[00:01:57] Intro: Celebrating 10 years. You are listening to Bitcoin Fundamentals by The Investor’s Podcast Network. Now for your host, Preston Pysh.

[00:02:16] Preston Pysh: Hey everyone, welcome to the show. I’m here with Paolo and Mathias from Tether. And boy, boy, oh boy, we have a lot to talk about, not just on the tether front, but some other initiatives that you guys are working on with pair and key and decentralized applications. The list goes on. So welcome to the show. I am very excited to have you guys.

[00:02:38] Paolo Ardoino: Thank you, Preston. Excited as well.

[00:02:41] Preston Pysh: So for a listener, that’s not intimately familiar with what you guys are doing, I just want to throw out some numbers here so that people can start to wrap their head around the magnitude of what this is. Tether market cap, 114 billion as I checked it this morning, the number that I think is even crazier to me is 60 billion in volume in the last 24 hours.

[00:03:07] And I don’t even know that this was a busy you’d have to tell me, Paolo, is that a pretty normal number these days, 60 billion in volume for just the last 24 hours.

[00:03:17] Paolo Ardoino: It fares between 40 and 60. Keep in mind that after Trump spoke at the Bitcoin 2024, the volatility on the market has been to say the least interesting.

[00:03:29] So it’s expected to see bigger volumes in USDT because USDT is becoming, well, it has become over the years. The base pair for every single other digital asset. So all the different cryptocurrency trading activities are settled in USDT for the most part across the entire ecosystem.

[00:03:47] Preston Pysh: Yeah, and this is something else that I found interesting.

[00:03:50] So I’m looking at, in comparison to Bitcoin, you’re looking at a market cap on Bitcoin that’s about 10X the size of the Tether market cap it’s a little bit more than that. It’s 1. 3 trillion dollars is the current Bitcoin market cap. But the daily volume on Bitcoin is only 38 billion. So if we were going to compare these numbers from what’s the word I’m looking for the frequency or the turnover on a daily basis, the velocity of money, if you will, tether just in the last 24 hours is 50 percent of all the tether that exists has turned over volume wise just in the last 24 hours.

[00:04:28] On Bitcoin’s side, it’s only 2%. And so I guess I’m just looking because I find these numbers just staggering because that’s 25 times the difference of how much faster the money’s moving on Tether than Bitcoin. Why do you think that that’s the case?

[00:04:43] Paolo Ardoino: Well, first of all, there are part of the market cap of Bitcoin.

[00:04:46] There are Bitcoins that are not moving since a long time. So you have to account for that. And also when I think about USDT and Bitcoin, there is a fundamental difference, right? So Bitcoin is in part used as, you know, it’s traded for sure, but also is considered the best store wealth in the world, right?

[00:05:07] So people tend to hold Bitcoin more than they tend to hold U. S. dollars or USDT. Also USDT on the other side have multiple utilities. While I’m a Bitcoin myself, myself, I think that I believe that the world needs to go towards more and more adoption of Bitcoin for both store wealth. So your savings accounts make it simple and your checking account.

[00:05:31] I believe that we need to see it’s sealed very early for that. The success of USDT comes from the fact that not everyone in the world is ready for Bitcoin yet, especially for whom lives in the emerging markets, developing countries, they would. exchange their national currencies for USDT because USDT represents the U. S. dollar. And although the U. S. dollar is not perfect, we are seeing how much dollars have been printed in last year. That was a pretty calm year, right? And nothing major happened. Still more than 1 100 days was printed. Still is much better. The US dollar is much, much better than the natural currencies.

[00:06:11] That’s 5 billion people on the face of this shirt called on their day to day lives. Think about Argentina, Lebanon, Turkey, Venezuela, that is in very close proximity. Discussing in the last 24 hours Vietnam and you know, you can name Turkey. You can I mean, so, so many, right? So 5 million people living in countries that have very high inflation rate and very fast evaluation of their national currencies.

[00:06:35] And so the common denominator of all these communities is Trying to find a better solution. Think about the Argentinian people. They have been let down from their governments for across through the two different defaults and they were on the brink of the third. So people are sick and tired to have to rely on their local government.

[00:06:57] And although again, the US dollar is not perfect, it’s much better than what they have. So what you see on the big on the USDT side is in part cryptocurrency settlement, a trading settlement, cryptocurrency, like trade finance, the settlement, we are seeing a huge increase of usage of USDT in trade finance, like commodity trading by cotton in Turkey, when USDT is and things like that, but also is becoming a savings account in many, many countries.

[00:07:23] And so, and people are all ramping from their national currency onto usdt just to protect their families, protect their savings. Eventually we hope and through education to bring these people to learn more about bitcoin, but it’s an, it’s a process for in this moment. They know about the dollar and so they are more attracted to the dollar.

[00:07:44] That’s why you see these incredible percentages.

[00:07:47] Preston Pysh: Yeah. I mean, people could just look at how you guys are sweeping cash flows within the business and what you’re doing with your cash flows as to what your thoughts are on like where you need to be preserving your wealth. Because my understanding is that a majority of the cash flows are being swept into Bitcoin.

[00:08:03] Is this accurate?

