[00:03:17] Alyse Killeen: They’ve sort of been impervious to any of those external trends, and that will be recognized, I hope, by venture capitalist. And so the funding environment should better receive Bitcoin companies relative to their peers. But nonetheless, people have pulled back in terms of deployment of capital to risk assets, including venture capital.

[00:03:39] Alyse Killeen: And so there’ll be an impact of that in what we’re skiing as companies. Get ready to sort of bear down and focus on what’s core to their long-term growth versus taking, you know, some of the more extravagant shots that were possible in, in earlier years with the looser fundraising environment.

[00:03:59] Preston Pysh: I like your comment about lightning, and this is where I wanted to go next, which is the, your, your opinion on the State of the Lightning Network, because everything that I’m looking at just seems like it’s really building out despite the environment that you just described.

[00:04:12] Preston Pysh: It seems like there’s a whole lot of entrepreneurs plowing into this space, a lot of things being built, but how, how do you guys view it right now that the start of 2023?

[00:04:22] Lyn Alden: I think that’s right.

[00:04:23] Alyse Killeen: So 2022. In 2022, still Mark made eight investments. The majority of those were in lightning infrastructure companies.

[00:04:32] Alyse Killeen: And that was in preparation to, it was backing companies that were positioned to reap the rewards of both the Scaling Lightning Network and a Maturing Lightning Network. So for example, something that Lyn has talked about a lot is Fiat on Lightning Network. What sorts of communities, demographics, geographies are going to be keen to have a stable coin on Lightning Network.

[00:04:58] Alyse Killeen: And we’re almost there. We’re very close. That’ll happen this year. And so companies have had that as a tailwind. So those sorts of opportun opportunities that Enterprise is preparing to read the rewards of, they need the tools developed by Lightning network infrastructure and enterprise orientated companies.

[00:05:19] Alyse Killeen: And so that activity of 2022 and then 2021 proceeding that we will reap some of those rewards this year. And the founders that have been most conservative in spend and focus are going to benefit the most, I think. And so one of the things that we will see this year, I believe is enterprise get ready, non-bid point, enterprise, get ready to seriously test the market.

[00:05:47] Alyse Killeen: I think we’ll see that in q1 probably, and that will be enabled by companies. Lightning Labs, voltage Ambu technologies, et cetera, because the tools have matured to the point that you won’t have to understand the workings of Lightning Network in order to use it. And the technology is beneficial regardless of where the crypto and Bitcoin markets are.

[00:06:11] Alyse Killeen: So Bitcoin’s volatility doesn’t do anything to dampen the advantage of instant, nearly free transactions across the globe and across borders.

[00:06:20] Lyn Alden: Yeah, and I think the fact that the Lightning Network is so, it’s such a high ratio of utility speculation. And so when you kind of. Look at other parts of crypto ecosystem, they’re very speculation heavy.

[00:06:30] Lyn Alden: Even when you bring it back to the, to the Bitcoin ecosystem, when you have things like see it OnRamps and exchanges, you know, there’s still going to be somewhat speculation based. Less so, you know, some of it’s savings, some of it’s investing and speculating. When you bring it all back to the lighting hour, that’s very, very utility focused.

[00:06:44] Lyn Alden: It’s about payments, it’s about infrastructure and things like that. And so I think that so far that the fact that it’s been rather resilient is not that surprising. If you look back at, say, the 2008 crisis, for example, a lot of the companies that were growing that were later to become very big in the 2010s decade, a lot of them just kept growing from a small base through that difficult macro environment because it’s just the, it’s the right product market fit.

[00:07:07] Lyn Alden: It’s, it’s, it’s, you know, people are buying things that are obviously better than what came before them. And I think we’re seeing kind of similar things, some of the more utility focused aspects of the Bitcoin ecosystem, which, which certainly puts lightning.

[00:07:19] Alyse Killeen: I was going to build off of what Lyn said. So something that happened in 2008 was the emergence of a new platform mobile for app development.

[00:07:29] Alyse Killeen: And then also sort of the tailwind of a cheaper entrepreneurial environment enabled by Cloud Lightning does both of those things. So Lightning allows for new business models and new types of products to be built the same way that mobile did. So Uber is not possible without mobile smartphones, right?

[00:07:46] Alyse Killeen: There’s going to be companies, there are companies being built today that aren’t possible without Lightning Network. They’re introducing something new and novel. In addition to that, though, lightning Network allows companies to operate more efficiently from a cost perspective, and that, that tailwind was also present in the, in the really productive years of 2008 and 2009 in terms of years that defined culturally relevant companies.

[00:08:11] Alyse Killeen: And so of course that was when Uber emerged, Airbnb and companies like that. I think that that same energy exists here and, and because of the Lightning Network.

[00:08:22] Preston Pysh: You know, it’s interesting, I’ve been spending a lot of time on the new Nostr protocol and this dais app, which isn’t even out of test flight yet, and I’m seeing exactly what you’re talking about where.

[00:08:34] Preston Pysh: Will, who, who’s the guy behind the, the damas app? He’s there programming in sat tips that are right there. Like if you go on the Twitter and you hit reply or to retweet the message, he’s got another icon right there where you literally just click it, click it, and you can template maybe there’s five SATs or 25 sat that goes to that person’s tweet that you literally, like, it’s, it’s all set up in your wallet.

[00:09:02] Preston Pysh: You got the ln URLs there that are automatically like making, so you’re not creating invoices and things like that. And so people were, can just literally click on the button and it’s sending them, sat off the tweet and it’s like zero friction to the user.

[00:09:17] Preston Pysh: On top of that, they have like SATs, like an encrypted wall of energy around your dms, like just built into this demus app.

[00:09:26] Preston Pysh: And this is just one client of many clients that are going to compete on this noer protocol. And so like I’m seeing the competition and I’m seeing how they’re already incorporating this frictionless borderless payment. The servers are decentralized and so like for people to pay to have these servers, but you need some type of like frictionless fee that isn’t k y seed that you can send over the lightning.

[00:09:53] Preston Pysh: It, it, you can just kind of see it all fitting together in that exact description that you just said, Alyse, and this is just one application, right? Like how many other things are out there are getting built and I know you guys are seeing it and it’s just kind of amazing to, to see. You made the comment first quarter, 2023.

[00:10:12] Preston Pysh: What do you think the fourth quarter’s going to look like? Is it, is it just going to be leaps and bounds or do you see it kind of progressing a little bit?

[00:10:19] Alyse Killeen: You said so much there, there’s so much to respond to. So, you know, the fourth quarter or, or you know, the midterm, let’s say, I’m really excited about a couple things.

[00:10:32] Alyse Killeen: So I’ll just mention two of them and one we’ve talked about already, which is stable points on lightning network. Mm-hmm. and what that will mean for people in geographies that really need the payment rails. So a non-domestic, non socioeconomically privileged demographic. What it means to actually be banked by Lightning network.

[00:10:53] Alyse Killeen: I think we will understand that better in q4. The other thing that will be possible is possible now, but I’m hopeful that there’ll be more entrepreneurial activity. Taking advantage of this is the pay per API call model. So it might be less to talk about but something possible through LSAT, a Lightning Labs protocol.

[00:11:15] Alyse Killeen: And another company is working on another implementation called C 13. It’s B 13 n.io on the web. And what this says is that you can attach a piece of data to a a Lightning network transaction, which will allow you to build economic activity, for instance, around using ChatGPT. So we know that there’s a cost for running and providing the service.

[00:11:41] Alyse Killeen: Yes. Of ChatGPT, which is not being paid in any way. Now, I guess it’s probably, well, I’m not sure how it’s subsidized. I’m imagining it’s venture subsidized and that could be monetized for a p i calls, and in a way that the user based didn’t even need to really think about it much. So we wouldn’t think about spending a penny, 2, 3, 4, or five on, you know, pulling up an image or response to a question.

[00:12:05] Alyse Killeen: And that’s possible without that. And with other technologies, like I referenced with C 13, and so I’m hopeful that we’ll see new business models emerge in new product types, leveraging that, that technology, which is possible through Lightning Network.

[00:12:22] Lyn Alden: Lyn, any other comments on that one? So, I, I think a narrative that we’re seeing is that, you know, during the whole kind of quote unquote web three thing that was happening, basically everything had a token asa associated with it.

[00:12:35] Lyn Alden: and basically that would just kind of like a lot of projects trying to get paid up front. Whether or not the underlying project ends up delivering anything durable, basically fast. That’s the lady’s, you know, ability to try to just, everybody do senior edge. And what we’re kind of seeing lately is the idea that a decentralized web is a good thing.

[00:12:53] Lyn Alden: It’s just that you don’t need a your own token attached to it. So we’ve seen, I mean you mentioned Nostr, there’s also the whole key slash tags. You know, that vector, there’s all, there’s web five, right? There’s multiple different kind of angles here, and we’ll see how some fit together. We’ll compete with each other over time.

[00:13:12] Lyn Alden: But the point is, you know, you it, it’s just basically showing that when there’s actually a good product market fit, the product sells itself. You don’t need to like add unnecessary gambling to. try to get outta the position quicker. You’re actually building something of value. And then the fact that there’s this, there’s this common money associated with it also allows for monetization in the normal way.

