← The Investor's Podcast (We Study Billionaires) - The Investor’s Podcast Network
The Investor's Podcast (We Study Billionaires) - The Investor’s Podcast Network
BTC223: Tether's 13.7 Billion in Profits w/ Paolo Ardoino (Bitcoin Podcast)
01:01:12
We dive into Tether’s record $13.7B profits, its role in the financial system, expansion into AI and Lightning, and the future of tokenized assets. Plus, insights on El Salvador and Brain-Computer Interfaces.
Loading summary
Transcript63 lines
- [00:01]
Paulo Arduino
You are listening to tip.
- [00:03]
Preston P.
Hey everyone, welcome to this Wednesday's release of the Bitcoin Fundamentals podcast. On today's show I have Paulo Arduino, the CEO of Tether, which has over $113 billion worth of dollar stable coins. And during our conversation I try to get Paulo's thoughts on Tether's competitive moat considering US banks are likely to start playing in the stablecoin space now that the SAB121 is in the process of being rescinded. After that we get into Tether's much broader and strategic plan. As a company, I look at Paulo's thoughts on the newest announcement of minning Tether on top of the Bitcoin Lightning network and much, much more. So this is a conversation you will not want to miss. So with that, here's my conversation with Paulo.
- [00:48]
Paulo Arduino
Celebrating 10 years. You are listening to Bitcoin Fundamentals by the Investors Podcast network.
- [00:55]
Preston P.
Now for your host, Preston P.
- [00:59]
Paulo Arduino
Foreign.
- [01:07]
Preston P.
Hey everyone, welcome to the show. I'm here with Paulo and dang, we got some serious things to talk about here. You got a million different things going on. I should say you have a billion different things going on. So welcome to the show, Paulo.
- [01:19]
Paulo Arduino
Thank you for having me, Francis.
- [01:21]
Preston P.
Let's start off with what I think everybody wants to hear about, which is the financial results for this past year. You have this pinned on your X account. $13.7 billion in profit. I was doing a little bit of research. It looked like 7 billion of that are coupons and then the other 5 billion ish is from the unrealized gains on bitcoin and gold holdings. Is that kind of accurately represented or would you break it down? Yeah, okay, just in general, what are your thoughts on being able to produce this much profit? I think for a person who's looking at this from the outside, especially traditional Wall street person that's looking at this from the outside, they're looking at your head count, they're looking at the capex of the business and they're looking at the profits and they're saying this may be the most efficient profit producing business that's ever existed. Is that fair to say? Like what are your thoughts as the person sitting at this organization?
- [02:19]
Paulo Arduino
So definitely the stablecoin larval tether is, has always been run as a lean operation. So the most important now in the stablecoin business is the reserve management and the compliance team. That includes also the investigation team. So on one side you want to make sure that you can properly manage the reserves you need the most Important thing that the stablecoin issuer needs to do is to give back the money to anyone that asks them. Right. So at any point in time you get huge redemption. 20, 30, 40, 50 and so on percent you need to be able to be to pay that immediately. So that is why I think our finance and research management team is Incredible. Starting from 2022. We remember we had been attacked by Fear Tree and a few others very publicly saying that we didn't have reserves. They wanted to cause a background. We were able to process $7 billion of redemptions in just two days and 20 plus billion dollars in just 25 days of redemption. So that was 25% of our reserves. So there is basically almost no banking institution that was able to survive to even 10% redemption. So that is basically the team of a stablecoin is very lean. And then for because on one side you issue a token. So there's a bit of technology there of course. But on the other side you need to buy T bills and other liquid assets. Mostly is gold and, and, and few bitcoins. And it's it Right. So it's very easy from the accounting perspective. And the reserves management that is also over collateralized by $7 billion. So around 5% of total reserves. So we are 105% collateralized. It's very unique as well.
- [04:02]
Preston P.
And that's not talking about, that's not talking about the retained earnings of the business. That's just. Okay. So that you would effectively be even more over collateralized than at. If you would include the retained earnings.
- [04:14]
Paulo Arduino
Of the business we would be another $20 billion.
- [04:18]
Preston P.
Yeah.
- [04:19]
Paulo Arduino
Over collateralized.
- [04:20]
Preston P.
Yeah.
- [04:20]
Paulo Arduino
Yes. So again it's a very unique situation. I think that in this world everyone tries to do two things or copy two things. One is tether, the other one is microstrategy. And I think that the good thing about Tether is that with portion of the earnings and the profits we are keeping them in the stablecoin business. To further collateralize the stablecoin now we have 105% but we are very methodic in that exercise. And with the rest we have been buying bitcoin and investing in great companies like Rumble and others. So I think that the last latest attestation tether had around give or take 90,000 bitcoin and around 4 to 5 tons of gold. So I love the fact that on one side we can we are basically the most important company when it comes to the US dollar GE money. But on the other side we, with the profits we get, we are Investing in assets that are resisting to inflation in a much better way than the US dollar that are gold and Bitcoin more especially is actually the best asset in long term to to have. And the beauty again is that on top of that our user base have the luxury of being exposed to these two assets that whatever happens in the worst case scenarios of the world, they will appreciate in value against any other currency. If the world goes towards a Weimar Republic like in the then Bitcoin and gold would go to the moon. And I think that having a little bit of sprinkle of those in our reserves is something that makes Tether much more appreciated than any other stable coin in the world. Because a we are over collateralized even if Bitcoin goes to zero, basically we would be fully reserved as a stable coin. But since Bitcoin going to zero will be unlikely if on the other side, if fiat goes to zero, our users have much better chances rather than anyone else any other stable coin holder.