[00:08:05] Paolo Ardoino: Well, tether has announced in the end of the first quarter, 2024, we had our attestation released, and we are a couple days far from releasing the new attestation for this quarter, Uhhuh . So up to in general, up to 15% of our profits have been put into purchasing Bitcoin. Tether has been very, very much discussed, right?

[00:08:27] We all know about that. We were since 2014. Everyone has been obsessed by Tether and you know, all the FUD, all the different discussion about how we keep our reserves. So, we are Bitcoiners.

[00:08:41] Preston Pysh: But Paolo, there’s a difference between your reserves that are backing the issuance of coins and excess money.

[00:08:47] Profits that the company has made and what you’re choosing to do with those reserves. And I think that it’s really important. I think this gets lost in all the noise that when a coin is issued or a stable coin is issued, it’s backed by something. And my, yeah, it’s backed by us treasuries, most likely short duration cause you don’t want the inflation risk is what I’m assuming.

[00:09:08] I, you know, you’d, you’d have to speak to this, but then if the company makes a profit, it’s stored in something. That’s something I would imagine is Bitcoin, or at least that’s what I would want it to be in if I was you guys. So can you talk to that difference in like how you think through some of that?

[00:09:23] Paolo Ardoino: So definitely in part in, in part is Bitcoin for sure, right? But we started to be profitable. Tether started to be profitable two years ago with the increase of an interest rates before the interest rates on our reserves was 20 basis points. So we didn’t have so much money to invest in the last two years.

[00:09:43] Tether profited around 11. 8 billion. So that’s why I was talking about being conservative because we were very, very much discussed and on the mouth of everyone, because what we took as a decision is to keep part of our profits instead of distributing them and becoming fatter. We decided to keep 5 billion in the company in excess reserves on top of the 100 percent reserves that we have to keep on to back all the issued tokens.

[00:10:17] Just to give you a data point that will be released in the next few days, we are between our direct and indirect ownership of a U. S. treasury bills. We have around 97 billion of U. S. treasury bills as of today. Well, as of the, sorry, the 3rd, 3rd of June, 2024. Was around 90 billion at the 31st of March, 2024.

[00:10:40] So basically when we get new issuances, we made this commitment to put. Most of them in the U S treasury bills, because we believe that is very, very important. We have a little bit of other upsets as part of the research, including gold is all available in our station. We believe that gold is also a very important asset.

[00:11:01] We started accruing gold a few years ago before, you know, pretty much at the beginning of the pandemic. And that approach to risk management paid off fairly well, because if, although, as you mentioned, we have The, the vast majority of our TBLs or basically all of the TBLs are in short term maturity. So less than 90 days, you won’t as a market money, market funds and other like very well recognized financial instruments.

[00:11:27] We want to make sure that we keep a small percentage of our reserves in something that could hedge certain volatility events like the three months TBLs are very, very solid, right? So they are very, very liquid. On top of that, we have several billions in overnight terrorist repo, so if we have a huge redemptions in tens of millions or billions of dollars, we can fulfill that with a snap of the finger and we can keep on going on and pay up to the last dime very, very quickly.

[00:12:01] Right. I think our lab mate a few days ago spoke about it 2024 in a very, very proud way because we engineered a very strong machine where we have all the reserves to back usct plus we have 11. 89 billion more that we trapped in the company. To protect our ecosystem. Look, there is a why I said we were on the mouth of everyone and people were obsessed by our research made us be very aggressive on how much we want to show to the world that all the heroes of finance and all the heroes of crypto that were heroes until 2022 they almost died or they died.

[00:12:51] through 2022, because they did all the things that a Q said are off. They lent to each other through skintestware deals. They created the inflated values of tokens and all that. And then we decided that, and in 2022, I’m not sure if you remember, Tether was publicly attacked by short sellers that altogether borrowed tens of billions of USDT from lenders, paying 12 percent per year, because they thought These guys at Tether will never have more than 10 percent of liquid reserves.

[00:13:29] So we are going to short USDT, we are going to close a bank run, and they will go belly up and we will make the bottom line. Instead, we had already, we did enormous work to move from the commercial papers that we had in the past. Then by the way, we never had a default, we were short maturity, we were very, very safe.

[00:13:49] But then we took basically the majority in U. S. CBOs. So we could sustain 7 billion of redemptions, that were 10 percent of our reserves, in 48 hours. And we could sustain 20 billion, 25 billion of redemptions in pretty much more than 20 days. That was 25 percent of our reserves, like at peak. So there is no bank that survived to that, and that’s why I like to talk about it because we, it was a very stressful moment for us because you know that you have the money, you know that you are liquid, but you have to keep going, keep paying out because you want to show to the world that you are made different.

[00:14:27] And that’s why we are keeping this additional reserves on top of our 100 percent reserves, like this excess reserves. And then we have Tether investments. So what has been accrued and profited from the company, from the TBL center assets that we have throughout the last few years, in parties, excess resourcing parties in Tether investments, that is a separate subsidiary of our holding group that AI, that is doing investment in biotech that is supporting great projects like soul punch and key to development and so on.

[00:15:00] Right. So we try to be as diligent. As possible, right? Last year, three banks in the U. S. went belly up. Silicon Valley Bank, Silvergate Center, one of our major competitors, all died for that. We don’t want to be anymore, in any situation, nearby that, and that’s why we are putting part of our research in Bitcoin.