[00:13:34] Lyn Alden: Kinda like if you invent like Uber app, you don’t have to invent like another one, but it’s own money, right? Dollars are, dollars are fine. Or obviously, you know, lighting would be great, but like basically you don’t need to like reinvent money every time you reinvent like a new service. Yeah. And I think we’re seeing that play out in the kind of the Bitcoin focused, you know, kind of decentralized web applications that have been getting some, getting some momentum lately.

[00:13:57] Lyn Alden: Yeah, the whole thing. And that, oh, go ahead Alyse.

[00:13:59] Alyse Killeen: The other benefit is that founders will have real information in their metrics. Yeah. So when they look at adoption, they won’t need to try to disentangle the gambling incentive created by a token or the speculative incentive created by a token. They’ll just know, you know, how their choices are received by users and where the value is.

[00:14:19] Lyn Alden: Sorry to have interrupted you. Preston.

[00:14:20] Preston Pysh: No, no, no. You didn’t interrupt me at all. I was just going to comment on Lyn’s the, the, her comment on the Keith. So I tried that out and it was just, it was mind blowing how well this works. And to think that there’s no server that’s, that was like hosting, like centralized server that was hosting that video chat.

[00:14:38] Preston Pysh: For people that are listening that aren’t familiar with Keith Paul is the guy that put it together and I mean, this is peer-to-peer video teleconferencing. We’re not using it right now because I don’t know how they’ll record with it, and I just haven’t really played around with it. And I like to sometimes share my screen, the pull up charts and stuff, but for anybody who’s tried it out, it’s kind of mind blowing how, how high quality the video is.

[00:15:00] Preston Pysh: It’s better than this video we’re using right now, which doesn’t seem like that would be, And just as I’m, I’m sorry to talk so much here. There’s just so many neat things happening. So I shot a message to Paul on Twitter and, and asked him about is there a way to basically do Twitter spaces over the Nostra protocol using this whole punch technology that he’s working on.

[00:15:19] Preston Pysh: He replies back to me, he’s like, actually, we’re working on exactly that right now. And so when you’re looking at like, how are all these things, like they’re being paid for by the creators right now. Like if you’re running a relay on Nostra, you’re basically paying out of pocket to do it because we’re at the infancy stage.

[00:15:36] Preston Pysh: But where it’s going next is you pretty much have to be using lightning to, to be funding some of these things for the zero fee near frictionless streaming of money. This is fascinating. I want to push back a little bit on the, on the taro piece. So like you guys, I think that the stablecoin are very important moving forward.

[00:15:58] Preston Pysh: Especially in the developed world where maybe bills are denominated in dollars or euros or whatever. I think that it’s a really important piece. I, I had a conversation with Pierre Rashard. He , he was a little bit more skeptical. He saw it as a distraction on lightning. I’m curious if you guys would agree with that.

[00:16:17] Preston Pysh: And, and let me tell you his rationale. His rationale was it’s centralized. Anything, any token you do is going to be a centralized, you know, you have some type of ledger entry that is being centralized and controlled by some entity. So why waste our time focusing with it on lightning when we can just focus on Bitcoin, on lightning and let all the other people, entities worry about the centralized tokens and what, what all that brings.

[00:16:46] Preston Pysh: I’m kind of curious if you guys would agree with that or if you see it a little bit differently.

[00:16:51] Lyn Alden: I guess I’ll jump in. I, so I see that view, but I think it’s a somewhat ous position, right? So for example, all all of us on this call, we have access to dollars. It’s not really a problem for us. We can just do our normal day-to-day activities with dollars, and then we can save and use Bitcoin in another way we want and find with the volatility.

[00:17:08] Lyn Alden: But a, a common thing that comes up when you look at these small communities that are, that are building out around the world, these little Bitcoin communities, the common things that comes up is, Hey, we need, we need dollars too. And you know, the ones that are doing it correctly, they acknowledge that their dollars are centralized.

[00:17:25] Lyn Alden: And the whole point is that the, the central hub is outside of their country. And so, for example, let’s say you’re in Argentina. , you know, I’ve seen it described as someone says, okay, I hold local currency for one month’s worth of expenses. I hold, you know, stable coins for several months worth of kind of intermediate term savings.

[00:17:40] Lyn Alden: And if I want to put savings away for years, I put it into something like Bitcoin. And for, from the perspective of say, an Argentinian, now they’ve had a history of it. You put dollars in the bank, the confiscated, it’s hard to get dollars. And so instead of what they do is say, okay, I’ll hold dollars.

[00:17:54] Lyn Alden: They’re centralized, but the central hub is outside of Argentina. Right. So unless the United States goes accurate or unless there’s, you know, there’s fraud, there’s counterparty risk, those are real risks to be concerned about. But the central hub is outside of that particular country. And so there is so far been a pretty strong demand for dollars by a number of people in emerging markets in these, in these spaces.

[00:18:15] Lyn Alden: And basically the technology allows them to move around faster and in a more peer-to-peer way. so far, they’ve kind of shifted around to different blockchains. So obviously they started on, on top of Bitcoin, a lot of them migrated over to Ethereum. That’s most used for trading, right? because it’s higher fees, bigger amounts.

[00:18:33] Lyn Alden: Whereas a lot of the spending dollars moved over to Tron. And basically a lot of these spaces say, okay, I want to have stable coins, but I don’t really want like another token associated with it. I don’t, you know, if I’m using a centralized stablecoin, I don’t need a whole nother centralized layer to deal with.

[00:18:48] Lyn Alden: And there are different alternatives to how to do that. There’s Toro Pro proposal, which is basically the idea of running them over using the liquidity, the edge liquidity, the lighting network to run them over. There’s also, you know, proposals like pure credit, which is basically using like a lightning light ledger.

[00:19:04] Lyn Alden: That’s not actually odd lighting to move around those dollars. And we’ll see what kind of market things end up winning. But I think it’s clear that there is a demand out there for dollars at least as an intermediate term thing because. You know, not everybody can deal with, you know, 70, 80% drawdowns on a hundred percent of the money that they’re using.

[00:19:22] Alyse Killeen: No one can deal with that. So there’s also, we need to consider the net change and risk between holding dollars in another way and dollars on lightning networks. So Fiat is centralized and fiat on lightning Network will have elements of centralization too. But people don’t just need dollars. They need to be banked and they need a way to make payments.

[00:19:47] Alyse Killeen: And so it, you know, in a world where people want to spend beyond the cash in their pocket and be able to reach beyond that to engage, for example, in global econ e-commerce, if they don’t have a debit card or a credit card, they have lighten. Right now they have to use BTC and tolerate BTCs volatility in order to use lightning or at least to, you know, at least to hold their change.

[00:20:13] Alyse Killeen: And this will allow them to not need to take on the friction of that volatility in order to be banked. And the feedback was really clear in the experiment in El Salvador. So Q4 2021, there’s this BTC airdrop in El Salvador to most Salvador and adult people used the Bitcoin and the feedback in labs got from that.

[00:20:36] Alyse Killeen: This activity was primarily happening on l and d and through iex mercado’s infrastructure supportive merchants. And the feedback from that was really clear. We need these rails. We want to be connected to the rest of the world. They’re half of the country is unbanked, right? , but 3 million more than three mil million people use the Lightning Network.

[00:20:58] Alyse Killeen: Meaning that more people were banked in El Salvador during that period through Lightning Network than through the region’s banks. And that’s meaningful. We can’t ignore that. But this, the, the sort of additional benefit, is it as Trojan Horse, a Bitcoin and a lightning wallet onto people’s phones when they’re simply using it for the rails.

[00:21:22] Alyse Killeen: But as they start to trust the tech, Perhaps then they also start to take a chance on saving a Bitcoin. So the tech piece is important and I think it leaves us at a net place where dollars on Lightning Network are, are better than not because we’re not introducing new technical risk, or at least that’s the aim in development.

[00:21:45] Alyse Killeen: Development in the Bitcoin space is really rigorous. That’s true. Also en Lightning network. And so if we can get to a place of Stablecoin and Lightning Network without additional technical risk for folks using it, then I think we’ve only added value and Trojan Horse in a lightning wallet into people’s lives.

[00:22:04] Preston Pysh: I was kind of expecting, and we had heard rumblings, that there was going to be more countries similar to like El Salvador make announcements like theirs in 2020. Nothing seemed to really materialize. Do you see that happening in 2023? Where, where are you seeing the next big lightning push coming from or emerging from in the world?

[00:22:27] Lyn Alden: I actually think bottom up is more interesting, right? So all of the El Salvador experiment so far was, was spearheaded by Bitcoin Beach, which was a more grassroots kind of, you know, lo local high density rather than, you know, trying to a top down thing. And obviously I think legal tenders great because it takes away the transaction like taxes especially and, and things like that.

[00:22:48] Lyn Alden: So obviously I would, I would like to see countries do that, but I think that you can’t just wait for countries to, you know, acknowledge the interesting aspects of the network and then, you know, move forward with that. That’s kind of a special case because they’re already dollarized. There’s not that many dollarized countries out there.