- [06:19]
Preston P.
Whenever I look at the current situation, it reminds me of this Jeff Bezos quote that he says your margin is my opportunity. And when we look at the SAB121 repeal that just recently happened, I would think every bank on Wall street is wanting to somehow play in this particular space and kind of take a bite at what you guys have demonstrated in style of what you're doing. So how do you think about that competition moving forward? Do you agree with them with SAB 121 kind of playing an instrumental role in their ability to now participate and play in this space? How do you see some of that going forward?
- [06:56]
Paulo Arduino
I think there is definitely will be increased competition, but I think that a few days ago we had El Salvador, I had this speech which title sounds very cocky, bit of obnoxious. The title is Once Tether, Once in a Century Company. The reason why I gave that speech and I talk about Tether in that way is that people don't realize that the success of USDT is not because we were first. Of course that absolutely. But Tether built and is currently keep building and investing in the biggest physical and digital distribution network in the world. So it's not about creating a stable coin. Everyone can create a stable coin, every single bank. But the problem is that if you issue a stable coin in the US and you focus on its distribution in the US that is first of all is meaningless in my opinion in the sense that in the US you have already 15,000 ways of pay people like PayPal, Zelle, Cash App, bank wires, credit cards, debit cards, FedNow, whatever achievement have so many ways to pay people. So the dollars in the US are already digital. So it's not like you are just reinventing the wheel. You are going to sell a bucket of ice to an Eskimo. But if you go outside the US then there are hundreds of millions or well, several billions of people. They are desperately trying to get on the dollar. They are buying dollar cash, dollar cash. But they would be more happy with the digital dollar. And that is basically what USDT is about, is about bringing 3 billion people that are called unbanked and never had the chance to have to be part of the financial system. Not because there are bad people, just they are too poor of being of interest of the banks. Because if you are a bank, you need your every single account holder to generate at least $100 per year in fees. And if your average salary in the 80s $134 per day, you cannot pay $134 yearly to a bank. So the bank will not accept you as a customer. Many of these people don't even have a pay slip. They are not rich. They struggle even with job opportunities. So USDT is the dollar for them, is the only solution for them to be part of the financial system is a way for them to hold dollars not under a pillow, but on a wallet, in a digital wallet. And while in the poor countries they have the struggle with the financial inclusion, they have access to smartphones. So a smartphone can host a wallet and can have USDT and Bitcoin. That is the way. But see, this is what we have been building. So we have invested in common companies that are building thousands and thousands and or own or leverage hundreds of thousands of kiosks around the world from Africa, central South America, Asia, you know, in the past, for the last 20 years, while we were sold with the concept of globalization. Any vc would that imagine that you are a company and you owned a distribution network, a fiscal distribution network with Kiost. You wanted to raise money and you would go to a vc. Any VC would have told you sell the fiscal distribution network, sell the kiosk and rent them back. It's a waste of money. But the world is going towards the localization. The world is going towards a different place now. And owning or being able to leverage physical and digital distribution networks is will be the most important thing. Not only to distribute Stablecoins or Bitcoin, but also to distribute education or any other application. Any single piece of technology will go through these networks. So we are not just building a Physical and digital distribution network for usdt. But also we are building a network that can sell or educate anything, anyone on anything. So that is the fundamental difference between us and someone actually trying to copy our business model. Sitting on a very nice office at the 40 floor in Wall Street.
- [11:01]
Preston P.
That is pretty fascinating. So what you're really getting at here, if I could summarize some of this and we're going to get into a lot of this in more detail, this is your hole punch technology that's peer to peer, that's not relying on any type of server technology or any type of server in the middle to basically censor that flow of communication. This is why you guys are getting into AI and trying to do AI at the phone level or the processing of that data, that private data is happening locally and not in some cloud, that some parasite organization is sucking all that. And there's many other things that you guys are diving into. Would you say that this is the all encompassing strategy that you're referring to here that you're talking about that the banks, the Wall street banks are not going to be able to compete on on a much grander level? Is that what you're saying?
- [11:50]
Paulo Arduino
Yeah, I'm saying exactly that. In the sense that if you. We recently made different investments or announcements investments in Rapple is a social media platform, but then we made investments in and we have hired among the best teams in artificial intelligence. We have hole punch as our telecommunication technology AR all that. You could look at every single investment thinking oh well, they're just playing with different toys. But actually if we look at more deeply at our strategy, what we are building, even just take the AI side. So AI at hatch devices, so the ability to run and do inference on edge devices. Imagine every single device can run AI agents that are fully local to the device. They will have their own identity through bitm39 for example, anyway, Bitcoin identities. And then all these devices can talk to each other without any central server. So I using the whole bunch of technology and each one of these AI agents will have a wallet built by with wdk. That is our wallet development kit. That is an open source library to build wallets. So I think that with Tether we can build the biggest AI agent network in the world that could consist in billions and billions of AI agents all talking to each other peer to peer, all unstoppable, all able to deal with each other in a peer to peer faction with peer to peer money. That will be a grandiose project. It's very, very Hard to pull off. But we are building the technology that goes intent to that direction is a way to build AI that is for the people, empowers people, not any idea tries to steal data from the people just for the benefit for a few companies. So I think that every one of us should leverage AI, should have AI that can take on part of our tasks that are the most boring. This AI should have a wallet that is custodial, can interact with other AI platforms all in a fully peer, peer decentralized way. No one is thinking about that in these terms for the very same reason that if you go to a VC and you tell them oh well, I build an AI system where I don't have a control, the VC will kick out you out from the office immediately. Because without control you cannot make money. But so you need to have incentives, you need to create in the eyes of the vc. You need to hold your customer by the balls in order to make a return on investment. But with tether we are very lucky in a sense that the 13.7 billion mark that you talked at beginning allows us to be a unique company. So on one side we have the philosophy that is the bitcoin philosophy. On the other side, so we have three things. We have philosophy, we have capital and we have tech vision. So if we had only philosophy, so part of the bitcoin and the tech vision and we didn't have the money would be very impossible to do anything because VCs will create.
- [14:54]
Preston P.
You're playing a much longer game. You're playing a way longer game with a much bigger. Yeah, yeah, exactly.
- [14:59]
Paulo Arduino
And we don't have to create shortcuts or we don't have to misalign incentives with freedom. So we can. Our incentive is to create the most important and widespread networking platform peer to peer for AI agents and for people to communicate to each other and send money to each other to be resilient to any sort of catastrophe. So apart of the privacy aspect is very important. You don't want to give your most important intimate thoughts to OpenAI. The other most important topic is if something happens, something bad happens in the world, you want this system to continue to run and that no technology today will make that happen unless you use you go fully peer to peer, which we are doing. So we might be able to make less money out of it, but it's just the right thing to do. And we can do it just because we have the capital from the stablecoin business in order to build these crazy things. Wow.
- [15:58]
Preston P.
I was going to Add. So I'm going to ask this question anyway, even though I think that you just explained why maybe this isn't the case. So here's the question. Do you feel like you're at a slight disadvantage not being a publicly traded company because you can't access public markets and basically do what Michael Saylor is doing by issuing more shares, transmuting that into Bitcoin either in preferred convertible debt markets, common markets. I think I know what your answer is going to be for this, but I'm curious to hear it.
- [16:26]
Paulo Arduino
Saylor is a very well has a very peculiar company.
- [16:29]
Preston P.
Right.
- [16:30]
Paulo Arduino
Strategy B now it's called. Yeah, he can be a public company because his main role is executing the microstrategy play. So just accrue more Bitcoin, that's fine. But the software side of side of the business is basically kind of left aside. Right. So that is not core tether on the other side is still able, without issuing any debt to buy a good amount of Bitcoin. I would call 90,000 Bitcoin not a cheap change. But we feel that our mission as tether is to build something that is complementary to Bitcoin. So if in life we have only Bitcoin and we have Bitcoin that is held for the vast majority in public traded companies or ETFs. Imagine the worst case scenario would be 21 million Bitcoin held into public traded companies and ETFs. How Bitcoin will look like in that moment when people need it the most. Will people be able to use Bitcoin if it's all captured within public traded companies and ETFs. So of course Bitcoin will rename Bitcoin, but at the same time people might not have access if there is a third world war. How people can access to Bitcoin or use Bitcoin if it's all captured and held in few private companies. And also even if you have Bitcoin available and that scenario of Bitcoin being captured by future public third companies would not be realistic even if people had Bitcoin. But if people didn't have the ability to talk to each other in a peer to peer way with the same precondition of Bitcoin buff work telecommunications, how the world will look like. So if I have freedom of money, I.e. bitcoin, but alone has freedom of speech, I don't have freedom of communications. Are we reign free even if we have Bitcoin? I don't think so. So there is so much to build, especially now that Bitcoin is almost like the four phases of acceptance we went through as bitcoiners. We went through first, no one cared about us, then they mocked us and then they fought us and then they accepted us. Fine. In 2024 they accepted us. Okay, now what and what we learned from bitcoin that we can apply to the rest of the world or the rest of technology. That I think is the biggest achievement and strategy of Tether is trying to apply the philosophy of bitcoin and the tech vision of Bitcoin that is peer to peer money. But being peer to peer tech, bring back Internet as it was before. Bring create a system that empowers people to be free and keep control of their own data rather than just keeping control of their own money as bitcoin. So I don't want to be a public company because I don't want to have to report every three months to a junior analyst that will tell me, oh, Paolo, but you know you could have made much more money if you have done that, that and that. No, I want to be able to be free to build the technology for the work that I see happening rather than having to squeeze every single last drop of profits from the company.
- [19:29]
Preston P.
Yeah.
- [19:30]
Paulo Arduino
Let's take a quick break and hear from today's sponsors.
- [19:33]
Preston P.
Have you ever been interested in mining bitcoin? As a miner myself, I've been using simple mining for the past few months and the experience has been nothing short of seamless. I mine with the pool of my choice and the Bitcoin is sent directly to my wallet. Simple Mining, based in Cedar Falls, Iowa, offers a premium white glove service designed for everyone from individual enthusiasts to large scale miners. They've been in business for three and a half years and currently operate more than 10,000 bitcoin miners based in Iowa. Their electricity is over 65% renewable thanks to the abundance of wind energy. Not only do they simplify mining with their top notch hosting and on site repair services, but they also help you benefit financially by running your operations as a business. This approach offers significant tax advantages and enhances the profitability of your investment. Do you ever worry about the complexities of maintaining your mining equipment? They've got you covered for the first 12 months. All repairs are included at no extra costs. If you experience any downtime, they'll credit you for it. And if your miners aren't profitable at the moment, simply pause them with no penalties. When you're ready to upgrade or adjust your setup. Their exclusive marketplace provides a seamless way to resell your equipment. Join me and many satisfied miners who have simplified their Bitcoin mining journey. Visit Simple Mining IO Preston to get started today. That's SimpleMining IO Preston to get started today with Simple Mining. They make it simple.
- [21:03]
C
Ever feel like managing your business's finances is a full time job on top of your actual full time job? Well, you're not alone because sometimes I used to feel that way. That is until I started using Found. Found is a business banking platform that lets you effortlessly track expenses, manage invoices and prepare for taxes. I've saved so much time that I can now devote to chasing new opportunities and doing the work I enjoy most. Found also helps me save money by identifying tax write offs. And by the way, other small businesses are loving Found too. This Found user said Found is going to save me so much headache. It makes everything so much easier. Expenses, income, profit, taxes, invoices even. And found has 30,000 five star reviews just like this. Open a Found account for free@found.com WSB that's found.com WSB found is a financial technology company, not a bank. Banking services are provided by Piermont bank member fdic. Don't put this one off. Join thousands of small business owners who have streamlined their finances with Found Looking.
- [22:14]
Preston P.
To save in Bitcoin for your retirement? Meet Onramp. The leader in Bitcoin financial services, Onramp has just launched the industry's first Bitcoin Iraq. With multi institution custody. That means unparalleled security, transparency and peace of mind for retirement. With Onramp, you can verify your assets directly on chain and protect them with the support of three independent institutions, eliminating the risk of a single point of failure. Ready to take control of your bitcoin retirement? Visit onrampbitcoin.com to learn more about Onramp's Bitcoin Iraq.
- [22:49]
Paulo Arduino
All right, back to the show.
- [22:51]
Preston P.
I want to frame this for folks just so they can kind of understand where kind of the root of that question comes from. So if we just look at the profits that were generated from the treasuries that Tether's sitting on, it was about $7 billion last year, taking out the gains that were attributed to Bitcoin's growth. So if we just look at those which I would attribute to the quote unquote operations of Tether, which is about $7 billion. This is about 70 times larger than MicroStrategy's profits. Just to kind of put and I should start calling it strategy. But that company makes about 100 million a year and if they're not if Tether is knocking out 7 billion, that's about 70 times more profit that they can allocate and direct anywhere that they want. And I think that that's important framing because when we look at how much bitcoin microstrategy or strategy has been able to accumulate over the past year, two years versus how much Bitcoin tether has accumulated over that same period of time, even though their profits are 70x of micro strategy, there is a very large difference in the amount of Bitcoin that's being accumulated by both of these companies. And so I would say that they were able to do that simply because they were a publicly traded company. He's able to tap into all these very financial engineering type methods in order to attract more Bitcoin onto his balance sheet. And that was kind of the root of the question. But I want to go to this idea that you're building something that is way bigger than just tokenizing sovereign securities. And what the. I guess when we get to the essence of what it is you're doing, is there just a desire to build freedom like technologies for the world? Is that the driving force of the company and the founders and the owners? Or did you start working on hole punch technology and it's like, oh, well, we can use it here and we can use it there. Talk to me about the essence behind this grander strategy that you guys are trying to perform.
- [24:53]
Paulo Arduino
The world is going to be more and more unpredictable in the next decades. And I think that everything that we have in our hands when it comes to technology will fail us. So anything that you have in the smartphone today, if there is a catastrophe or there is a war, a global war will stop working. Every single happen that you have in your phone will stop working. Why? As humanity, we built for the last, well, let's say only 20 years or 30 years in technology. We built technology that will fail us in the moment we need it the most. How can we be the most intelligent species in the world if we build something that the moment we need it the most, it will fail us? I mean, the reason why we did that is because in order to make money, you need to have control over technology. And if you need to have control over technology, you need to make in a way that is centralized around you, around the company. So the entire incentives for technology that should be a common good have been misaligned with actually the people. And we're only aligned with the corporates. And so when I think about technology, this is me being a lover of sci Fi always thinking about what would happen in the worst case scenario. I'm like, I need to build something that they know that will be a legacy even if Tether dies. So when I look at Tether in general, I think, what if tomorrow Tether dies, Everything that we have been building will disappear. Well, that is my fundamental question, right? So will that happen? And when I look at Google, if tomorrow Google disappears, the search engine will die, the email will die, dogs will die, and so on. But if we build technologies like hole punch or peer to peer AI and similar, if the company, our company disappears, humanity can still leverage that technology and keep using it because it's open source. So I think what we are with Tether, we exceeded our expectations in how much money we could make. Like in 2014, if you were asking me what would be the biggest number in market cap that USDT would achieve was between $100 million and 1 billion. But 1 billion was already, I would have already exceeded really multiple times. It was just gradually 1 billion. But now we are 141 billion and counting. And so the amount of returns we made on that market cap is just insane to 2022. We did make little money because interest rates were low, but now interest rates are very high. So at some point you have to look at yourself, you look at the company and you start thinking, okay, fine, I got, I'm in this position, I have an important, very important cash flow. I know how to build technology. What if tomorrow, how I can make technology be resilient to me. Because when I say technology needs to be resilient, should also be resilient to ourselves as a company. Right? So even with Tether in the StableCoin business, with USDT, we create USDT that now yields around $7 billion per year. Right. Without doing much. But also we create a tenor goal that is very small compared to usdt. But Tether Gold, if successful would yield zero profits to that. The reason why we created Tether Gold, any VC would have told you or any company would never have done that. Because why a company should create another product that could even successful cannibalize its entire profit margin. The reason why we did that is simple. If someone has to do every single company should build products that potentially will could put out of business the company. Because if they don't do it, someone else will do it. And that's how we think about Tether. We should always challenge ourselves before challenging others. When we build any piece of technology or any new product, and it's for the best of your Money again, we don't have yachts, we don't have planes, who cares? I mean we are simple people. So we exceeded our expectations. We are going to use all our resources to build something that we will be proud of in the future.
- [28:57]
Preston P.
I want to get into this new announcement that you guys had about routing tether on top of lightning that happened recently in El Salvador. This as a bitcoiner. This is exciting. I'm curious how you think through the reliability of the Lightning Network, whether you think that this is going to take much of your market share of the issuance of tether today. My understanding is that a majority of tether issuance is happening on Solana and Tron and a smaller portion is on Ethereum. And now you're going to start issuing tokens on the Lightning network via the Taproot asset Protocol. Talk to us about this decision, how you see this kind of playing out moving forward. Mostly from an incentives standpoint. So when I'm thinking through the routing of this, I would think that it's just as fast as those other networks, but cheaper from a cost from the user standpoint. Like if I'm going to route tether from a wallet that I have to yours over the Lightning network, the fees associated with that I would imagine are significantly less than those other networks. And so do you see that incentive driving further adoption or how do you see that kind of playing out?
- [30:05]
Paulo Arduino
Network is very in line. The structure, the core idea around Lightning network is to create peer to peer channels on people. And you have been hearing me saying peer to peer multiple times in this discussion. So from a pure technological standpoint, if you want to scale to the world, it's always cute to make a technology that can serve 10 million people or 100 million people. But what if can that really scale to 7 billion people and let's say 50 billion AI agents or machines in the next 10 years. So because we shouldn't only think about us as humans, if machine to machine payments are going to be fundamental and machines will do much more high frequency payments than us and so can any existing technology sustain 100 billion payments per day or 1 trillion payments per day? I think the only way from a pure technological perspective, I think there is no doubt it's anyone that says differently, I think they have, their incentives are wrong. The only way to do it is peer to peer is creating channels among people. The problem of blockchain layers, leave aside Bitcoin, but the problem with blockchain layers is that they have a single shared state where every single Node needs to know the entire state to make sure there is no double spending. That is incredibly inefficient. So even if you make the best layer one super fast with a very short block time and so on, that will not eventually be enough because there is always more need. There will be always more need for through then you can say, well then it will create layer two or layer three, Layer four. The actual intelligent way to solve things is to create your channels where why someone else should receive the status update of one transaction that I'm sending to you, Preston, why they should care, right? As long as we have a way for us, you and me to trustlessly verify that I'm not treating you and you don't treat me. Why someone else should care. And the fact that someone else now is involved in looking at everything that the others are doing is what is limited. Because if you even take Solana or Ethereum with all these faster chains, they still have a single shared state and that is very limiting. And the layer twos are single share state as well. So they will be limited and so on and so forth. And their trade off of this layer two is, is that they just reduce their security and they will concentrate validators ended up with one single validator. So completely against the entire premise of the synthesization of blockchains. The only way is going to disappear. So what I think will happen is that USDT on lightning will be for a very, very fundamental change can actually take over all the machine to machine payments if properly implemented. That is where you will need the most scalability. And on top of that though is secured by the Bitcoin network. So on one side you have your channel that will use basically inputs and outputs will be on the Bitcoin network that is most secure network in the world. So even if there will be 1 trillion USDT on the Bitcoin network, you would be safe because the underlying economics of Bitcoin will be enough to make it to not create incentives for people to cheat the system and trying to double spend or create issues with the settling the channels, the lightning channels. So in my opinion is technologically is the right way to do it. Peer to peer channels on top of the Bitcoin network. Now the question is how soon and fast people will realize the necessity of moving to this layer. And so there will be a requirement of a lot with patient because in this moment there is still little usage of blockchain technologies. But that will change in next year. So it's not evident yet, at least to normal people it's not evident yet that there is a niche or scaling issue that will become apparent in the future on standard blockchains. So it will need education, will need patience to see that growing.
- [34:08]
Preston P.
That's part of my frustration with a lot of the discussions that are happening in government bodies right now, is I don't think that they understand that point at all. And I'm just worried that they throw some of their weight behind some of these other protocols. Protocols without really kind of understanding what sound engineering looks like 10 years from now. And those are going to be lessons of pain if they continue to lean into some of these other protocols, in my humble opinion. But yeah, that's really exciting. Have you guys issued anything on Taproot Asset yet? And if not, when are you guys looking to do that?
- [34:38]
Paulo Arduino
So we're still exploratory mode, right. So the technology became available fairly recently. So we'll need to do some very heavy Buffalo testing and so forth. But we took our decision as also as Bitfinex and Tenor, we are supporting another protocol called rgb. Kind of a similar ethos and philosophy, just different type of implementation and preconditions. But we plan to support Bitcoin tech and keep investing in bitcoin tech. I believe that. I would say that Tether and Bitfinex are probably the two with the full core funds. We are the three biggest investors in anything that is Bitcoin. Tekken.
- [35:15]
Preston P.
Do you with the recent acquisition there with Rumble, where you guys have a controlling. I think what I read it was about a 7 or $800 million deal and then you have a controlling interest in the company. Would you say that this controlling. It's not controlling. Okay, I'm sorry, would you say that this relationship is for kind of implementing some of your ideas with hole punch technology into what they already have in order to kind of leverage the social graph that they've already built out or how would you describe that from a strategic sense, if you don't mind sharing how you guys think about it from that perspective.
