoin. Yeah. And it's going to, make the entire stack a lot better. Because the financialization,

931
01:10:55.910 --> 01:11:00.330
it sucks in a way that, yes, the suits are here and they're dominating and they're everywhere.

932
01:11:00.950 --> 01:11:04.890
And for people that bought into the original ideals, it's a feels a little uncomfortable.

933
01:11:05.510 --> 01:11:12.345
But I truly think it's the stepping stone to the to the medium of exchange goal that we all are pursuing. It's like

934
01:11:12.725 --> 01:11:16.105
you wanna have a financial infrastructure in place

935
01:11:16.645 --> 01:11:17.145
where

936
01:11:17.445 --> 01:11:21.630
the people that are accepting Bitcoin for payments at a large scale, eventually,

937
01:11:22.590 --> 01:11:47.640
they have financial tools to kind of, like, if they need to hedge themselves They never have to leave the system. It's a yeah. Exactly. You need to close the loop, and this doesn't happen on the vacuum. You know, you need, like, you need professionals. At the end of the day, like, the bankers, yes, like, there's a class of bankers that are purely extractive, but banking happens to re for a reason. It's a question of capital allocation. Right? It's a question of, like, you know, creating liquidity in the system,

938
01:11:48.020 --> 01:11:56.360
and we're not quite there yet. But I think this is the process we have to go through until we get to truly, like, you know, hyperbolic Bitcoinization.

939
01:11:56.660 --> 01:11:59.160
Fair enough. I've got one last question for you, actually.

940
01:11:59.864 --> 01:12:01.085
So like right now,

941
01:12:01.625 --> 01:12:03.244
Arc Labs is running,

942
01:12:03.704 --> 01:12:17.120
I guess, an arcade instance. I don't know how you refer to it. But like Operator. We call it the arcade operator. So you're running an operator. But you expect there to be there's gonna be many of those. Right? It's gonna become a competitive landscape or how do you looking at that? I mean,

943
01:12:17.660 --> 01:12:21.280
I I do expect there to be in the future different instances.

944
01:12:22.220 --> 01:12:25.440
Because like I said, maybe it is the case that Robinhood

945
01:12:25.900 --> 01:12:28.400
comes and say Right. Or JP Morgan or something. Yeah. Exactly.

946
01:12:28.705 --> 01:12:29.205
But

947
01:12:30.304 --> 01:12:45.540
it's hard to predict exactly. Like, I wouldn't say there's going to be There's not gonna be a thousand. Yeah. There's not gonna be a million of them. Is there gonna be a thousand? I'm not even sure. It's like a network effect thing. Right? Yeah. Exactly. Like, there are benefits to network effect in fact in this case. Right? And ultimately, like,

948
01:12:46.320 --> 01:12:47.620
you know, there is this

949
01:12:48.239 --> 01:12:51.140
and this gets into a different conversation, but really like

950
01:12:52.160 --> 01:12:55.940
like if we have a technology like this where okay.

951
01:12:56.715 --> 01:13:01.775
Say in the best case scenario we have a thousand of these entities Yeah. Spread across the globe

952
01:13:02.315 --> 01:13:10.255
in a very decentralized way. Right? It doesn't have as many nodes as Bitcoin but it doesn't need to. Right? Because this is the second layer. Right.

953
01:13:11.220 --> 01:13:15.400
But if we have like a thousands of these competitive market dynamics

954
01:13:15.860 --> 01:13:16.360
actor,

955
01:13:16.740 --> 01:13:17.240
right,

956
01:13:17.620 --> 01:13:19.800
again this is the promise of, like,

957
01:13:20.260 --> 01:13:29.135
we're we're recreating banks and these are not going to be the banks of the past that custody your asset. Right? But these are going to be the banks of the future

958
01:13:29.594 --> 01:13:30.895
that allows people,

959
01:13:31.594 --> 01:13:33.855
innovators to build products and services

960
01:13:34.635 --> 01:13:38.415
and where your self custody fund can interact with,

961
01:13:38.989 --> 01:13:40.770
without while preserving your sovereignty.

962
01:13:41.230 --> 01:13:58.985
But what do banks do is they create markets. Right? They're more like a coordinator. Right? Exactly. They're a venue for capital. Right? And that's what those entities eventually I think are going to It's like what it's, I mean, it's like Hal Finney's original vision. And exactly that's exactly what it is. I think, you know, Hal Hal said that they would issue,

963
01:13:59.844 --> 01:14:00.665
their own,

964
01:14:01.525 --> 01:14:02.885
currency. Right? Right.

