YouSaid · the spoken record

Joe Consorti

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62
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2022-08-10
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2022-08-10
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  1. “Oh, absolutely. I mean, you take a look at emerging markets, they have record levels of distressed debt. As of right now, actually with the last week or two, corporate credit spreads have been coming down, investment grade and high yield. So some credit stress is being alleviated, but you're absolutely right. In situations where maybe your country doesn't have dollar denomination as capital market and you're a really distressed fiat currency, I mean, look at basically all of Southern Europe right now. They're about to enter crisis mode and they hiked 50 basis points for them. It was their first hike in over 10 years, right? So for more distressed nations, more distressed currencies, you're absolutely right. I would say it's more linear.”

    2022-08-10 · We Study Billionaires · BTC090: Risk Free Rates on Bitcoin's Lightning Network w/ Joe Consorti (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  2. “This is sort of the easiest way for Margaret participants who are hunting for collateral to take a look at all the instruments available to them and based on their risk tolerance, whether they're a corporation or a sovereign or an individual, to take a look at this risk curve and then determine where they want to allocate their capital. This is the traditional finance risk curve in a nutshell, basically.”

    2022-08-10 · We Study Billionaires · BTC090: Risk Free Rates on Bitcoin's Lightning Network w/ Joe Consorti (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  3. “By the owner. Obviously, the trade off here is that you have to have the security in place. You have to have the technical wherewithal to defend it. So that comes with a trade-off, right? Not only is it non-yielding, but it requires a lot of additional work to secure it well. And that's why a little bit up the risk curve is U.S. Treasuries. Now, for people watching on video, I'm not saying U.S. Treasuries are much further up the risk curve than physical gold. Obviously, it's been said many a time that they're as good as gold. But as I mentioned, there's explicit and implicit risk withholding U.S. treasuries. Moving up the curve yet still, our corporate bonds, obviously they have higher default risk. And so they trade at a spread U.S. treasuries. And so every single rung up this risk curve, it demands a higher rate of return because of the increased associated risk with it.”

    2022-08-10 · We Study Billionaires · BTC090: Risk Free Rates on Bitcoin's Lightning Network w/ Joe Consorti (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  4. “Of course, the way that we can quantify a capital market is by plotting the different financial instruments in said capital market based on their risk profile. And we do that for the people who are listening on audio. We have a return on the y-axis and risk on the x-axis. And essentially as you plot these instruments against one another, you have lower risk profiles at the bottom of the curve all the way up to very, very high associated risk at the top end of the curve. And this is a pretty easy way of visualizing risk in any capital market that you're dealing with. And so up here on the screen, physical gold is at the very bottom of the traditional finance risk curve, specifically because not unlike Bitcoin, when you're custodying it on your own, there's no default risk, there's no counterparty risk, no custodial risk, right? If you hold it physically and you're defending it and it's done securely.”

    2022-08-10 · We Study Billionaires · BTC090: Risk Free Rates on Bitcoin's Lightning Network w/ Joe Consorti (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  5. “Whereas in traditional capital markets, right, let's say you move your way up the risk curve to something like venture capital or equities, there's far more associated risk with that. There's far more associated risk with other cryptocurrencies on the Lightning network. I sort of make this argument that because there are so few risks, as we mentioned, and a lot of these risks actually don't involve permanent deletion or inaccessibility to funds, then it is more considered more risk-free than the moniker that we give to base layer money, like United States Treasuries, which do incur explicit and implicit default risk. I mean, we've never defaulted on our debt in a major way as far as I'm aware, but we can, right? That is an explicit risk. The implicit risk of holding a negative yielding bond, right? There are various associated risks with traditional finance instruments.”

    2022-08-10 · We Study Billionaires · BTC090: Risk Free Rates on Bitcoin's Lightning Network w/ Joe Consorti (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  6. “That's exactly right. I mean, exactly as you mentioned, the risk here is more so that your funds are inaccessible for a brief amount of time. And the fact that this is a risk that isn't even having anything to do with lost funds, it just goes to show we're reaching the try and find risks that are on the Lightning Network. Yeah.”

    2022-08-10 · We Study Billionaires · BTC090: Risk Free Rates on Bitcoin's Lightning Network w/ Joe Consorti (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  7. “In operating a lightning channel, but for various reasons, not unlike Goldsmiths being the individuals who held everybody's gold in reserve and then they managed the ownership between participants, I believe, and Nick and I believe that something like Lightning banks will emerge where these sort of entities who can allocate capital most efficiently, who can manage these channels, who have the technical wherewithal to manage these channels, they will be the ones who end up routing liquidity, managing these channels over time as transactional capacity increases for the lightning network.”