[00:15:21] I wish we could put more, of course, but being conservative in this moment is the name of the game.

[00:15:27] Preston Pysh: Well, what I find so interesting about that moment that you’re talking about in 2022 and why I think you were probably being attacked the way that you were, all these banks and the people that were probably the attackers in this, and I don’t know who they were, but for 40 years, you’ve had interest rates just go down.

[00:15:42] And so the play was to be long with as much duration, treasury duration as possible, because you made a ton of money. If you were in long duration issuance at that moment in 2022, it was kind of like, I think. Global finance kind of figured out like, Oh no, maybe this bull market we experienced for 40 years is over.

[00:16:00] And if you have long exposure, you’re about to have your face ripped off. And so they might’ve assumed that you had a lot more long duration on your balance sheet than what you had, or else you wouldn’t have been able to do what you did. And this, I guess, this is where the question that I want to go.

[00:16:13] When I look at how much issuance the U S has had to make or any government at this point, they’ve had to move from 30 year bonds to really like overnight money. The amazing thing is that you’re getting paid the most to take the short end of the curve, which is incredible for you. You have no inflation risk with that.

[00:16:32] And well, not none, but like basically none and you’re getting paid the most to be there. But for them, for the government’s point of view, they really need to be having long term issuance and there really needs to be a real market there. And it almost seems like they’re going to have to start incorporating Bitcoin or gold or something real or tangible with these long duration issuance for it to be a free and open market and for there actually to be a buyer.

[00:16:57] Would you agree with that? And what do you think that would have to look like for tether here? What are you guys like the 16th biggest buyer in the world for treasuries at this point? U. S. treasuries at this point and only growing what would have to entice you to go further out on the curve? What would they have to do?

[00:17:12] Yeah.

[00:17:13] Paolo Ardoino: So the problem is when going out in the curve is that the, the simple point job is very simple, right? And the most single, most important thing ever is that we need to be able to liquidate our serves immediately and pay out our users. That’s that’s simple, right? So, so you need liquidity enough.

[00:17:32] You mentioned is liquidity and we cannot take the risk on the, who knows what will happen in the next. six, nine, even 12 months, right? So it’s very, very easy, even from a geopolitical perspective, what you described is you said that simple banks could have Bitcoin and gold. That is basically what we are doing also at Tether, right?

[00:17:56] So we have Bitcoin and gold as well, because it’s important. No one can predict the future, but you know, maybe color me pessimistic here, but I don’t think we are going towards. a nicer period for humanity, right? So there’s so much tension. There’s very, so much tension, starting from the world, very, very high attention to the U S to everywhere else in the world, things are not nice.

[00:18:20] And so I think having an exposure to scarce assets like Bitcoin and gold is the way to go. Definitely at least in will help to protect possible spikes Well, when it comes to interest rates or basically downturns when it comes to interest rates and the market to market of those assets. So we thought it through very well.

[00:18:43] And look at China. I mean, I was reading today that China announced in May that where they were stopping to buy gold, but actually they found that they were continuing buying gold, right? So, and many other countries in Asia are buying enormous quantities of gold because everyone is fearful that something is going to happen.

[00:19:01] So that’s Bitcoin. of our group is very important. We believe that of course it’s a way to sustain and support Bitcoin. We are Bitcoiners at heart. We spend a lot of time in advocating and educating on Bitcoin, but it’s also the most intelligent thing you can do with your profits. So with your profits, you should keep, you should start investing a portion of them into something that.

[00:19:23] Can resist to the breath of God and maybe I’m wrong. We are going to experience that sometimes in the future.

[00:19:30] Preston Pysh: Absolutely fascinating. But my takeaway was, yeah, I don’t really want to touch anything in long duration was kind of your response there. And to be honest with you, like why would you ever want to go out on the curve when you’re being paid more to be at three month money just doesn’t make any sense. And the liquidity and the liquidity point that you made.

[00:19:48] Paolo Ardoino: Yeah. And also. Sometimes people ask me, Oh, what you’re going to do when interest rates will go back to 2%. Well, first of all, I don’t think inflation will go away at any time soon. But even if you assume that case, right, 2 percent on 114 billion, you know, we can live with that.

[00:20:06] Right. So even 1 percent is good money. So we basically distribute almost nothing to the shareholders. All those profits that we made, those 11. 8 billion profits that we made. Because we believe that the majority of the profits has to stay in the company and support great projects. So that’s, for us, I mean, it’s, of course, it’s great.

[00:20:28] It’s a great period. And if, even if we start earning a bit less, it doesn’t matter. We still have enough cash to build crazy stuff, right? I remember when you could build a very good project with 1, 000, 000. It seems today that you cannot do that anymore, since that, unless you are worth 100, 000, 000, you can, you are nobody.

[00:20:45] But you know, back in the time and Mattias remembers that, you know, 1 million to develop something where already good money, but you know, jokes aside, we have enough fuel in the tank to build all the crazy things that we want for the longest time we want. And that’s why we are very, very, very concerned.