[00:23:03] Lyn Alden: But instead, I think what’s interesting you’re, you’re seeing like, you know, Bitcoin lake, Bitcoin Island, , you know, Bitcoin community pop up in Vietnam, for example. There’s all these like small other replicas of Bitcoin beach on somewhat smaller scales and there’s other companies coming out trying to spear more of those as well.

[00:23:21] Lyn Alden: And so I think those, those community approaches where you basically find a, a smaller, denser population of interest and make sure merchants actually know how to use it, make sure the people actually know how to use it, kind of build that critical mass in a smaller space. I think that’s where things are going to come from.

[00:23:37] Lyn Alden: I’d rather see a thousand of those, you know, each with, you know, thousands of people compared to these, these top down nation implementations that then, you know, people then are like, well, when is this new money? You’re poising on us. What do we have to do? And again, that’s not even necessarily criticizing El Salvador saying, Lily started from Bitcoin Beach.

[00:23:56] Lyn Alden: And I just think you need to see more of those. The smaller ones. And I think look there and if you see a bunch then be really successful in some of those countries, then you might see much like El Salvad or you might see then a top down acknowledgement of some of the work that’s been going on there.

[00:24:11] Lyn Alden: And you might see some countries embrace that, right?

[00:24:14] Alyse Killeen: You want to see people adopting it for the right reasons because they feel that they’re getting value from what they’re using. And so I think that, you know, everything that Lyn said really resonates with me as well. Something that we’re watching is the geographies that are adopting or allowing the, the healthy presence of Bitcoin mining.

[00:24:36] Alyse Killeen: There’s a big opportunity in Africa and we’ve also seen sort of native community orientated and motivated adoption of both Lightning network and Bitcoin in various regions in, in Africa, which is, you know, really positive. I think a very healthy form of adoption and ones that’s sustainable. Something that differentiates Bitcoin, of course, from crypto, is the drive for sustainable adoption versus just trendy adoption that needs to be maintained by continuing to introduce new flashier objects.

[00:25:08] Alyse Killeen: Bitcoin doesn’t do that. It looks for who needs it and, and long term. And so we’re, we’re certainly seeing that, especially in in lower socioeconomic status communities that are unbanked. And that’s where you would expect to see it first. And now I’m talking about adoption of the actual technology versus diversification of a portfolio into Bitcoin.

[00:25:33] Alyse Killeen: So anyhow, I, I agree with Lyn. It’s, it’s, I I never spoke about nation state adoption because it wasn’t something that I had heard much about beyond the rumors. Although I, I hope that El Salvador gets a benefit of going in early. . But what we’re really interested in is seeing people find value from Bitcoin technologies and Bitcoin itself.

[00:25:53] Alyse Killeen: And that’s not going to come from IT nation state adoption per se, but from the introduction of products that resonate.

[00:26:00] Lyn Alden: And I, I really like the work that, for example, Grid List is doing. And I, I mentioned that in my, my latest updates, my Bitcoin energy article because, you know, there’s all that untapped energy out there, right?

[00:26:12] Lyn Alden: So all these like small rivers and things like that. And it’s actually really cool to see those, again, that’s another example of a bottom up community. Mm-hmm. . And, you know, before, before I saw that example, if you asked me, you know, what is it to come first wallet, you know, these like communities build around wallets or mining, I was, I’ll say probably the wallet once, but I would love to see more and more of these mining tweets pop up in places where it makes sense.

[00:26:33] Lyn Alden: And it, it’s kind of a more complete integration. And I remember reading Ross Stevens his 2020 shareholder letter, and he talked about Bitcoin quite heavily in it. and he talked about the idea of in the future, you know, basically Bitcoin enables kind like how human settlements happen around coasts and rivers.

[00:26:51] Lyn Alden: Bitcoin is this, this unique, you know, consumer of energy that can go to where the energy is in a way that most other things can’t. And then by extension you can have settlements build around those uses of energy and you can build out infrastructure from there. And even mentioned that he, he thought in the future it’d be very hydro based.

[00:27:08] Lyn Alden: Talked about Africa and it’s kind of, it’s actually really fascinating to go back and read. Rick, he wrote, wrote, you know, I think it was, it was late 2020 to kind of, you know, go forward and see what, what kind of work is, is being done in Africa with, with Grid List. It, it’s essentially the, the vision he laid out.

[00:27:22] Lyn Alden: So I’m, I’m, I’m hopeful for it and I’m happy to see that kind of thing happen.

[00:27:27] Preston Pysh: So, Lyn, you said that you saw it more on the wallet side and not necessarily on the energy mining side. Do you have a different opinion on that now? Do you think that that’s flip flopped and that the ground, you know, going from the ground up with how everything’s going to be constructed and built is going to be around the energy?

[00:27:44] Lyn Alden: So, I hope, so basically the challenge with mining in general is that it’s always trickier when you’re going into to jurisdictions where there’s less stable rule of law. Mm-hmm. , if you’re doing something that’s capital intensive mm-hmm. , if you’re doing something software oriented, it, it’s a lower, you know, kind of just overall commitment, whereas you’re doing something hardware focused, especially on a bigger scale that’s challenge.

[00:28:07] Lyn Alden: Yeah. And with, with traditional minors, you have to go where the minerals are, you don’t really have a choice. And a lot of those are in, in, in more challenging jurisdictions, whereas with, with bitcoin, , you know, low cost, energy strain and energy is a pretty eagerly distributed resource globally. There’s a lot of pockets of it in very different types, but some of them, if they’re capital intensive, they might say, well, we’re not going to go there.

[00:28:28] Lyn Alden: It’s too, it’s too much hurdles, too much frictions. And I think the, the main way of around that it has to be bottom up. It has to be smaller scale, interested communities, people doing it for the right reason. So I think, I think that’s, that’s the one spear that can kind of go through that, that kind of dilemma and start building it up.

[00:28:45] Lyn Alden: So it’s one of those things where, when I wrote my initial Bitcoin energy piece in 2021, I mentioned that idea. Cause I, you know, Alex Gladstein Fred about that. I had read the Raw Stevens piece. I was just like, you know, this is something I would like to see Bitcoin miners as a way to bootstrap, you know, act as initial buyers of some of this, this useful clean energy.

[00:29:05] Lyn Alden: And, and when I wrote that as more of a hopeful statement, I was like, I’m not sure how quickly we’ll see that if we’ll see it on a, on a significant scale or not. And so certainly seeing what Grid List is doing. , you know, it’s certainly like it’s further advancing that vision. And so I, I, I think it’s great to see, and I hope you see more of it in more places.

[00:29:24] Preston Pysh: For people not familiar with Grid List, just quickly give us a one over the world on what they’re doing.

[00:29:30] Lyn Alden: Alyse, do you want to do it or you want me to mention it?

[00:29:33] Alyse Killeen: Well, I’d, I’d love to hear it from you. Maybe you can you do Part A I’ll do Part B.

[00:29:38] Lyn Alden: So Grid List is basically they, in Africa, they’ve been doing river mining where they partner and they, they act as an initial buyer.

[00:29:46] Lyn Alden: And basically when you talk, when you look at electrical infrastructure, there’s a chicken in the egg problem. Because if you have a, an untapped energy source, like let’s say a river, you know, you can, you can use that to generate electricity, but there’s nobody there to consume it and you, and you’re not sure what, no.

[00:29:59] Lyn Alden: If you’re going to be to monetize electricity or not. And the reason people are there is because there’s no infrastructure. So you have a chicken in the egg. . And so one way to bootstrap this, and this is something that people have been talking about for years, is that the initial buyer, essentially a guaranteed buyer can be Bitcoin minor.

[00:30:15] Lyn Alden: So you can build like a river or a small river dam, general electricity attached mine to it. You then have a small settlement, the people running the mine, essentially their families, and then you have this, this surplus electricity that’s happening, and then other people can come in and move it.

[00:30:30] Lyn Alden: And eventually, if that electricity, it’s more in demand and the price goes up, then Bitcoin miners can dial down, they can do elsewhere based on market pricing and go to where there’s maybe another untapped source to, to, you know, be an initial buyer for. And so basically Grid Lists is, is doing that lo number of locations in Africa with these, with these very small river based mining.

[00:30:54] Lyn Alden: And I think it’s, I think it’s fascinating.

[00:30:56] Alyse Killeen: Yes, the vet is exactly right. Grid List was still Mark’s most recent investment. So still Mark and Block co-led in investment in Grid List. And, and for the reasons that Lyn just outlined, what’s happening in Africa is that half of the population doesn’t have household electricity and the, and, and there’s folks that don’t have stable access to household electricity.

[00:31:24] Alyse Killeen: And when your electricity is down or you don’t have it, it’s instantly noticeable. So the politicians are also paying attention. Because it’s one of the first things that people are going to complain about or measure their local government buy, is access to electric. Now at the same time as there’s this urgency and need recognized by both people and the government to better electrify the region, there’s capital on the sidelines to build out this infrastructure.

[00:31:53] Alyse Killeen: But here’s the problem. Lyn pointed it out, I’m going to underscore it. The initial demand for offtake of this new generation is unpredictable and unstable. And so to be able to measure how much to build and to be able to build for five years out, but also recoup your investment in the initial generation has been really difficult and has slowed the cadence of new generation development.

[00:32:21] Alyse Killeen: And so the founders at Grid List, it’s a team of three, Eric, Phillip, and Janet. What Janet realized after years of thinking about this problem and how to make a change, Was that Satoshi had not just introduced sort of an open and free free to access Optin Financial network that connects all of us.

[00:32:43] Alyse Killeen: But he had also introduced he or she or they had also introduced a business model that they could be used to electrify Africa. So we’ve tried everything else, right, to bring renewables online and to electrify regions that are off the grid. We’ve tried, you know, nonprofit organization and sort of all the other tricks.

[00:33:08] Alyse Killeen: And now with Bitcoin mining, we’re going to be able to try capitalism and, and just investment. And so that’s what Grid List saw and what they’re going to take a shot at. So it starts in this small river power generation. And they’ll be able to scale it up. Africa, of course, has almost unlimited solar power opportunities for wind, geothermal in addition to this run of river generation.

[00:33:34] Alyse Killeen: And this is a team that, you know, they’re not novices. They’ve built a few different things including hardware intensive businesses. And so we’re hopeful here that there, this is sort of a double bottom line opportunity, which is an opportunity to make a lot of money through bitcoin mining, while also doing good by helping to bring households online to electricity and to incentivize investment in that.

[00:34:01] Preston Pysh: I guess the thing that I really like about it, so Alex Gladstein just had a amazing article about the IMF and the World Bank and how it basically goes into these locations and turns all the domestic product into this one focused thing and how it really kind of destroys the, the local economy.

[00:34:21] Preston Pysh: When we look at what you guys are describing, this is starting with the energy, which is the most important thing to, to be able to do any type of commerce or any type of economic activity. And it’s getting the wheels turning and it’s getting that in motion. And then it’s like whatever their, whatever their environment in these small local communities is most productive doing, they’re now going to have an opportunity to perform whatever that is because they have electricity and they have energy in order to, to harness.

[00:34:52] Preston Pysh: So very, very exciting stuff. This one’s a little bit different, a little bit pivot. Lyn, you’ve been talking tweeting about the inflation rates in places like Egypt and Argentina, and one of the people that commented on Twitter was interested to hear your, you know, your thoughts on this going into 2023 for the rest of the year, the impact on emerging market equities, global fx in general, and then maybe kind of how that plays into Bitcoin.

[00:35:20] Preston Pysh: And we were talking about stable coins earlier. So if you’re holding any of the currencies in these, in these locations, I mean, we’re talking about inflation rates of like 80 to a hundred percent. So what are your thoughts?

[00:35:32] Lyn Alden: One of the defining characteristics that are emerging markets? Financial perspective, I mean, you know, the official terminology of the bunch of metrics that they look at, but for.

[00:35:39] Lyn Alden: Reasoning it kind of comes down to whether or not a lot of their debt is issued in dollars or their local currency. So for example, in in the United States, Canada Japan basically developed countries. The debt is denominated in that country’s own currency. Mm-hmm. . Whereas in emerging market, they’re, they’re unable to get, you know, the vast majority of their financing in their local currency.

[00:35:58] Lyn Alden: Mm-hmm. , and they have to borrow what is term hard money. Basically in ex money, they can’t print. So it’s, it’s usually dollars. It could also be Euros. And in many cases, sometimes it’s the end, it’s usually dollars. And there’s something like, according to b i s 13 trillion of dollar dominated debt in entities outside of the United States.

[00:36:17] Lyn Alden: And so, and that’s mostly not owed to the United States, it’s owed to entities in China, entities in Europe, entities in Japan. And so there’s all this dollar to have a debt. And the problem is when you have a year like 2022, where the Fed tightens very aggressively, they tighten their monetary policy very aggressively, that strengthens the dollar.

[00:36:37] Lyn Alden: And so imagine all of your liabilities suddenly getting harder compared to the currency that your cashflow comes in. And so any of these companies that have fairly low reserves and fairly high dollar dominant debts run into currency crises or debt crises whenever they have these rapid dollar strengthening cycles.

[00:36:54] Lyn Alden: Mm-hmm. . And so that, that, that’s happened to Argentina, that’s happened to Turkey, that’s happened to Egypt, it’s happened to a number of countries throughout Africa and the Egypt case in particular. I mean, I had family and friends there. They had in 2016, within, in practically overnight there, the Egyptian pound was like cut in half relative to the dollar.

[00:37:12] Lyn Alden: So for example, I had a friend who was like saving for a house and suddenly just, you woke up and there’s this, yeah, this la like half of his house savings are, are like gone and purchasing power terms. And then now they’re going through the same thing again where they had a really sharp it was a three step, so far, a three step current evaluation.

[00:37:30] Lyn Alden: It was kind of a planned, you know, it’s basically like, you know, they eventually had to do it, but they did it. The, the central bank did it on a timing that they, you know, they kind of pulled the bandaid off and so you had a, a, these, these stepwise devaluations. And so you go from like 15 Egyptian pounds to the dollar to, you know, 30 Egyptian pounds to the dollar in a very short period of time.

[00:37:50] Lyn Alden: I’m hopeful that some of this, the, the, the rate of this happening is behind us, at least in this cycle, because you don’t have the Fed, for example, tightening is fast in 2023. Mm-hmm. as they did in 2022. But some of them are still very much lingering and Turkey still has runaway inflation. Argentina still runaway inflation, and even the partially get them under control.

[00:38:09] Lyn Alden: The, the underlying problems are, are unfixed. So sometimes it’s, it’s sometimes it’s the local jurisdiction doing something wrong. But then a lot of it goes back to just the way the system’s constructed. And Alex Gladstein had a really good, she had like a 20,000 word piece on the IMF, the World Bank, and kind of the whole.

[00:38:25] Lyn Alden: Cycle of like, you know, modern day monetary, like neocolonialism, and we keep turning the wheels on. So a lot of it is that the, these four countries are pushing volatility to those periphery countries. And so sometimes you can blame them. Sometimes you can blame the developed countries die their way. A lot of people in these jurisdictions are just, they just get racked with the constant inflation, negative row yields, devalued savings, and all sorts of impairments on the ability to be banked and do trade.

[00:38:50] Lyn Alden: And when I was looking at this, I was also looking at, so in Egypt, for example, in a lot of these other countries, you get high interest rates, which are still usually below that, that inflation rate. But you get high interest rates. But if you’re unbanked and you just have your physical savings, you don’t even get those, those high interest rates.

[00:39:06] Lyn Alden: Mm. So if you’re getting 20, 30, 40% inflation and you would be getting 10, 15, 20% yields, at least offset some of that in a bank. You don’t even get that one. Yeah. And so it’s just, it’s just, it’s just dread.

[00:39:18] Preston Pysh: It’s not even just the IMF and the World Bank. I think the, the China Belt and Road Initiative is basically the same exact thing as the IMF and World Bank only.

[00:39:26] Preston Pysh: Maybe even worse. Probably worse. So you have not only just one kind of driving it just from the west, but you also have it driving it from the east. And it’s just for a lot of these nation states, it’s, it’s crazy. Does that speed up Bitcoin adoption? Cause I would think it’s easier to start saving in Bitcoin or at least storing some of your wealth in, in Bitcoin lightning than to try to find some type of stablecoin provider via Binance or whatever.

[00:39:55] Preston Pysh: I’m just naming that one cause I think that’s the largest one. I’m kind of curious to hear your thoughts there, but does this expedite people’s run to Bitcoin because it’s so easy to become banked and to get away from these currencies, these local currencies that have so much dollar denominated debt or you’re adeno denominated debt, that’s a disaster for them.

[00:40:15] Lyn Alden: So chain analysis does their like crypto adoption index, and they don’t necessarily break it down by, you know, Bitcoin ling, but they do their crypto adoption index mm-hmm. and they, they update it once in a while and like, you know, two years ago it was something like 19 out of 20 of the countries on their, their top 20 mm-hmm.

[00:40:30] Lyn Alden: were emerging markets. And latest one was 18 out of 20. That’s crazy. And, and United States was the one exception one here, and I think the latest one was United States and United Kingdom. Basically, you know, people in developing countries generally get this idea a lot more intuitively than a lot of people that, that don’t have monetary problems.

[00:40:49] Lyn Alden: That’s as much in their face that basically have high banking rates, have, have less unstable currencies and. , you don’t always see it. Going to Bitcoin though, you see it also going stablecoin, which kind of ties back into the prior thing that they often reach for what they know. Sometimes it’s, it’s stablecoin, sometimes it’s Bitcoin.

[00:41:05] Lyn Alden: In Egypt, for example you know, overall crypto usage, including Bitcoin and stablecoin is still quite low despite their currency problems. Mm-hmm. whereas ones where, and I think that’s partially because you, if you have step-wise evaluations, you can kind of, you can kind of ignore it for a while and then it all happens at once and you kind of like say, well, this happened, so, and you kind of go back to normal.