965
01:14:03.205 --> 01:14:16.070
I I don't know exact I don't imagine necessarily that this specifically is going to play out. But certainly, when you think about it, like and I I saw some some Bitcoin treasury guys say that. It's like it's it's very much a little bit like what,

966
01:14:16.930 --> 01:14:27.605
Bitcoin treasury companies are. Right? What is a bank? But like Bitcoin treasury companies are like almost like a hack in comparison to something like this. Right? Because it's, like, it's not Bitcoin native. It's not cryptographically

967
01:14:27.905 --> 01:14:35.605
verifiable. It's not Oh, yeah. I mean yeah. Yeah. I mean but I think they're just, like, the the early manifestation. Right? Right. But would you agree would you agree in premise

968
01:14:35.905 --> 01:14:37.125
that, like, a successful

969
01:14:40.610 --> 01:14:41.430
ARC scenario

970
01:14:41.810 --> 01:15:10.700
is one where there's more there's more than one operator. Oh, yeah. A 100%. The question is, like, there there there probably isn't a shit ton of operators Yeah. Because of network effect. Yeah. But there'll be a competitive marketplace for operators. Because you want the competition. Right? You want That's what keeps it user centric. Exactly. Exactly. You want the rates and and ultimately there is like, you know, there are there are scenarios that are pretty disastrous if there's only one operator Right. And then the operator goes away and it's like, oh, yeah. People have like,

971
01:15:11.020 --> 01:15:30.335
You can exit. You can exit, but now there's a fucking there's one door and there's 1,000,000,000 people trying to get out of that door. It's gonna be a bit of a mess. Right? And then also, like, all financial products would just not work for whatever. Yeah. No. Exactly. The whole fucking system, the grind is still a hole. Yeah. That's not, like, the best outcome. Fair enough. Okay. Awesome. Alex, this is fantastic.

972
01:15:30.715 --> 01:15:32.655
Thank you for enlightening us.

973
01:15:33.594 --> 01:15:36.179
Do you have any final thoughts for the freaks before we wrap?

974
01:15:37.760 --> 01:15:40.500
I mean, freaks just don't get caught up in the noise.

975
01:15:41.199 --> 01:15:44.179
Ignore all of the stuff that you're, probably,

976
01:15:45.440 --> 01:15:51.715
you know, all of the medias right now. The social medias are are being plastered with. Specifically, when it comes to the Bitcoin community,

977
01:15:52.175 --> 01:15:52.655
I think,

978
01:15:53.295 --> 01:15:54.835
you gotta focus on

979
01:15:55.455 --> 01:16:04.115
and I'm not necessarily wanna put the spotlight on what we're doing, but there remains, like, a contingent of people that are pushing the boundaries of what's possible in Bitcoin,

980
01:16:05.130 --> 01:16:08.110
not coping with, like, you know, this new reality.

981
01:16:08.570 --> 01:16:10.750
I always say, like, the more interesting people,

982
01:16:11.370 --> 01:16:14.990
that I meet in Bitcoin is are the ones that have been able to adapt,

983
01:16:15.690 --> 01:16:16.190
to,

984
01:16:16.970 --> 01:16:20.655
the change. Right? And to kinda, like, you know, kind of like,

985
01:16:21.295 --> 01:16:24.935
roll with the punches a little bit. And I think a great example of that was,

986
01:16:25.375 --> 01:16:26.115
was Francis,

987
01:16:27.215 --> 01:16:27.875
at our,

988
01:16:28.415 --> 01:16:32.355
arcade day the other day. Francis Pulia, Notorious, like

989
01:16:32.690 --> 01:16:33.830
Laser Eye Maxi,

990
01:16:34.370 --> 01:16:36.390
Anti Ship Corner, Supreme

991
01:16:37.490 --> 01:16:38.310
said verbatim

992
01:16:38.850 --> 01:16:39.350
that

993
01:16:40.290 --> 01:16:43.030
arcade for him is the first thing

994
01:16:43.570 --> 01:16:52.785
ever where he actually started considering that there might be value in DeFi, you know. Yeah. And it was, like, impressive for me and I think I was really grateful

995
01:16:53.245 --> 01:16:58.705
to to hear this because I know that Francis is smart enough that, like, you know, you don't need to

996
01:16:59.005 --> 01:17:00.385
fucking, like, be

997
01:17:00.690 --> 01:17:02.390
completely orthodox with everything.

998
01:17:03.010 --> 01:17:06.310
You need to be able to kinda, like, adapt to the reality of what you're building.

999
01:17:07.090 --> 01:17:13.830
And so yeah. Whether it's us or whoever else, like, I mean, you know, all of the spam stuff, man, that's a distraction. Like, it

1000
01:17:15.225 --> 01:17:17.085
really is, like, it's a way for,

1001
01:17:18.025 --> 01:17:28.745
whoever is pushing all of that stuff to distract you from the progress that being being made. So yeah. Just just take the white pill a little bit and then and stop just,

1002
01:17:30.050 --> 01:17:37.350
getting caught up in this in in in in this stuff. There's a lot of great things being built. I love that. I can relate to that. Anyway, freaks,

1003
01:17:38.210 --> 01:17:39.590
hope you enjoyed this conversation.

1004
01:17:40.690 --> 01:17:45.190
Maybe, maybe not. There'll be more conversations from Lugano that I'll publish. We'll see.

1005
01:17:46.485 --> 01:17:47.225
As always,

1006
01:17:47.605 --> 01:17:48.425
all links,

1007
01:17:50.005 --> 01:17:52.325
for the show right silhouettedispatch.com.

1008
01:17:52.325 --> 01:17:57.305
Share with your friends and family. I'll put all of Alex's relevant links in the show notes.

1009
01:17:59.865 --> 01:18:04.125
Yeah. As Alex said, stay focused, stay humble, stack sets. Thanks, Alex. Peace.