[00:21:05] Preston Pysh: To your point. One of the things that I think is shifting in business is just the focus on the income statement versus the focus on the balance sheet for years. It’s all been about, I mean, it’s still super important. You got to have a bottom line, right? But I think for some of these companies, micro strategies, a glaring example of this, a company that has focused about the balance sheet and having something that is primed for what I think is a very long macro trend of interest rates going higher and inflation going higher.

[00:21:34] Like you said, even if interest rates would be manipulated down to 1 percent or they actually go back down to 1 percent and you’re only, you know, banging out a billion a year, I say only, I think your Bitcoin position on your balance sheet, the next question will be, well, where’s Bitcoin at if we’re talking three or four years from now and interest rates are at 1 percent because if you’ve got, I think you said a 15%, is that correct?

[00:21:57] 15 percent position in Bitcoin. If Bitcoin’s at 200, 000, well, your financial position has gone kind of gangbusters for how much you own. It’s gone up a lot.

[00:22:07] Paolo Ardoino: Just, just to say, so you were taking, I mean, I don’t have the last numbers with me, but you were thinking we own around the 80, 000 Bitcoin. It’s not bad.

[00:22:16] So, I mean, we can, we can definitely hedge any sort of a change in profitability of the company. I think that, If interest rates will go down, it’s likely that we’re going to see Bitcoin going up very, very quickly. Yes.

[00:22:32] Preston Pysh: Amazing. All right. So I could, Paolo, I could talk to you literally for like the rest of the day on this particular topic, but we also want to cover some other stuff.

[00:22:41] And from an engineering standpoint, I know Mathias, so you’re very excited to get into this and I’m excited to get into this.

[00:22:46] Mathias Buus: I love hearing about Tether.

[00:22:50] Preston Pysh: Okay. So this is where this is the stat I want to throw out for people to wrap their head around the magnitude of what you guys are working on here.

[00:22:57] And if you didn’t catch it earlier, Paolo was saying that with the profits that Tether has created, they have, I think it’s a fully owned operational subsidiary that is focusing on R and D development on emerging technologies that they think are important. One of them being this pair initiative. So this, listen to this stat, Telegram.

[00:23:17] Okay, everybody’s familiar with Telegram or Signal or whatever. But for Telegram, they have 700 million dollars annualized in expenses for their servers that they run. Okay, almost a billion dollars. To just pay for all the servers and the processing and the whole bit of it. Okay. What these guys are building is a zero cost infrastructure peer to peer application system that you could basically create an app on their app store, a telegram like app.

[00:23:48] And, and they have this already, they’ve, you guys have built Keet, correct? Where, and I’ve used this with friends and tested it out. And it’s the same exact thing happening. You know, maybe the UX isn’t as good as Telegram yet. But they’re doing this with no servers in the background. So help us wrap our head around how in the world something like that is even possible.

[00:24:13] Mathias Buus: So first of all, I’ve been working with computers for the last 20 years of my almost 40 year old experience. And from the very get go, I’ve been interested in peer to peer technology and how we can utilize all this technology we have already out there instead of actually adding tons more to the stack.

[00:24:29] So like we all have very, very powerful computers. We all have very, very powerful phones. And a lot of us have very powerful internet. Most people have internet in some way or another. Now we have mobile internet also, which is what we have in most of the places. And yet it’s still really, really complicated to make applications that talk to each other without putting in tons of money into servers and building up big data structures.

[00:24:51] And that’s like why that statute you mentioned kind of like reflects a lot of like it creates a lot of emotion in me because like there’s more computing out there than ever, but it’s still overpaying more and more money to have things. And I think in the last many years, that’s been a very When I started out, and we talked about raising money before, the first money I raised was a check for 20, 000 to build my first thing, and that lasted me one year, I remember.

[00:25:15] 20, 000 today, you can’t get really far on if you have to pay infrastructure. These costs have just gone up, even though they told us they were going to go down, that’s because as they have gone a little bit down, usage has gone up tremendously. So it’s like rocket science. So I’ve always been interested in how we can just use technology because all the technology is out there and you make technology that can solve these problems so we can just utilize the stuff we have and make powerful apps that basically run for free and we can focus on a lot of other stuff like making great apps and something me and Paolo have discussed at length in the past also we’ve made tons of projects in the past and we decided to get serious a few years ago about turning this into an application framework.

[00:25:49] So we took a lot of technology we already built I guess it up into this pair platform. That allows developers to just very easily make these kind of applications that are really powerful. No servers just connects people make like nice looking mobile apps, desktop apps and make it really fast. And we make heat on top of this.

[00:26:05] Also, when we started out as like a flagship product to kind of showcase how you can do this, like you’re saying, it’s a beta product. So we’re always iterating and we’re doing a really, really big push right now on performance and stability because we’re moving really fast. And sometimes when you move really fast.

[00:26:17] But that’s been, that’s been a really great journey for us to show how you can actually make this stuff without having the servers. And I think even though our, our current core products is like I said, it’s a bit early, like you said, it’s sometimes a little bit rough on the UX. It’s still, every time I use it, there’s this moment where I’m like, you know, we’re not paying for anything here.

[00:26:37] Like we’re not having any servers, yet it still runs, yet we can still text, I can send stuff to my wife. I’m in a couple of big rooms.

[00:26:43] Preston Pysh: Mathias, this is the part that I’m so blown away with, is having used Keet, the video on Keet. I swear to you folks, the video is better than this Zoom call we’re having right now.