[00:41:25] Lyn Alden: Whereas if you’re like in Argentina or Nigeria or Turkey and it’s kind of, it’s a grinding year, year over year, they seem to, to gravitate towards it quicker. And so I’m not sure fully why some countries gravitates more towards others, but essentially this, this shows straight up the, the utility reasons why so many people want a money that their local jurisdiction can’t provide.

[00:41:48] Lyn Alden: whether it’s dollars, whether it’s Bitcoin, you know, whatever it is, depending on the person, they, they do want something else besides what they have offered locally. Alyse, any follow up on that other than to note lens and say, and brilliance? I’m not sure.

[00:42:04] Alyse Killeen: So I guess I would say, you know, the way that we can relate to that is just to note that as was alluded to with the comments on Grid List, the entrepreneurial activity that has insight on the application of Bitcoin to local problems is distributed.

[00:42:21] Alyse Killeen: And so this is why we are going to see companies like Grid List start in Kenya. And I’m, I’m hopeful and we’re looking for, as I’m sure you are, companies that see Bitcoin as a solution to the problems experienced in the geographies as Lyn just described them. because having tools to exactly meet those, those, those populations needs, and also to sort of feel comfortable and familiar, which is important, as Lyn pointed out is valuable and, and helps companies and product gain adoption.

[00:42:56] Alyse Killeen: And so, you know, I, I’m, I’m hopeful that we see entrepreneurial activity that speaks to exactly that which Lyn just outlined, because Bitcoin is certainly a good way to opt out of the instability that makes it hard for people to save or provide long term for their family.

[00:43:14] Preston Pysh: How do you guys see Fedimi nt playing into this?

[00:43:16] Preston Pysh: So we’ve covered it on the show. I know there’s a lot of people in the space talking about it. Sometimes I’ll get, I’ll get pushback from people on Twitter saying, oh, that just doesn’t make any, But I, I suspect you guys have a little bit of a different vantage point in how this will play out in local communities and how, and how close knit a lot of these local communities are in Africa, that places like where Grid List is, is setting up shop and, and working.

[00:43:43] Preston Pysh: How do you guys see Fedimint playing into this?

[00:43:46] Alyse Killeen: Well, so Fedimint is an opportunity for a new form of onboarding that can be more efficient and culturally suitable for certain populations. And so I, and it’s also led by someone by OB who deeply understands the Bitcoin space and sort of the diverse set of need that exist for folks that want to try out.

[00:44:12] Alyse Killeen: So they’re not all going to be, it’s not a homogenous group. Bitcoiners aren’t people that hold Bitcoin will continue to become more diverse in their needs, set their expectation and what they, what they know of the world. And ment is response to that in a way. Or it allows a community to come together and leverage the technical adeptness of community members to sort of help them onboard and secure funds.

[00:44:40] Alyse Killeen: And so it’s exciting to see. It’s a new, I think, sort of shot at what it’ll take to onboard the world to Bitcoin and how to do that in a way that everyone truly has access and also in an affordable way, which has been a sort of long, outstanding question of the Bitcoin community and one where there’s been great and rigorous debate.

[00:45:04] Alyse Killeen: Which is, as Bitcoin adoption really picks up and continues to grow, and of course it’s happening in a quick clip, does it remain affordable for everyone? I think sediment is in part an answer to that. I also think Lyn might know Fed meant better than I do, so I maybe this time I’ll hand it to her for the part B of the explanation of the company.

[00:45:27] Lyn Alden: Well, so yeah, ego Death Capital is a, as a leading investor fedi. And so I, I’m an advisor and investor with them. I, it’s obviously really early stage for Fedi but I think the technology’s right and I think the founder’s, right? So I’m, I’m very hopeful with what they’re going to do. Essentially, what the, what the observation there is that we, we see these small Bitcoin communities pop up and we, we can notice.

[00:45:52] Lyn Alden: privacy could be better, right? Basically, if you’re running a wallet for a community, the people running it can see a lot more than maybe you’d want as a user. They can see potentially what people are spending their funds on, what they’re, you know, who they’re receiving from. And Fedimint the idea there you know, there’s both an open source protocol.

[00:46:10] Lyn Alden: Now, there’s also other companies, you know, companies like Fedi or others can build on top of that protocol. And some, some have made, you know, similar protocols using, using this technology. But essentially it’s, it’s 40 year old lion signature technology that allows you to run these, these small custodial ecosystems in a way that’s very private.

[00:46:28] Lyn Alden: And it kind of serves two purposes. One is, is, you know, for these local you know little like communities, you can have very inexpensive you know, tied into light network you know, payments and savings infrastructure. Mm-hmm. . And then even the second thing is that even if more, , you’re not cost sensitive, right?

[00:46:47] Lyn Alden: If, if you have a hardware wallet, if you have, if you’re fully, you know, self custodial, you still might want something like a, a private spending option, right? You might want to have your savings account, which is your, like, you know, your cold card or whatever it might be, your, your multisignature. But you still might want like your wallet buddy in your, in your like lightning based application that’s private.

[00:47:09] Lyn Alden: And it’s, that’s easy to use and you don’t have to manage the liquidity yourself. And so there’s basically, there’s different points of optimization depending on what specifically someone’s looking for. And I, I think, again, it ties back to partially from a position of privilege, but it’s also partially looking very long-term.

[00:47:26] Lyn Alden: When we look at how bitcoin’s going to scale, it’s going to have to scale in layers. And I think basically the, the way it’s kind of developing is, it’s almost like a pick your own adventure based on, you know, what you’re trying to do with it, what resources you have. You can choose the part of the ecosystem that makes sense for you, right?

[00:47:42] Lyn Alden: So if you want to. You know, store a hundred thousand dollars worth of Bitcoin fully yourself. You can, you can do it in like a hardware wallet, you can do it a multi signature. You don’t really care about the fees too much. But if you’re trying to save a hundred dollars or $50 or, you know $200 if you want more privacy things like that, I, I think these types of ecosystems are going to be pretty important.

[00:48:04] Lyn Alden: And I think that’s, I think this is kind of a really useful tool to have in this kind of global view of these, these small little bitcoin communities pop up. And again, it’s, you know, the, the, the original concept is open source, so it’s not even, it’s not even a company in its own right. But of course there are, there are companies that can build on top of it, which is what we’re seeing.

[00:48:23] Preston Pysh: I think the liquidity part’s really important that you’re talking managing channels on lightning, but then still having ownership of the keys. You know, a lot of people are familiar with, like Wallet of Satoshi where they’re basically managing all that for you behind the scenes. And you’ve gotta trust that, that the actors there are, are good actors.

[00:48:42] Preston Pysh: And I think that that’s where this really kind of comes in at, at a local level where maybe you have some close family members and you have some that are, that are good at managing those things and they can help take care of that liquidity as maybe a person might have a, a really small net worth and they need to be able to transact.

[00:49:01] Preston Pysh: They really kind of provides, you know, that kind of service. Alyse, you don’t mind me going down a little bit of a macro path here with Lyn. I, I have some selfish questions that I’m, that I’m curious about, that I want to get answered. And, and feel free to chime in if you’ve, if you’ve got some points of view on here as well.

[00:49:19] Preston Pysh: Can you, Lyn, can you help simplify the the Japan situation for people so that anybody listening to. Whether they’re into macro or not, why it’s so important that we keep talking about this yield curve control jumping up and the, the most recent decision that the Bank of Japan made by not raising the yield curve even higher many suspected it was going to go higher than the 50 Bs on the 10 year.

[00:49:45] Preston Pysh: How does this really play into, like the global situation from an interest rate standpoint? And just kind of explain this in the easiest way so that most people can understand what’s going on.

[00:49:57] Lyn Alden: So tying back to my earlier comments about developing countries having their debt has not been in their own currency.

[00:50:02] Lyn Alden: Last time we saw the developed world go through like a period that’s like now where you have like over a hundred percent debt. The G D P was like the 1940s, and you had, so you had very high debt levels. And what a lot of them did was various types of financial oppression, which include yield curve control.

[00:50:19] Lyn Alden: So for example, the United States did the Federal Reserve did yield curve control, where they say, okay, we’re not going to let, yet in addition to controlling the short end of the curve, we’re also going to not let the long end of the treasury curve go over a certain amount. And for the United States that was 2.5%.

[00:50:34] Lyn Alden: So inflation average something like 6% from the early forties to the early fifties it spiked as high as 19%, but they held short term rates near zero. They held the long end at 2.5%. And the way they do that is they say, we, we we’re willing to print money and buy. , any bond that that trades over that yield or putting another way, because prices, bond prices are inverse to yield any bond that tries to go below a certain price, we’re going to buy.

[00:50:59] Lyn Alden: And essentially what they try to do is train the private sector to do it for them. Because private sector comes to, if they start to view that as credible, like let’s say the yield goes to 2.6%, JP Morgan could come in by that, knowing that if it stays above 2.5% for any length of the time, they’ll be able to sell to the Fed.

[00:51:17] Lyn Alden: And they’ll be able to make this basically risky profit, assuming the Fed actually, you know, sticks by their yield curve, control target. And of course that ends up inflating away a significant part of the debt because you, you, you hold the yields below the inflation rate with basically a limited QE as needed to do it.

[00:51:32] Lyn Alden: And so, so fast forward to the modern time, it’s, you know, First time since then when we see a lot of develop countries with, with well over a hundred percent debt, the gdp, d p and Japan’s is the highest at over 200% debt of GDPs. They have a very, very large sovereign debt load and they can’t afford significant interest rates on their debt.

[00:51:50] Lyn Alden: And they also want to maintain very easy monetary conditions despite the fact that above their target. And so they’ve been doing, for a while, they were holding their yields at 0.25%. So the 10 year yield was at 0.25%, even though the rest of the world was hiking their interest rates. Even though Japan’s inflation was above their official target, they were still holding that really low and they had to buy quite a lot of bonds in order to hold that at that level.

[00:52:18] Lyn Alden: Yeah. A little while ago, I’m forget how long ago it was now, time flies so quickly, but they kind of overnight, they expanded that to 0.5. . So they, they basically let the yields go a little bit higher to 0.5%, which is still below the prevailing inflation rate below the inflation rate target. And so it’s kind of, first of all, it’s relevant on a global scale because it’s kind of like Ana in the coal mine.

[00:52:40] Lyn Alden: We’re seeing how some of these variant indebted countries can handle this, you know, basically see how hard is it to do you know, what are the pitfalls that central banks might run into in trying to implement this policy. It’s certainly wealth and easy in the forties, and it’s not been easy for Japan here in the 2020s, but it’s also relevant at global scale for other reasons.

[00:52:58] Lyn Alden: One is that. . You know, aside from being very indebted, Japan has a very positive net international investment position, meaning that they had decades of current account surpluses, and they use those current account surpluses to go and buy foreign assets. So they own, you know, a trillion dollars worth of treasuries.

[00:53:13] Lyn Alden: The biggest treasury holder, you know, external to the United States. They go out and buy US stocks. They go on by European stocks. They go out and buy commodity deposits and, and in, and things like that around the world. They own a lot more foreign assets than than foreigners own of Japanese assets.

[00:53:29] Lyn Alden: And, you know, basically when they start to run into a currency crisis, one thing they can do in addition to manipulating yields and things like that, they can also sell off some of those foreign assets especially ones that are owned by the central bank, you know, owned by, by official accounts. And so that another, and then a third thing is that because their rates are so low, a lot of foreign entities have used them as a funding source to then go out and buy foreign assets.

[00:53:52] Lyn Alden: And so often what you’ll see is that, you know, when. US interest rates are also pretty low. You’ll see that a lot of Japanese investors will go buy treasuries and then they’ll hedge them back and, you know, to take out the dollar risk compared to yen, and they’ll still get a better yield than they can get on their local currency.

[00:54:10] Lyn Alden: But lately, because the US industry has increased so much, if a Japanese investor wants to buy US treasuries and they want to hedge out the currency risk, that’s actually a, a lower FX hedge yield than what they can get in Japan. And so basically this, this can kind of ripple through the rest of the global bond market.

[00:54:28] Lyn Alden: Part of why they’ve been able to stay so low is because Japanese yields have been so low. And so we’re kind, this is kind of like a real-time experiment, you know, for the first time in, in, in many, many decades, to see a very, very large developed country try to artificially suppress essentially its entire yield curve below the pro prevailing inflation rate and all the pitfalls that come with that.

[00:54:49] Preston Pysh: Yeah, I, I read some stuff that Luke Roman puts out there and he does a great job talking about the FX hedge and how the, the markets are much more comparable even though the yields might not look at like it. Whenever you look at something that’s FX Hedge, you were mentioning the their ability that they own so much equity in treasuries in the world.

[00:55:09] Preston Pysh: Do you, do you find that to be the reason we’ve seen the dollar sell off so hard here since November because they’ve been basically selling out of that and it’s, it’s put a downward drag on the dollar because the dollar move really has mystified me and that’s the only thing that I’ve heard that’s, that’s plausible.

[00:55:28] Lyn Alden: I think around the margin investment’s a contributor. Generally one thing you see historically is that when dollar is going up very rapidly, because there’s so much dollars on my debt out there mm-hmm. you’ll see a lot of entities sell treasuries or other dollars on assets to get dollars to then service their debt.

[00:55:45] Lyn Alden: So one thing people forget is that, you know, a lot of people mentioned this 13 trillion debt figure, but they forget to mention that there’s over like 50 trillion worth of US assets held by the foreign sector. And so they have way more assets in aggregate than they have liabilities. And obviously that’s, that depends on the jurisdiction.

[00:56:01] Lyn Alden: So for example, Turkey has more liabilities in assets, so, so, you know, they’re more stuck, whereas an entity like Japan as way more assets than mm-hmm. liabilities when it, when it comes to, to, you know, the foreign you know, dollar dominated variety. And so if you’re, Basically, the hard part about yield curve control is that if you’re trying to manage your yields artificially, the release valve is the currency.

[00:56:22] Lyn Alden: So if you hold the yield artificially low, you’re going to get your currency weakened more than otherwise would. But then the third variable they can do, if only if they have a lot of reserves, that they can also then sell some reserves. And so instead of weakening the currency, they can lower their reserve ballots.

[00:56:39] Lyn Alden: Mm-hmm. , but then that, you know, can damage the asset that they’re selling, which in this case might be treasuries. The US like Dollar Peak coincided with a bottoming and domestic liquidity. So the market started a price in slower rate hikes from the Fed, which has so far been somewhat materializing. And then also the Treasury general account has drawn down.

[00:57:01] Lyn Alden: That gets pretty jarry. But essentially that that, that the treasury’s kind of been partially offsetting some of the QT that the fed’s been doing. Possibly in, in, in partly in response to this upcoming debt ceiling issue. And so at least temporarily there’s slightly improved domestic liquidity, and then the weaker dollar is, is giving that global liquidity a little bit of a boost.

[00:57:19] Lyn Alden: And so I, I wouldn’t say that that all of that’s due to Japan, but certainly Japanese selling of. Is, is, is, is, is easily a, a potential variable to that because, you know, anytime that a large amount of foreign assets get sold from the US that can cause problems. We’ve also seen, for example, Switzerland’s, you know, you, a lot of these other ones will just stop buying some of the US equities and stop buying some of the US assets that they were just endlessly poll into, which is now some conversing.

[00:57:48] Lyn Alden: Basically. I think the move got overdone to the upside.

[00:57:51] Preston Pysh: Thank you for all of that. That was amazing. Alyse. I had a person online, this was just such a generic question, but I loved it because I think it’s an important question to ask and they’re asking about intrinsic value and you know, starting off as a value investor and basically large cap companies and trying to calculate intrinsic values like in this Warren Buffett style way, it’s so much different than in the venture capital space, which is your expertise.

[00:58:21] Preston Pysh: And so I guess the question for you is just how do you think about intrinsic value as a venture capitalist? For this, I didn’t write down the person’s name. I wish I would’ve written down their name for this person that asked this question on Twitter.

[00:58:34] Alyse Killeen: Well, that’s a great question. So when you’re investing in a company’s equity, you have to think about, you know, your, the exit valuation that is possible for the company or the enterprise value.

[00:58:46] Alyse Killeen: And when you’re investing in a token, you don’t have to do that. That’s the draw for investing in tokens. So in the bitcoin space, that’s the same as in any technology space. Enterprise value is accrued by companies that develop a product for which people have a desire to pay. And in a sustainable way.

[00:59:07] Alyse Killeen: We also need to see growth, growth cadence, and then the company’s relative position to competitors. . And so those are the sorts of things that start to determine growth stage companies in the private market, their enterprise value, if we’re going earlier where Eco Death, their still Mark are investing now, then what we’re really looking at, at least still Mark, is the promise of the market.

[00:59:33] Alyse Killeen: So the, either the current total addressable market or Cham to use an industry acronym or the expected tam. And, and then look at the team’s preparation to really be able to either define the market or to compete and win a dominant market position in a market that’s already been defined for them.

[00:59:56] Alyse Killeen: And so in the earlier stages, enterprise value, the valuations you see companies raise out is more of an art than Aian. Mm-hmm. . And then when you get to growth stage, it, it’s. It’s a science and, and the growing pains for companies, including Bitcoin companies, is how to move properly from valuations that are based on promise team and market into a space where valuations are going to be based on metrics including growth market penetration rates, and how you sit against competitors if you’ve been able to, and for Bitcoin companies in particular, how you’ve been able to maintain your growth across quarters, including in bear markets.

[01:00:37] Alyse Killeen: And so that, that’s how we think about enterprise value. And and although we’re investing today in really early stage companies, we need to be able to trust and see a path for them to, a place where their enterprise value is determined by metrics. So I don’t know if that answers the question of, oh no, that was of intrinsic value or not.

[01:00:59] Preston Pysh: I love that. I love that. Lyn, did you have any things that you want wanted to add to that?

[01:01:04] Lyn Alden: Not particularly, it’s just, I mean, it’s I don’t have as much experience as Alyse does in that field. The general philosophical differences that with value investing, you, you generally are aiming for a higher hit rate, so you want, you know, more companies to each do pretty well.