- [35:46]
Paulo Arduino
So the investment is interesting. So Rumble will launch a Rumble Wallet. Not many people know that Rumble has a very peculiar user base. They have 70 million active users. They have basically the entire wealth America, almost the entire wealthy America. They have through their channel. So they were able to sell over the last two years, 800 million worth of gold. Imagine a Rumble Wallet with Bitcoin could. What could do. So that is one. On top of that, I think Rumble Cloud is a great product and they build their own cloud solution because they were threatened by for such a long time by the former establishment on this shutdown. Remember when Parlor was shut down, they were threatened as well, but they survived because they have their own cloud solution. But there is a step further. Using whole Patch technology to create a resilient video distribution network is going to be a game changer I think for companies like Rumble. So there are many things that we could develop within Rumble together. We have both great technologies within the two companies and so the opportunity is just insane. Just even for the educational part of the Rumble Wallet. Educating people that you could have a nice simple wallet with Bitcoin and stablecoins inside without any altcoin or pump and dumps, that would be a refreshing change, right? So that's how we are tackling things. We want to use all these investments as a way to educate people, but also building better technology. Let's take a quick break and hear from today's sponsors.
- [37:28]
C
What does the future hold for business? If you ask nine experts, you'll get 10 answers. Bull market, bear market, a booming economy, or the next great recession to come. Until then, over 41,000 businesses have future proofed their business with NetSuite by Oracle, the number one Cloud ERP bringing accounting, financial management, inventory and HR into one fluid platform with one unified business management suite. There's one source of truth giving you the visibility and control you need to make quick decisions. With real time insights and forecasting, you're peering into the future with actionable data. And when you're closing the books in days, not weeks, you're spending less time looking backwards and more time on what's next. Whether your company is earning millions or even hundreds of millions, NetSuite helps you respond to immediate challenges and seize your biggest opportunities. Speaking of opportunity, download the CFO's Guide to AI and Machine Learning at netsuite.com study the guide is free to you at netsuite.com study netsuite.com study Trust isn't just earned, it's demanded. Whether you're a startup founder navigating your first audit or a seasoned security professional scaling your GRC program, proving your commitment to security has never been more critical or more complex. That's where Vanta comes in. Businesses use VANTA to establish trust by automating compliance needs across over 35 frameworks like SoC2 and ISO 27001, centralize your security workflows, complete questionnaires up to five times faster, and proactively manage vendor risk. Vanta can help you start or scale your security program by connecting you with auditors and experts to conduct your audit and set up your security program quickly. Plus, with automation and AI throughout the platform, Vanta gives you time back so you can focus on building your company. Join over 9,000 companies like Atlassian, Quora and Factory who use Vanta to manage risk and prove security in real time. My audience gets a special offer of $1,000 off vanta@vanta.com billionaires that's V A N T A.com billionaires for $1,000 off for decades, real estate has been a cornerstone of the world's largest portfolios. But it's also historically been complex, time consuming and expensive. But imagine if real estate investing was suddenly easy. All the benefits of owning real tangible assets without all the complexity and expenses. That's the power of the Fundrise Flagship Real Estate Fund. Now you can invest in a $1.1 billion portfolio of real estate starting with as little as $10 4700 single family rental homes spread across the booming Sunbelt, 3.3 million square feet of highly sought after industrial facilities. Thanks to the E commerce wave, the Flagship fund is one of the largest of its kind, well diversified and managed by a team of professionals. And now it's available to you. Visit fundrise.com WSB to explore the fund's full portfolio, check out historical returns and start investing in just minutes. That's fundrise.com WSB carefully consider the investment objectives, risks, charges and expenses of the Fundrise Flagship Fund before investing. This and other information can be found in the Fund's prospectus@fundrise.com Flagship this is a paid advertisement.
- [40:57]
Paulo Arduino
All right, back to the show.
- [40:59]
Preston P.
All right, I want to try to cover AI and just for me to try to understand the comments that you had earlier because I find this really fascinating localized AI processing and then somehow networked with all the other localized AI processing in order to have a bigger, better model. Is that kind of what you were saying earlier, that we're basically able to leverage these various localized AIs in order to have a better collective response for harder questions? Is that. Am I following you there with what you were saying earlier?