[00:26:54] Mathias Buus: And that’s the suit call they have to pay for. And like there’s somebody somewhere that has to pay for that.

[00:26:59] Preston Pysh: But I guess technologically, I’m trying to understand how that’s possible that my video feed is clearer and there wasn’t a single lag on the audio or the video. It was crystal clear. I just don’t know how, because I think a person would look at this and just say, well, if there’s not some type of centralized server that they’re running this through where they’re managing the bandwidth and whatnot, that if you would decentralize this and run it across, scattered across like all these different computers, that there would be issues or the performance would be degraded for the increased decentralization, and it’s not, it was literally the opposite, and so As an engineer, I’m looking at things and I’m saying the trade off should be the worst performance for this decentralization that you’re getting out of spreading the servers out. But that wasn’t the case. That’s what’s so weird.

[00:27:46] Mathias Buus: Yeah. And I can understand. It’s also, you know, it’s still weird to me sometimes, like I said, when we use it, because it’s like a bunch of really hard problems. We’ve spent a lot of time solving these and solving these like to a degree, but also if you think about it, Any video call, like what we’re having here, should just be limited by how fast you can send me data and how fast I can receive it.

[00:28:02] You’re already paying your monthly bill, I’m already paying my monthly bill. The only body that has to pay extra bills is the media or internet between us when it goes to a server. As soon as you take that one away, Even though that’s a hard problem. And I guess that’s something we’ve worked on for many years, and we’re only now getting at the point where it’s like, really, really, really good.

[00:28:19] That’s just, you know, take away the middleman. It’s just a matter of just using that connection. And you’d be surprised how little data you actually need to send really good quality. And the only reason why centralized services don’t do it is because you increase 10 percent of the quality and assume their revenue. Profit graph, you know, messed up. Right.

[00:28:38] Preston Pysh: So you’re basically taking the limiter out because they’re trying to make money in one of their sole costs are the servers. They’re basically limiting the bandwidth that they’re feeding. But with this, it’s somewhat uncapped.

[00:28:49] Mathias Buus: Yeah, we don’t care. Like we want just to do, just to have the best experience possible and get as high quality as possible.

[00:28:56] And I think that’s like. So we talked a lot about it with the tether. So Paoloa talked a lot about like, you know, being conservative and being steady. Boss is all about being really progressive and, and like trying to break the status quo and kind of like go back to a future where we’re just utilizing the resources we have because we have a ton and delivering crazy good systems.

[00:29:15] And I also think that the one thing going back to the previous conversation that’s really worth thinking about with peer to peer is like, In a volatile world where things move fast having a reliance on apps that use data centers and connections throughout the world, I think it’s going to be a big concern going forward.

[00:29:32] And I think peer to peer is the only way we can solve this. Like, you know, the data is like moving from our computers to various regions in the world. First of all, like the legalese of that is always tricky, but also just. There’s, you know, very few cables that needs to be cut to, to stop that.

[00:29:45] Preston Pysh: I want to just preface. Yeah, yeah, yeah. Go ahead, Paolo.

[00:29:51] Paolo Ardoino: So just, I wanted to, because before you mentioned from the technological point of view, how could be counterintuitive that the centralized system is more efficient than a centralized system. The reality is that Heat is peer to peer that is decentralized, but we are in today used to the concept of decentralized as if everything was a blockchain, so you would need a consensus.

[00:30:16] You don’t have consensus in Heat. Heat is bringing the old good point to point connectivity. Internet was built on a connectivity, right? Every computer when you connect to internet has an IP address. It’s like your home address. So if I want to send you a mail, write a letter, a physical letter, I will go to my post office and there will be a routing of that letter that will deliver it to your house.

[00:30:43] And the internet was built in a very, very similar way, right? So you have this routing, you have these routing systems that will take the packets that I want to send and deliver them to you. But over the years, we put in the middle data centers. Because data centers are owned by big tech companies that can, if they are in the middle, they get access to our data.

[00:31:06] So actually data centers are helpful for a few things like backups and data availability and so on. But for connectivity, they’re not very helpful. It could be very rarely helpful, but it most apart are not necessary. So we are used to think, oh, stuff will not work if there is no cloud or there is no server in the middle.

[00:31:28] That is not true. That that infrastructure is also an enormous burden to humanity. You think about this, right? So let me imagine that I live in Rome. My mother lives in Rome. You know, we are living one kilometer apart. Most of the people on earth talk to people, other people that are living in the same area for most of the time, right?

[00:31:51] So you are more used to talk to people living in the same area for a good portion of your time or in the same country, maybe. But if you live in Rome, every single chat, text message, data packet of a call has to travel 5, 000 miles to Frankfurt to go back to Rome. Okay. That’s why it’s better because governments spend enormous amount of money in building internet infrastructure that is only servicing connectivity that is useless, that is waste because you don’t need to do to transfer this data across the world to go back to the just one kilometer away.

[00:32:31] There is no point for that. Imagine all the more we keep improving the internet cables redundancy. I mean, just yesterday, someone cut internet lines in France to be able to protest against the Olympics and how for Europe had the problems. Because everyone is basically going and using this centralized service.