[01:01:18] Lyn Alden: Whereas when you venture the startup space, you understand that this is mm-hmm. , you know, there’s a lot of, there’s a lot more uncertainty there. And so essentially you’ll see some companies way outperform their expectations. Other ones you know, just don’t, don’t get the momentum that you think they do.

[01:01:34] Lyn Alden: And so it’s a, it’s a somewhat different risk model. Yeah. And it’s, you know, obviously they’re not profitable in, in the very early run usually. And so it’s, it’s more growth orientated, just, it’s a different style of investing. But either way, any sort of, any sort. Cashflow business that that is, has an expectation of generating future cash flows, is, is ultimately one way another derive from the expected future cash flows they can produce.

[01:01:57] Lyn Alden: But because these are so early stage, you’re not, you’re not really focusing on that and same degree and you’re, we’re focusing on what is the, the overall size that this market can reach and can they do it in a sustainable way? Love that.

[01:02:10] Preston Pysh: Yeah. It’s interesting the asymmetry of the hit rate early on you’re expecting it to be low, but you’re looking for these asymmetric returns.

[01:02:18] Preston Pysh: And then on the value investing side, it’s more like capital preservation and you’re looking for these slight, where the market’s just maybe slightly getting the pricing wrong and you, you’re looking for a very high probability of, of doing that correctly. Great comments there guys. Okay, this is my last one for you.

[01:02:36] Preston Pysh: What is something that you’re seeing right now in the market that. I’m going to say the word pet peeve, but I don’t think that that’s the right word to, to, to use, that you just think people are getting wrong or that they’re just totally missing, that you think is a really big deal. Oh, Lyn, I wanted to ask you about the c p I thing.

[01:02:53] Preston Pysh: Maybe I’m, I might have one more question but anyway maybe something that the mark’s just missing and that’s maybe you’re passionate about and maybe other people aren’t seeing.

[01:03:04] Alyse Killeen: That’s a great question. So I am going to start with crypto here and say that something that’s been really both interesting, disappointing, and maybe I never set the bar low enough, but to see people try to justify the fraud they’ve committed.

[01:03:26] Alyse Killeen: Amen. And the search for black box yields has been, Un unbalanced. And I think it yeah, and it, it’s hard, it’s hard to predict this because I think, you know, we’re to a fault. We assume that others are similar to us or will behave within, you know, that parameters, moral parameter parameters that we can understand.

[01:03:53] Alyse Killeen: And crypto has gone so far beyond that in search for speculation based returns. And so here’s the opportunity that is going to emerge that people will see. So where there’s been a collapse in crypto defi yield, or firms orientated around stat gener, yield generated on the Lightning network will be able to fill that.

[01:04:20] Alyse Killeen: And so here’s something that I think people don’t understand yet. As Lightning Network has matured and as adoption has grown, that’s made way for a library of the Lightning Network to emerge. And what I mean specifically by that is a reference yield rate for payment utility of the coin payments.

[01:04:39] Alyse Killeen: And of course that further financial aid, financial aid is bt the asset. So the reference rate, this li o r of Lightning network or reflects the demand for network capacity. And what that means is that as the breadth of utility as you know, the utility set expands for Lightning network. Either through entrepreneurial activity, through, through the launch of assets including stable coins, lightning Network or as adoption grows through the introduction of say, more traditional on-ramps, et cetera, that this rate should rise and yield opportunities, it can start to really become compelling.

[01:05:19] Alyse Killeen: So the current reference rate as still marked measurement measures it through Ambass magma marketplace is around 3%. And so yield can be, you know, generated to that degree now. And I expect to see that click for people, especially as they start to understand that there was no economic activity underlying this yield generated in crypto and start to look for alternatives to what they lost there.

[01:05:49] Preston Pysh: And that 3% that you’re saying there, Alyse, this is for basically providing liquidity into the market. Is that how that’s being determined? And so we we would-

[01:05:59] Alyse Killeen: That’s exactly right.

[01:06:00] Preston Pysh: Yeah. We would view that as risk free, right?

[01:06:03] Alyse Killeen: That’s exactly right. So I should have mentioned that at top and thank you for noting that.

[01:06:07] Alyse Killeen: So in the crypto space where yields was based on custodial models and generated by speculation in the Lightning network, there’s this opportunity for yields that is based on economic activity. and can be can be affected through a non-custodial engagement. Mm-hmm. . So it’s, it’s sort of the adult version of crypto yield in terms of it just being mature and sensical.

[01:06:37] Alyse Killeen: And, and just to take it down to the basics and what you all already know is that in enlightening network funds are pre-allocated to payment pathways, which enables payment settlement without counterparty risk. Yes. Right. And so that pre-allocated capital and those pathways can produce yields. and as the Lightning Network has matured, that’s something that exists now that we’ve yet to really wrap our heads around or see people take full advantage of.

[01:07:05] Alyse Killeen: And so you asked earlier about Q4 and I talked about pay per a p i calling stable coins on Lightning Network. I would add this to that, to that response to it’s what can people do with this non-custodial, economically productive based yield? And, and how will that space develop? And so that’s something I’m really excited to see.

[01:07:28] Alyse Killeen: And I think it’s a good maturation of thes that we’ve seen in the crypto yield search.

[01:07:35] Preston Pysh: Love that. Love that. Yeah. The guys over at Amboss seem to be the ones kind of leading the charge with a lot of, of this stuff, and they’re doing a fantastic job. I love their website too, by the way.

[01:07:45] Alyse Killeen: They’re growing. They’re growing quite quickly. So Preston, I always say, , if you don’t understand Amboss, you don’t understand the Lightning Network. And I, I really mean that. But we see incredible growth there. And something I I want to mention just to Bitcoiners is that companies like Amboss succeeding in this rapid development of tools is ultimately going to really drive adoption by creating a pathway for enterprise to engage without needing to really get the Lightning Network, like I said before.

[01:08:18] Alyse Killeen: So it’s almost like this abstraction layer of the Lightning Network for folks that know they need this payment efficiency. But beyond that are sort of going to need to set it and forget it for the Lightning Network. Amboss is going to do that.

[01:08:33] Lyn Alden: Yeah. Yeah. I try another thing in terms of pet peeves, because I view that if the market’s misunderstanding something that’s, that’s like an opportunity.

[01:08:41] Lyn Alden: And, and basically it’s something that can then it’s kinda like the optimistic spin, like a pet peeve is someone else’s opportunity. I still view proof of work as very, very misunderstood, especially with the, the kind of, you know, the, the ex explosion of, of, of proof of stake cryptocurrencies and some of the, I, I think the obfuscations that they make mm-hmm.

[01:09:01] Lyn Alden: when describing their trade-offs. Yeah. And focusing on, you know, I think the wrong errors, basically. I think that it, it remains very underappreciated how much of an innovation proof of work was especially combined with the details like, you know, difficult adjustments, small nodes. Basically what we see most in the crypto space is that every time someone looks at Bitcoin and thinks they can improve it, the thing they throw under the bus is decentralization.

[01:09:29] Lyn Alden: They, they basically make a, a more centralized thing, which has more bells and whistles. Maybe it’s faster, maybe it can do more. But then the cost under the hood for that is that it’s, it’s centralized in ways that are not always, not always obvious to a user. And so they see it’s a cryptocurrency is probably just like Bitcoin, but it can do more.

[01:09:46] Lyn Alden: But if they don’t actually know the nuance, they don’t run a node. Or if they don’t you know, look at, look at the, just the different requirements, the network. If they don’t look at, you know, what are the, what are the control points on the network? Like, who has undue influence? Who, who can, who can maybe change the protocol in a ways that uses, wouldn’t predict.

[01:10:05] Lyn Alden: What happens if the network goes down? How do you determine what the the cannon state of the ledger was? Right? So what is the un forageable cost? This what is the, the official state of the prior ledger. And with these other systems, you don’t really get those same kind of shorts that you get. with Bitcoin and it’s, it’s not, it, it partially is things like first mover advantage.

[01:10:25] Lyn Alden: You have liquidity, you have the truly decentralized star, but it’s not just, you know, brand and first mover advantage. It’s also just the actual waste design with purposely small nodes proof of work, of proof of state. You know, all, most of the metrics that Soshi selected were, were very intentional and they, they were, a lot of thought was put into them.

[01:10:45] Lyn Alden: And so I think that just, it, it rains very poorly. Understood both in the space and then also from, you know, just talking to other macro people. You know, they just kind of look at all the crypto as one big thing a lot of the time and they, you know, if you say like, what are your thoughts on Seg or Tap Rooter does, does basically it’s, it’s still a very niche space when you zoom out to the, to the overall macro level.

[01:11:09] Lyn Alden: Same thing if you ask about the lighting. If you ask about tarot, if you ask about any of the developments that are happening, they just assume this is some static protocol. All they see is like a price line. You know, they look at a price chart and they think that’s Bitcoin and they don’t look under the hood at the development that’s happening and why some of the trade-offs are the way they are really fast.