    2022-08-10 · We Study Billionaires · BTC090: Risk Free Rates on Bitcoin's Lightning Network w/ Joe Consorti (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  8. “Payment gets routed through his channel into the coffee shop. And so essentially what you've got is this web of interacting channels with one another, that liquidity gets routed through. The beautiful thing about it too is your payment is going to go through the channel that is routed most efficiently, i.e. has the lowest fees. And so it really attacks one of those pain points of Bitcoin, which was it's extremely expensive to move funds on chain when there's a lot of demand for transactional capacity. And Lightning Network really came onto the scene and provided a solution for that. So there are various risks with having a channel. There's hot wallet risk. There's inactive peer risk, which let's say the coffee shop owner goes offline and we can't settle up on the blockchain. There's forced closure risk where whether it be an inactive partner or some other reason our channel gets forcibly closed. There are a lot of risks.”

    2022-08-10 · We Study Billionaires · BTC090: Risk Free Rates on Bitcoin's Lightning Network w/ Joe Consorti (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  9. “Simplest terms, you can sort of hold Bitcoin and escrow between two participants and then basically add and subtract from a ledger just between you two who owes who what, right? So for example, going into a coffee shop and ordering a coffee, you know, the channel between myself and the coffee shop owner basically balances just get updated within our personal ledger as opposed to having to record that transaction on the main Bitcoin blockchain. And we can transact between each other infinitely until we decide to finally settle up and then close off our channel on the main chain. And the beautiful thing about the Lightning Network is that participants can use channels that have connections that aren't directly to them. So instead of every single new person who goes into this coffee shop having to open up a channel with the coffee shop owner, let's say I have a channel that's opened up with my friend who's opened up a channel with the coffee shop.”

    2022-08-10 · We Study Billionaires · BTC090: Risk Free Rates on Bitcoin's Lightning Network w/ Joe Consorti (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  10. “So there are a couple of risks when it comes to operating a lightning channel. One of the first ones is hot wall at risk, right? So the risk that a bad actor, if a channel does have a whole lot of Bitcoin within it, then a bad actor could potentially hack into one of the participants in that channel and then drain funds. So there is a little bit more risk associated with a lightning channel than something like Cold Storage Bitcoin. Essentially to back it up even further on the Lightning Network essentially it's a way of making Bitcoin more scalable because the main blockchain for Bitcoin doesn't have a lot of transactional capacity, you know, seven transactions per second compared to Visas 40,000 or something to that tune. Bitcoin essentially wouldn't function as something like a medium exchange without a scaling solution in order to make it more viable. And that's where the Lightning Network steps in essentially you can open up a channel between participants and essentially in the”

    2022-08-10 · We Study Billionaires · BTC090: Risk Free Rates on Bitcoin's Lightning Network w/ Joe Consorti (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  11. “With no implicit default risk whatsoever, this sort of this concept I came to is because arguably Bitcoin and Lightning have the lowest counterparty risk profile of just about any capital market in existence, right? Because they're underwritten by an asset that when custody, it doesn't have any counterparty risk. And so for that reason, I went ahead and developed this article and then I turned it into a thread that essentially goes through all of the different innovations that have happened across Bitcoin, but also across Lightning and the Lightning landscape that have sort of inched us closer to a capital market that's underwritten by the rails of Bitcoin and Lightning.”

    2022-08-10 · We Study Billionaires · BTC090: Risk Free Rates on Bitcoin's Lightning Network w/ Joe Consorti (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  12. “For sure, absolutely. So to take a step back all the way back to 2018 when Nick Batia originally published the time value of Bitcoin, within there, he originally talked about how in order for sort of this Bitcoin capital market to emerge, the time value of Bitcoin, a rate of return earned on Bitcoin would need to be published, right? And so at that point in time, obviously there was, you know, the Lightning Network hadn't even, you know, it didn't have a tremendous amount of capacity, but it was positive that the Lightning Network would be sort of the way that this could be made possible. Fast forward four years now. And we have a couple of examples of that in terms of there being a risk-free rate, basically the reason I posited this in the thread was because it's underwritten, this concept of a lightning network reference, right? Being able to park your capital on the Lightning Network and earn.”

    2022-08-10 · We Study Billionaires · BTC090: Risk Free Rates on Bitcoin's Lightning Network w/ Joe Consorti (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT