#1026 Alyse Killeen On How The Bitcoin Lightning Network Is Taking Over The World

Alyse Killeen is a Founding Managing Partner at Stillmark, A Bitcoin focused Venture Capital fund. In this conversation, we discuss investing in Bitcoin, innovation currently being built on top of Bitcoin, Taro, the expansion of the Lightning Network, Stablecoins coming to the Bitcoin network, and how Bitcoin is helping millions of people globally. ======================= Bullish is a powerful new exchange for digital assets that offers deep liquidity, automated market making, and industry-leading security. Combining the innovations of DeFi with the regulated environment of traditional finance, Bullish empowers users to trade with certainty and earn passively at scale across variable market conditions, in an environment backed by multibillion-dollar liquidity contributions from the Bullish Treasury. Visit bullish.com/pomp today to learn more. Note: Bullish is licensed by the Gibraltar Financial Services Commission. Virtual assets and related products are high risk. Consult your investment advisor and trade responsibly. Bullish is available in select locations only and not to U. S persons. Visit bullish.com/legal for important information and risk warnings. ======================= Since 2018 Copper has been at the forefront of institutional digital asset development. From award winning custody solutions, to creating the first truly off-exchange settlement function, Copper pioneers technology, products, and services, in lock-step with a rapidly changing world. No other infrastructure provider covers as many assets, across as many exchanges, with the speed and security that Copper can offer. To learn how Copper helps the world’s largest institutional investors secure their digital assets, head over to copper.co Copper - the unfair advantage. ======================= Compass Mining is the world's first online marketplace for bitcoin mining hardware and hosting. Compass was founded with the goal of making it easy for everyone to mine bitcoin. Visit http://compassmining.io to start mining bitcoin today! =======================

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Elise Colleen is the founding managing partner at Stillmark, a Bitcoin-focused venture capital fund. In this conversation, we discuss Bitcoin, mining, Lightning Network, Taro, and much, much more about the decentralized computing network that so many of us have been paying attention to. I really enjoyed this conversation with Elise, and I hope you guys enjoy it as well. Before we get into this episode, though, I first want to talk about our sponsors. This episode is brought to you by Bullish. Bullish has reinvented the digital asset exchange. They give you access to DeFi features like automated market making and liquidity

• 0:44Anthony Pompliano?

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• 1:29Anthony Pompliano?

  when you want, at scale, with better pricing and lower risk, all within a regulated market environment. Good reasons to be bullish. Learn more at bullish.com/pomp and follow @bullish on Twitter today. Bullish is licensed by the Gibraltar Financial Services Commission. Virtual assets and related products are high risk. Consult your investment advisor and trade responsibly. Bullish is available in select locations only and not to US persons. Visit bullish.com/legal for more important information and risk warnings. Today's episode is brought to you by Copper. Since 2018, Copper has been at the forefront of institutional digital asset development. From award-winning custody solutions to creating the first truly off-exchange settlement function, Copper pioneers technology, products, and services. Services in lockstep with a rapidly changing world.

• 2:13Anthony Pompliano?

  No other infrastructure provider covers as many assets across as many exchanges with the speed and security that copper can offer. To learn how copper helps the world's largest institutional investors secure their digital assets, head over to copper.co. Again, copper, the unfair advantage. Check them out at copper.co today. Next up is compass mining. Compass mining is the world's largest marketplace for mining hardware and hosting. With compass, everyone can mine bitcoin. Their team makes it easy to start mining wherever you want, at home or in one of their 23 hosting facilities around the world. Through the compass marketplace, retail miners can access mining hardware with similar prices and purchase plans as the world's

• 2:56Anthony Pompliano?

  largest mining companies. Compass miners own their machines. They choose whatever mining pool they want, and they mine directly to their own wallets. Miners who don't want to host their machines can order asics directly to their doorstep. Simple and low-cost hosting agreements, coupled with best-in-class customer service, are the reasons why compass is the simplest and most popular way to mine bitcoin. Start mining your own bitcoin today by visiting compassmining.io. Again, compassmining.io. Go check them out and let me know what you think.

• 3:27Speaker 01

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 3:51Anthony Pompliano?

  Elise, how are you? Pomp, it's so great to see you. I am very excited to talk to you. Let's start first with, when I describe you to people, I say, she has a venture capital firm that is focused on bitcoin. And they all kind of cocked their head and say, what does that mean? But I think it's a very, very important focus. Tell us a little bit as to why venture capital is an investment strategy, and then why so focused on bitcoin? The Bitcoin ecosystem exclusively.

• 4:20Speaker 02

  I'm coming from a venture capital background. So prior to launching Stillmark, I was in the field of venture capital, traditional tech for about six, seven, eight years. And so I did everything from the first check in to back a company to get it started, all the way through to pre-IPO investments. And I am also coming from an entrepreneurial family. So both of my grandfathers were entrepreneurs. And in combining those two experiences, I saw I find venture capital to be really additive to many entrepreneurs entrepreneurs journey.