- [41:32]
Paulo Arduino
Kind of. So you have to see this from multiple point of view. So first of all, Deep SEQ was quite interesting in the scenarios and entertained. The reason is that Deep SEQ obviously is not the right word and not saying oh, everyone could have done that. So team behind Deep SEQ is great, but the approach that they have to any technological engineer should be the obvious one is divide and imperative so you don't have One single model that does everything and is a gigantic monolithic model. But you split the model in multiple that are more refined and more vertical. The concept of monolithic versus modularity is not new. It's something that is very, very obvious. So it's just crazy that companies like OpenAI. The fact that OpenAI and the others didn't do that yet or in a proper way. It's just because they grew so much so fast. They prefer to brute force AI rather than actual do the right type of engineering and intellectual challenging work to make AI great and usable and sustainable for the future. They prefer to announce $500 billion of investment in new data centers. So think about decrypt, right? So from pure economic point of view, you can hire 1,000 researchers, pay $1 million each. That would be $1 billion per year and you have 1,000 of the best researchers in the world. Or you can buy 15,000 GPUs more with the same amount of money. What do you think is the best is already the most intelligent strategy is trying to buy another 15,000 GPUs to try too broad force and just add a little bit of capacity or trying to solve the problem in a better way. Of course you should try always to solve the problem in a better way. That is exactly what Deep SEQ did. Rather than announcing terabytes of data centers and millions of GPUs and so on. That is it feels like really going back to the history of computing. Like where you didn't know how to solve a problem, you would just add another server. But I think I'm not sure if in the last interview that we had on me we discussed about. One of my preferred books is the Cathedral and Bazaar of Eric S. Raymond. That explains is from the 90s book explains the problem of operating systems that are building monolithically as cathedrals or operating systems and technology built in a more modular way as bazaars. Cathedrals are beautiful, but if you remove one pillar, the cathedral will fall down instead with bazaars, even if you bomb a bazaar that will just move 50 meters away and will just reconstruct itself because. Because it's made by people. Bazaars are built on peer to peer interaction. People interaction. While cathedrals are just there is an architect and they cost 200 years to build a lot of money. And you just need one pillar that is failing for everything to fall down. And so when Deep SEQ came out and people were screaming about this revolution. It is a revolution, but was the right way to approach technology and in AI development from the get go. And so imagine if we could expand the concept of Deep seq not just on single or multipurpose models with the. But imagine instead of having few verticals, you have an almost infinite number of models with a peer to peer orchestration system without any central servers and with proper incentives that. For example, imagine that you go to a university, a chemistry university where researchers are releasing research papers on new chemistry developments. The university could build a model that is super deeply trained in chemistry, with all the most advanced chemistry techniques and that could be part of this gigantic peer to peer network of information. That is what Internet actually to me that is intel is what Internet should have been from the beginning. A very beautiful cause will a sparse amount of information that can be researched that can be also sold, right? So you can have models that can be rented or you can paper query on a model. The orchestrator could take care of routing payments across this infinite number of AI agents to make sure that either everyone has the right incentives to have the best information always available within these models. But there is no way, given the amount of information that humanity creates, there is no way to create one single model. It's not sustainable, it will fail people eventually. But we believe that with our capital and with our technology being open source, we are going to make it the right way.
- [46:21]
Preston P.
It's kind of interesting that he is taking this path. The $500 billion that you're talking about and the Davis Microsoft said that they were good for 80 billion and then what was it? Three days later this deep seat thing came out. And for people that aren't intimately familiar with everything that we're talking about. So Deep seek did this for tens of millions of dollars, came out with a model, it's effectively comparable to GPT4O as far as the performance goes. And they did it for pennies on the dollar compared to where OpenAI is at. What I really agree with you on Paulo, is just this idea that in the fine tuning, that's really where I think they're going to be able to make the difference is by hiring more people that are going through fine tuning stages. So just so people understand AI, I'm going to break it down for you the best I can in like 30 seconds. You take all the data, you curate the data, you then go through the development of what's called a base model by compressing all this data. So imagine all the information on the Internet, you're going to compress that down. You need GPUs to do this. And the ChatGPT folks are saying, let's just compress this, the data on the Internet even further by owning more and more GPUs to the tune of $500 billion worth of GPUs. But then after you compress all of that data down, then you go into what's called the fine tuning phase of this, where you're basically teaching it how to become an assistant. So you got to take all that compression that happened on the Internet. You then have to train it on another AI. Through this training, which has humans in the loop, people going through there saying this is what a proper response should look like. You do that hundreds of thousands of times and then you apply that to this base model in order to come up with the AI. And what Paulo is getting at is he saying that fine tuning phase, let's say we want the model to be an expert in mathematics, or an expert in biology, or an expert in, you name it, specialty spending and reinvesting in those areas to make the fine tuning and even the curation of the data in the first place. Like, why are we taking all of the Internet's data on communications, the large language models, and then applying it to the fine tuning of just biology? We should match all of the data, all the communications in biology to create a base model. Then we should do the fine tuning on biology with experts in the field, and we're going to come up with a way better solution than some gigantic model that's plowing all this. And Paulo, you're way better versed on this than me, so please correct me if I'm saying anything out of turn here or not correctly, but I think that's the gist of what you were getting at.
- [48:50]
Paulo Arduino
Yes. And plus, what if tomorrow OpenAI disappears? What if basically we create a society where every single person relies on ChatGPT and then something happens to OpenAI. As society, we are going through a change also in the job market, relying more and more on AI. But if we rely on one or two companies to give us that AI, what if those two companies will fail? Society will disrupt because suddenly people need to go back to square one and will be almost left hanging because their skill set will change over time. The only way to make it helping society is to create resiliency in AI. Making sure that models can run on a hedge device. Models. People should be able to train easily their own models. People should be able to fine tune their models very easily. Their privacy information should remain theirs. That is also another important part. And that when we will have that peer to peer network of AI agents doesn't matter if companies come and go. People that rely on society, that will rely on AI will be able to continue to use AI no matter what. That's again very important. We cannot leave the future of our society, especially in such a very drastic change that will bring AI into the hands of a couple of companies that will end up badly. We need to empower people, empower companies to retain control over their data and even just think about data ownership. I saw an article with that was saying that meta some employee meta took like 80 gigabytes or 80 terabytes of, I don't remember the unit of measure of documents and books from torrent. Like in the future, people realize more and more that what they are, the content that they are creating will be just used and stolen by centralized AI companies to build better models. That we only serve the purpose of making more money for such companies in the future. People realize that it is very important to build. If they will create content, they should own the content and that content should be used to train their own models rather than someone else.