[00:32:50] But the internet was not built like that. It was built to be resilient. It was actually a military project. It started as a military project. It was built to be resilient. And yet, we managed to centralize the internet by 70 percent in the hands of three companies. So, that’s what Hidden Pole Punch is all for.

[00:33:07] Preston Pysh: I love it. And in just a FYI, people that are watching the video here, they might be wondering why we’re not using it. So very early days, there’s no record button associated with it on the desktop version. I’m running this on my Mac computer yet. My understanding is that That’s in the works. But when I was trying to video capture the screen, I was going to use it.

[00:33:27] And then I was in a video capture my screen, the video capturing was putting like this lag or this delay into the video after, you know, I looked at the recording and it was like, I don’t want to use this because it’s just not going to be representative of how it’s actually performing, which is just totally seamless.

[00:33:43] I would highly encourage people. You can just download this. You can go to the app store, download key. You’re going to have to have a friend to also do it so you can test it out. But I think when you do it, I know I did this with Lynn Alden, James Lavish. We kind of tested it out and all of us were just like, this is unbelievable.

[00:33:58] I can’t believe how clear and seamless this is. Now, the part that I really want to get into is from a security standpoint, would you argue That you’re getting better security than call it a signal or a telegram that’s optimized for I know they have like two different settings, an encrypted level of it, because what I hear is that this should be a better way from a security standpoint, if you don’t have a centralized server.

[00:34:25] Mathias Buus: Well, so first of all, when you make peer to peer application security is not optional. It’s not something we add in. We don’t have that secure mode and unsecure mode because that’s the whole system in a peer to peer system. Because when you’re talking to all the peers, there’s a lot of who are you talking to?

[00:34:37] How can I secure that? So security is the name of the game. And so it’s secure by default. Everything is in turn encrypted. There’s a lot of defense in depth in that way. There’s no like a single That holds all the data, even if it’s encrypted, people can just get to, it’s all spread out. And I think that’s one of the things you really, really need to think about when you think about peer to peer apps that like it’s, it has to be, because that’s the whole foundation of it’s to work.

[00:35:00] And this is all built with really modern encryption primitives, all open source, all our primitives, open source. And since it’s all part of peer to peer stack, that means that software wise, it’s kind of like an engine that just handles all the security forms that’s then deployed actually on phones because, you know, just like it’s.

[00:35:15] It appears to your phone is very powerful in that way. And that handles all this security for us. We made this and it makes it secure by default and extremely private pretty full because there’s very little stuff leaving your phone, which are other than the people you’re chatting with and also makes it extremely resilient because we always say that it’s one of our prime objectives is that We should be able to run a business tomorrow and everything should still work because there shouldn’t be any reliance on us, other than obviously the updates will take a little bit longer if you’re not getting paid.

[00:35:42] And that’s like something that’s been put into the protocol per default. And I think any other model in peer to peer, although you can do like encrypted stuff and a lot of people are doing encrypted stuff and et cetera, et cetera, just has inherent Difficulties compared to peer to peer because you tend to, you know, first of all, you need to monetize often the data.

[00:36:00] So you need to have loopholes. That’s why even apps like WhatsApps are like internally encrypted, but also sometimes more encrypted than other times, which is always a little bit confusing to me because they still want to have like avenues of making money on their data because they need to make, pay really, really big bills like we talked about in the past.

[00:36:15] And I think that’s one of those things where since we don’t have any costs and since we have technology that can just scale as far as we can go in from the beginning, we did this from the beginning. It’s one of the first millions we had in the money. We talked about making this and saying, no, this is just, if you want to put ourselves in a way, technology, we can’t even do that.

[00:36:29] So it’s like, it’s fully private and we can’t see any of it. And whenever we’re going to be able to monetize up, even if we wanted to that data, because we don’t know what’s going on. And I think that’s really, really essential. Also, I think that’s the only way you can make apps today, especially communication apps today.

[00:36:43] Like it has to be that level of privacy. And then I think just to add on that, I think what that makes it For me, really cool. So She appeared in the high cell of that stuff and doesn’t make it like a super, Oh my God, it was like private, private, private app. It’s not an app I can use with my parents because it’s all loose and insignificant and that’s just really essential.

[00:37:01] Preston Pysh: One of the things you guys have In this way, he’s not having people’s data. Yeah. Amen. Amen, Paolo. On the website, it says that this is all open source. When I was talking with some folks on Twitter, I saw a few people kind of throwing rocks and saying, it’s not completely open source. I can’t audit the code base, blah, blah, blah.

[00:37:21] Like I’m curious your take on this idea that which is listed on the site that it’s completely open source, but I’m hearing rumblings that some people are saying they can’t audit it.

[00:37:30] Mathias Buus: Well, like we have an app, right? And the app is an artifact you deliver to the app stores. And we under also rules on how that works.

[00:37:36] Like, you’re never going to be able to compile something and prove it to yourself and put it on your IRS phone. That’s at least like, unless you’re, you only want to have five users. So there’s always going to be like artifacts. We built the entire engine like, which is 99. I used to say 99 percent and now it’s probably like 99.

[00:37:51] 9 percent because it’s, we just, one more stuff is moving into the engine. It’s completely permissive. Open source is all on GitHub. Yeah. Daily. We discuss that daily, we get pull requests. We are very open about it. We talk to people on On Key about it. And then we have the app shell itself that’s not currently open, but that’s just like the UI engine and, and very little stuff there.

[00:38:10] And we are very committed to make sure that the, the engine is completely open source and very reviewable. And we encourage everybody to come in and review and get the feedback. ’cause that’s where. All the peer to peer stuff runs and we want to make an engine that can run anywhere that can be ordered by anywhere that is open source.

[00:38:27] And we want to make sure that you can make any kind of app you want on top and even apps that work on different environments and whatever context you want to deploy them in, whether those are open source or not open source.

[00:38:37] Preston Pysh: Okay. So if I understood you correctly, it’s all open source except for the user interface portion of it.

[00:38:42] Mathias Buus: More or less yeah.

[00:38:43] Preston Pysh: Okay.

[00:38:44] Paolo Ardoino: Yeah. I was checking the website. I don’t think we own the website. We say it’s, we don’t say we want to say we want to sort of a platform, a whole bunch. So how many open source projects we have under the whole bunch? Let me check. But I think it’s like hundreds, right? A couple hundred.

[00:39:01] Yeah. So the whole punch team, I created 500 open source repositories, 500, right? Open source repositories containing all the cryptography, all the networking code. Basically, they wrote BitTorrent protocol on steroids from scratch, made it public, added a cryptography layer, added this all punching techniques, very, very complex, all data replication, everything, it’s available to the public.

[00:39:34] There is, I think, almost no company that was able to open source 500 is just the beginning. Very, very complex stuff that companies would keep for themselves. It’s open source. We took, for the moment, right? The decision of Not open sourcing, just the UI for the reason that we believe that heat is one of the most groundbreaking applications that us as humans, we could build because it could actually survive to the worst catastrophes in the world.

[00:40:05] One thing we didn’t want to…

[00:40:06] Preston Pysh: when you say that, sorry, sorry to interrupt you. When you say that you’re basically saying we get an internet service provider that’s attacked by a government and they’re trying to prevent speech or video from happening within call it, you name it country. You still are able to communicate even despite that internet service provider being centralized and going down.

[00:40:25] Is that kind of where you’re exactly? Okay, sorry.

[00:40:27] Paolo Ardoino: Yeah, it’s not blockable by because the thing with all the other communication services and in part also not, sir, but in general. Is that these are not stories better, of course, but imagine like with what’s up and the other communication services, governments that don’t want communications to happen, can identify the IP addresses of the data centers and just bond those and nothing will happen with not stories a little bit better because you have maybe, let’s say, imagine 10 million users and you have 10, 000 relays, but it’s still, you know, it’s Could imagine like a square root of all the users is the number of relays.

[00:41:07] Imagine this formula in general, right? But it’s still limited with Keith. You have the number of you are your own relay. So the number of relays is equal to the number of users. So there is no way to stop it. Not for us, not for everyone or anyone. So what we didn’t want to do or to see is someone taking the key to UI that anyone can replicate based on all the 500 repositories that we published and other shoots going on top of it.

[00:41:37] Preston Pysh: Interesting. Okay. So that, that was way. So that’s, that’s a media comment. So let’s, let’s. Dig into that. Go ahead. Come on. Give us the goods. What do you, what are you doing here?

[00:41:49] Paolo Ardoino: I mean, it’s, it’s, we, we believe that is so important and so crucial that this technology gets their connection and gets the proper, good care that he needs in order.

[00:42:01] Do not be dismissed as, Oh, it’s just an yet another communication system where we put the mobile coin. Sorry. I love the signal, but you know, I couldn’t stand to the choice of putting mobile coin on top of it. So we want to have Bitcoin integrated. We want to have lightning. We want to have We want to do it everything the right time.

[00:42:25] And if someone can just, I mean, if you hire four developers, five developers, six developers, you can build a UI that is exactly like Keap, right? Everything’s out there. It’s open, but just the fact that we keep the UI close will slow down someone that could actually take it and add like some dog or cat with a hat in Keap and make it the That would mean diminishing the importance of the project.

[00:42:53] So not everyone likes this decision, but to us is very, very important because we, we do care about these becoming one of the best communication systems for you.

[00:43:03] Preston Pysh: So stop me if I’m jumping. In a direction that this just isn’t true today. Tether is primarily issued on Tron. Is that correct? Like 75 percent of tether is issued on Tron 20 percent on 65,

[00:43:17] Paolo Ardoino: I would say 60%.

[00:43:18] Preston Pysh: The rest, the remainder is mostly ETH a little bit on Solana. What you just said with respect to this whole punch technology in which you guys are building, is this your attempt at firing them as the protocol level. And you basically issuing tether on your protocol that is built on sound or tech. Am I understanding that correctly?

[00:43:41] Or am I reading into this too much? Help me understand what it is exactly what you’re saying here.

[00:43:47] Paolo Ardoino: Well, we, it’s, it’s actually…

[00:43:49] Preston Pysh: your smiles, your smiles telling me I’m close. Your smile just told me I’m getting close.

[00:43:53] Paolo Ardoino: Yeah,, it’s likely more complex. It says that you are all cut. So first of all, USDT is agnostic, right?

[00:44:02] So what they say sometimes, I mean, for me, USDT is the digital dollar and someone could call it probably the most used altcoin as well, right? So it’s not Bitcoin. So actually for USDT, every single blockchain is a transport light. So it doesn’t matter much where, because it’s a centralized stable, right? I don’t want.

[00:44:22] I never wanted to make it make think people that it’s similar to Bitcoin is we have to engage with banks. We keep our money in its custodians and so we have to abide to the banking rules. Now, we thought, and we decided, and we have already a project plan with Matthias also to build a protocol and payment protocol based on the same technology that powers HEAT and HolePunch.

[00:44:48] So, that venture will come, but again, we want to do it in a way that is fair, right? There will be no token issued for that, right? No additional token. It’s like peer to peer ledger technology. That anyway, if you start from one assumption that everything that is not Bitcoin is anyway or inherently centralized.

[00:45:08] That I think is a fair assumption also for many points around there. Then you can forget about many of the constructs that many blockchains have because in the end you can reach, if you assume that there is in the end a centralized issuer or a centralized controller, remember the Ethereum hard fork in 2016.

[00:45:29] Right. Or things like that. So it means to me that many of the complexities that we are creating around blockchains are pretty much useless. Because if you use a blockchain that has all the meme tokens, the meme tokens are created by centralization. It doesn’t mean anything that is runs on a distributed ledger is useless.

[00:45:47] So if you start from that assumption, you can create very, very, very efficient protocols that can scale to hundreds of thousands or millions and millions of transactions. because they are actually peer to peer and they are not, they don’t rely on a global share state like blockchain. So that is, of course, in the future is a paper that we released some time ago.

[00:46:09] I think one, almost two years ago or one year and a half ago, Mattias, myself. But it’s something that definitely is in our mind. But in this moment, we’re like, well, thinking about money, about USDT, about Bitcoin and so on. In this moment, we have Bitcoin that is the most resilient currency in the world, that can resist to the breath of God, can resist to apocalypse.

[00:46:29] But we don’t have the equal when it comes to communication. For us, whole punch protocol is that equal. And the cheat has the chance to become the communication platform for the populace. And we want to do, don’t want to screw it up. Everyone can, like with Nostar, you have open source clients and closed source clients.

[00:46:50] That’s the beauty of technology, right? So over time, there will be more clients for Keith and whole bunch in this moment. We want just to measure. Our approach to releasing what we think is best for the community.

[00:47:03] Preston Pysh: How do you guys think about because I know you have a hole punch, pair and if people want to check this out You can go to pair.

[00:47:10] io You’re developing an app store for decentralized applications that are running on this hole punch technology. How do you think through? The issue that everybody basically has an Apple device or they have a Google device and they have to go through the Google play store or they have to go through the Apple app store.

[00:47:27] How do you think about that centralization with respect to what you guys are building? Are you looking at going into the hardware side so that you can start from the ground up to try to ensure this true decentralization across. Hardware through the whole software stack.

[00:47:43] Mathias Buus: Yeah, the website is

[00:47:43] Preston Pysh: Oh, i’m sorry We’ll have the link in the show notes for folks so that they get

[00:47:52] Mathias Buus: To answer your question and I think we talked about this publicly before we’re very interested in how we’re very interested You know thinking about phones and thinking about hours.

[00:48:02] It’s really interesting to me I think that’s where I personally come to realize this too late even as a normal person. That’s where we really got You Messed up in terms of being locked in as consumers. I didn’t bought really powerful devices that we’re not really allowed to use. They’re under a ton of restrictions.

[00:48:16] It’s a really, really hard market to enter for anybody because it’s hardware, it’s hard. I think that’s where, and it’s the perfect device for peer to peer, which is even more frustrating because it’s the device you have on you all the time. It has a radio, so you can communicate with the world. It has really good batteries.

[00:48:29] It’s very powerful and it has this like ability to run in the background and all that is locked away from you as developers. That’s something. Obviously, we worked around in our stack because we run on Android and iOS at the moment, and we run well, but we could run so much better if we had those restrictions lifted.

[00:48:44] So that’s something we’re very seriously looking into, and that’s something I’m sure you will hear about a lot in the future. So I think that’s the true unlock for peer to peer going broad. And then I think, especially for peer to peer, people tend to think about peer to peer because we talk about things like encryption and big things.

[00:48:57] But it’s actually just also protocols that are really, really important. Good for low power devices because it’s protocols where you don’t have to be online all the time. You can have pretty slow devices because they just have to, they’re already engineered to get as little data as possible from the network.

[00:49:11] So they’re pretty, you can engineer them to be pretty friendly on your data plan if you have a data plan. So I think, and I hope that we’ll see a return in the future also to cheaper and lower power devices, but these things really shine. And that’s definitely something we’re talking about.

[00:49:25] Preston Pysh: Guys, I’ll tell you what, such a fascinating discussion.

[00:49:28] I would love to continue this in a couple months or quarters just to kind of keep the conversation going, but thank you guys so much for your time and coming on and sharing these amazing things that you’re working on. And it was just such a blast.

[00:49:40] Paolo Ardoino: Thank you so much, Preston.

[00:49:42] Outro: Thank you for listening to TIP.

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