[01:11:30] Preston Pysh: This update to the CPI waiting that evidently took place on one January I’m hearing 200 to 300 bips drop in inflation on the next print just due to this waiting update. Do you agree with those numbers Lyn? And what’s, what’s the impact of that in treasury markets if we’re just magically dropping two to 3% off of inflation pre to previous metrics?

[01:11:58] Lyn Alden: So from what I’ve seen, I think that was somewhat misreported by some sources basically. That some people were, were looking at it as base effects, that it’s going to take an account one year instead of like two year, and therefore it’s going to be a big drop instead of what it means that, that the frequency at which they update the basket is now going to change more frequently.

[01:12:16] Lyn Alden: And so the, the challenge of measure in inflation is that every inflation basket is unique, right? So for example, my, the, the weight that I spend things on is different than the weight that you spend things on, which is different than the, than the weight that Alyse spends things on. And so all of us have like our own unique inflation basket.

[01:12:34] Lyn Alden: Like one of us travels way more than others and travel prices are soaring. And another person, you know, spends more on eating out. And that is say not swearing, let’s say. Then we can have different experiences of, of how inflation’s impacting us. And so what c P I tries to do is it tries to take like a nationwide average.

[01:12:52] Lyn Alden: Of, of what is the, the average basket the average consumer is, is buying, right? So what, what percentage of their expenditures go through a shelter? What, what percentage of their expenditures go through a transportation? What percentages go towards food? And they try to construct this like, you know, quintessential American like you know, person, and they say what is, what is their inflation rate like?

[01:13:13] Lyn Alden: And there are various ways to tweak that and, and people can debate over it. But essentially what this change is going to do is make that basket update more frequently, which, which sometimes can cause inflation to come out even hotter than it was before. And other times can cause inflation to you know, be, be lower than it otherwise would be.

[01:13:32] Lyn Alden: But the prior calculation, basically if you, if you update the basket every two years versus every one year, you’d get slightly different results. Even if you’re still looking to add year over year. CPI and so I, I, I, I don’t think we’re going to see a giant drop right, right away, but it certainly can affect the numbers around the margins.

[01:13:49] Preston Pysh: So do we speed it up as it’s going down and slow it down as it’s going up? Is that, is that what I’m hearing?

[01:13:54] Lyn Alden: Well, one example was joking, I’m joking this. So, so during, well, during Covid, for example, people stopped buying a lot of services. They stopped flying, they stopped eating out. Yeah. And they started buying more electronics.

[01:14:05] Lyn Alden: They started renovating their home. They started, you know, doing things like that. Buying like a, Consumer durables. And then once the lockdowns ended and, and some of the travel restrictions eased you saw like basically people already bought all the home stuff that they want for the next couple years, and instead they started flying more and going to hotels more and eating out more.

[01:14:27] Lyn Alden: And so you kind of saw that that rolling inflation go from those consumer durables to then go to services. And so if you’re looking at the basket, how far back you go? Oh yeah. The impact. If, if we’re spending more on services now, then services are going to have a higher weighting in c p I versus if we go back farther and include that period where we’re all buying dorms, goods and so that, it is kind of like there, there is a time component to it, but I, I think it’s overall it’s, it’s somewhat over reported, but we’ll see.

[01:14:56] Preston Pysh: Okay. I like the contrarian take there. You didn’t pile on the the bandwagon. I liked it. All right, this is the last one. This is Rapid Fire. Your book recommendation for people listening in 2023, you can only pick one book. What do you recommend? I love how thoughtful you’re being.

[01:15:13] Alyse Killeen: Lyn’s . Are we going to get something from Lyn?

[01:15:18] Preston Pysh: Lyn? What is it? Oh yeah. Uh uh, Lyn Lyn’s book is what we’re going to recommend.

[01:15:23] Lyn Alden: I would like to say that we’ll see if I can out this year. It’s, it’s a, writing a book is a challenging undertaking, especially if you’re trying to do so many other things. But yeah, I’m biased and I’ll say my, but I, I, funny thing is by, by writing it, I’ve done a lot of research and I’ve, I’ve read more books.

[01:15:37] Lyn Alden: And sometimes you can find books that you, you agree with. Sometimes you can find ones that you partially agree with and you want that, that opposing another book that you’ve read and you want the alternative view. And so one that I’ve been reading through lately is debt. The first 5,000 years.

[01:15:52] Lyn Alden: That was, that’s, that’s been a fun read so far. I also, I’ve been going back through different essays that people have written and so it’s hard to pick one book. I often write default as often Lessons of History because it’s like this a hundred page book written in like the 19, it’s really good sixties.

[01:16:07] Lyn Alden: Yes. It’s really good. And it just covers so many different facets. And it, it’s interesting because what they do is they often describe something and then they’ll, like, in the second half of the chapter, they’ll flip it around and they’ll be like, well, here’s another way of looking at it. And then they’ll kind of describe it almost like in a contradictory way and see, it’s kinda like how you can take the same event and depending on how you look at it, it comes out two very different ways.

[01:16:29] Lyn Alden: And like the one caveat that always say is like, there’s one chapter pretty early on that when you start reading it, it comes off like, like a little bit racist and it was written in the sixties and, but when you get to the later chapter, they kind of slip it around. and go, go back on it. So that’s always like the chapter that I kind of, kind of warn people about.

[01:16:48] Lyn Alden: But basically the, the book as a whole, it covers so many different facets and the whole thing it does is it kind of explores just, you know, thousands of years as human meant civilization. It’s like, if you can condense it into a handful of, of short observations.

[01:17:02] Preston Pysh: It’s amazing how much is accomplished in such a short amount of pages in that book.

[01:17:07] Lyn Alden: I’ve only read, I need to back reread it, but Yeah. Yeah. 5,000 years of history and they tried, they do it in about a hundred pages. Yeah. And it, it just kind of covers so many different topics, lease.

[01:17:18] Alyse Killeen: I’ll add a couple notes in addition to Lyn’s book that we’re waiting for. I’d say I always recommend something different than a book, but rereading the Cipher Punk mailing list and understanding the context from which Bitcoin emerged.

[01:17:34] Alyse Killeen: A lot of the mistakes made in crypto, I think occur because people in crypto believe that Bitcoin was test zero. It was a starting point for a, a free digital dollar, and that’s not true. It’s based on a couple of decades of prior experimentation and failed projects, and the Cypherpunk mailing list really outlines that or, or, or brings the value of that forward.

[01:17:58] Alyse Killeen: Johnny Beer published a book on crypto yield and contrasted it to the yield generation of the Lightning Network that I talked about earlier. The name of the book is escaping me now, but it’s Johnny Beer that published it. And then finally, I want to reference a tweet and tag it on to Lyn’s pet peeve opportunity of Bitcoin mining.

[01:18:22] Alyse Killeen: So, a, and this ties to the recommendation for Cypherpunk mailing list, Hal Finney in January 27th, 2009 said, thinking about how to reduce CO2 emissions from a widespread Bitcoin implementation. So in people misunderstanding proof of work or in switching from proof of work to proof of stake, they’re giving up the opportunity to reduce CO2 emissions and to sort of you know, news, both of the two things that, that Corey was introduced to do, which is financial freedom and, and also allowing for renewable and sustainable energy sources.

[01:19:05] Alyse Killeen: To thrive. So going to the Cypherpunk mailing list, getting the insight to people that so deeply understood Bitcoin, that they could predict that companies like Grid List would exist. All of these years later, I think is never, never a piece of time to reread that stuff.

[01:19:24] Preston Pysh: Ladies, what a pleasure having you guys together in this conversation.

[01:19:29] Preston Pysh: And I don’t know about people. Listen, it just, it is so hopeful. You know, Michael has the hope.com. I’m hearing this and I’m just thinking of like, what this, what things are going to look like by the end of this year. And a lot of the stuff that you’re laying out, I just, it’s very exciting. It’s going to bring so much hope to the world.

[01:19:50] Preston Pysh: And I just can’t thank you guys enough for making time to, to lay a lot of this out and just kind of talk about where you see the market going and where you see hope and prosperity evolving. So Lyn and Alyse both give a handoff to folks where they can find you online and anything else you guys want to highlight.

[01:20:10] Lyn Alden: So you can find me at lynalden.com active on Twitter @LynAldenContact and thanks for having us. Always a fan to talk to both of you.

[01:20:17] Preston Pysh: Alyse

[01:20:18] Alyse Killeen: Stillmark’s website is just stillmark.com with links for founders to reach out and I, I’m on Twitter at least as an audience to what happens there at @AlyseKilleen.

[01:20:31] Preston Pysh: We’ll have links to all that in the show notes.

[01:20:33] Preston Pysh: Ladies, thank you for your time.

[01:20:36] Lyn Alden: Thank you.

[01:20:37] Preston Pysh: If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use. Just search for, We Study Billionaires. The Bitcoin specific shows come out every Wednesday, and I’d love to have you as a regular listener. If you enjoyed the show or you learned something new or you found it valuable, if you can leave a review, we would really appreciate that.

[01:20:58] Preston Pysh: And it’s something that helps others find the interview in the search algorithm. So anything you can do to help out with a review, we would just greatly appreciate. And with that, thanks for listening and I’ll catch you again next week.

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