- [51:05]
Preston P.
Models. Yeah, help me understand just from a technical standpoint, if you're doing this localized, like the model that I'm downloading onto my phone, I think from a storage standpoint will be okay. But from a processing standpoint, from a GPU standpoint, for an advanced model, something that's giving you really good intelligence and responses, I would think that that would be really computationally intensive for call it a smartphone. Why is that wrong?
- [51:29]
Paulo Arduino
So there are different ways to look at this. First of all, if you want to have a model that knows everything, sure it will be very difficult because then on a smartphone, on a cutting edge smartphone, you might be able to run between 3 and 7 billion parameters models. You cannot run the 700 billion parameters model. But I think that what will happen is that again, if you have instead more modernization in terms of knowledge, and also if you have access to a peer to peer infinite network of knowledge, then you will seek the information from who has the best and you can download specific models that will help you in that specific moment in time. So it's not that you will run the entire Internet in your pocket, but you will have control over it. That is most important thing. You will know what's happening. The conversational part will remain because you can, with 1 billion tokens, you can do a great. You can have a great generic conversational AI that of course will not have the entire intelligence of the world, but will know where to find it. That's really important.
- [52:28]
Preston P.
Do you find that the demand for GPUs at people's homes to conduct a lot of that processing and then shoot it back over to the phone? Like basically you're offboarding the processing to a localized gpu. I mean you can do a lot of that through encryption. It doesn't even have to be at your house.
- [52:43]
Paulo Arduino
Yeah. But keep in mind that the GPUs on phones are becoming better and better. Everyone. Now, if you compare an iPhone X with an iPhone 15 when it comes to GPU.
- [52:53]
Preston P.
Yeah.
- [52:53]
Paulo Arduino
It's like 20, 30 times more powerful. Yeah. And imagine what an iPhone will be now that everyone is investing in AI and hardware. An iPhone 20 would be insanely powerful so that most of the tasks that you need can be done locally. So I think that we are going to be at a point where you can have a local AI that does fine tuning on all your emails and all your chats and become your best person assistant. Now the other option that I think will be very interesting and we are looking into that as well, and our technology already enables out the box, is to have an AI box at home. Like a sort of like Apple tv. But instead of focusing on tv, you have a GPU a contain GPU from Nvidia, quite more powerful than what you would have on your phone. That can offload all the tasks of processing of your family's data, all the photos, tagging the photos when you go on holiday with your children, all that. By the way, think about it. Right now you are using someone else cloud services to tag all the photos and categorize all the photos of your children. That's kind of scary.
- [54:01]
Preston P.
Yeah.
- [54:01]
Paulo Arduino
So you should use your own hardware because your hardware is already capable to do so. You should use backups that you own. And then if you want a further backup in cloud, you should do it in an encrypted way rather than giving all your clean and clear images to someone else. Again, you never know how that information will be used.
- [54:21]
Preston P.
Okay, real fast. So you guys are setting up shop in El Salvador. That's where the company has been officially relocated to. I read that you guys are building a 70 story building in El Salvador and hiring. You're doubling your headcount at the company, half of which will be people from El Salvador. Anything you want to add on here about moving the company to El Salvador?
- [54:43]
Paulo Arduino
El Salvador is a great place. It's a beautiful place. Every single time I go and I go there very frequently. I'm also citizen now in El Salvador. I go there very Frequently, every single time. The city is more advanced, is cleaner, there are cranes and buildings are happening everywhere. The food is better, like every. There is investment across the entire society. It's so fascinating to see it now. Sometimes you hear like, oh, Singapore developed over the last 30 years, 40 years, and back then you didn't have smartphones to document all that. Sure, some TV crews were there and taking like documentaries, but now we live in the digital air. You can see the change. You can feel the change on a daily basis almost. And the bukele is the representation of what an illuminated politician should be. I unfortunately have been living almost, almost all my life in countries where politicians were not that great, everyone was promising things and no change was ever happening. When I saw Keire, I saw. I thought, finally there is someone that actually can hold the title of politician and look himself in the mirror every single day. So I think it's very important to support El Salvador in this transition because we'll be an example for the rest of the world. Of course bitcoin adoption is great to have in the country, but more importantly, I think the example that El Salvador Taylor set when it comes to the change and the hope that they can bring to other countries is just incomparable.
- [56:19]
Preston P.
All right, Paulo, I want to stick to the time that I told you we were going to have the interview complete. I really appreciate your time. Anything else you want to leave with the audience or things that you want them to check out as we close things up, just stay tuned.
- [56:32]
Paulo Arduino
I think that there will be many more announcements in the coming weeks or crazy things that we are developing, so just, just follow us.
- [56:39]
Preston P.
Well, I appreciate your time and love getting into the engineering stuff with you, as I'm sure people can tell through the conversation. But thank you for your time and coming on. Really appreciate it.
- [56:50]
Paulo Arduino
Thank you for asking for having me.
- [56:52]
Preston P.
Thank you for listening to tip.
- [56:55]
Paulo Arduino
Make sure to follow bitcoin fundamentals on your favorite podcast app and never miss out on episodes. To access our show notes, transcripts or.
- [57:04]
C
Courses go to theinvestorspodcast.com this show is for entertainment purposes only.
- [57:10]
Paulo Arduino
Before making any decision, consult a professional. This show is copyrighted by the Investors Podcast Network. Written permission must be granted before syndication or rebroadcasting.