• 4:56Speaker 02

  And so it's, you know, I sort of, I get a lot of excitement, joy of helping other people win and achieve their vision. And that's what we're trying to do at Stillmark, targeting the Bitcoin space. So to rewind for a moment, when I started out in venture capital, I was focused on infrastructure tech. So things like cloud networking, data center software. And from there, I found Bitcoin. And I saw Bitcoin as the most important infrastructure that was likely to be in my professional lifetime. And so it made sense to really focus here and to be very concentrated.

• 5:35Speaker 02

  And of course, as you know, Bitcoin is so incredibly dynamic that if you're not dedicated to it, if it's not a 24/7 thing, you're going to miss important developments, important nuance. And so at Stillmark, we wanted to be really heads down and focused on Bitcoin.

• 5:52Anthony Pompliano?

  I love the focus. I think that's a very important part of this. You've got this thesis or theory that things like the Lightning Network or Taro, Tarot, will end up actually serving as some sort of tailwind, similar to maybe cloud computing coming out of the 2008 global financial crisis. First, let's start with like, how do you view Lightning and Tarot? And then why do you think that they could serve?

• 6:16Speaker 02

  This kind of tailwind coming as bear market. So when we're looking at the space of startups, when we're looking at the startup ecosystem, we really want to understand the dynamics that exist around it to allow companies to thrive and to really build large enterprise to have a cultural impact. And so ahead of Stillmark even launching, what was important, the trigger event for Stillmark to launch as a Bitcoin focused fund was the advancement of SegWit on Bitcoin Core. And as you know, and probably most of your audience knows that one of the ramifications of SegWit was that we could have this much more robust Lightning Network, Bitcoins Payment Network, grow atop of Bitcoin.

• 6:59Speaker 02

  And so Stillmark launched right after we saw that SegWit would gain adoption and integration with, you know, first explorer apps. Now, the same opportunity, I think, exists with Taro. So Taro is a new protocol introduced by Lightning Labs, developed, innovated by LALU, otherwise known as Roast Beef. And what Taro does is it allows for assets, digital assets, to be traded on the Lightning Network, so peer to peer. And what I'm most excited about is seeing digital dollars on Lightning Network. And I think it's been, we've all been waiting to see Tether on Lightning or Tether with the capability to be traded instantly and nearly for free.

• 7:43Speaker 02

  And now by the end of this year, I believe, I expect that that will be possible via Taro. Now, this sort of links to some of the adoption activity that we saw in 2021, right? Where we saw Lightning Network help introduce Bitcoin in emerging markets. And what really captured the headlines, of course, in 2021 was El Salvador adopting Bitcoin. All of that economic activity happened on top of Lightning Network. And so it was a chance to do two really critical things. First, it tested Lightning Network at scale. Could Lightning Network work when it wasn't just, you know, a bunch of Bitcoiners sending, when it wasn't just speaking tech to tech? When real world

• 8:26Speaker 02

  People that weren't thinking about Bitcoin 24/7 were using it. And the answer was a resounding yes, it worked beautifully at scale. The second opportunity that we had from El Salvador's launch of Bitcoin was to actually get feedback through adoption, through real-world adoption. And so some of that feedback was, of course, that Lightning Network was a really valuable tool, especially for people that were underbanked. But beyond that, what we heard was that Bitcoin's volatility right now is hard to handle. So if you are making $400 a month, if your expenses range between $390 a month and $410, to handle Bitcoin's volatility is really difficult. It's hard to keep your family

• 9:08Speaker 02

  safe and well-resourced. And so what Terra does is it responds to that. It allows you to use Lightning Network, to use Bitcoin really, while not being exposed to Bitcoin's volatility. And that makes sense for a lot of lower socioeconomic status populations.

• 9:24Anthony Pompliano?

  Talk to me more about the Lightning Network and kind of bringing Bitcoin to all these emerging markets. I think that the Lightning Network is a very unique story in that, one, it didn't receive tons and tons of hype because it didn't raise, you know, venture capital. There is no kind of native token to it, so there wasn't a token sale or anything like that. It feels like it's continued to grow organically under the radar. How important is that as kind of a key way to make sure that the right people are building on it and the right people are adopting it that are going to be here for the long term?

• 9:55Speaker 02

  Well, here's what you can do when you don't have a token, right? You can actually respond and get clear signal from users. So you can respond to true user feedback. When there's a token, of course, the activity that you see from users is, it's very noisy. So a lot of users, when they're participating in a token-driven ecosystem, are there to speculate on the token. And because Lightning doesn't have that, when it launches in a new market or is integrated in a new app, we can really see from that user base the value that they get from the protocol, from the technology. And with that, then we can rapidly innovate, and that's what you're seeing. So that's exactly what happened with Terra.

• 10:36Speaker 02

  Saw this really beautiful adoption to infrastructure development feedback loop. So you introduce the new infrastructure, in this case Lightning Network, to a user group. They adopt it, you can watch their behavior and engagement metrics. From that you can discern feedback and then that drives the next cycle of development and innovation in the infrastructure side. So that's, Taro is really a beautiful example of that. Now, in terms of who should be building on Lightning, 2021 was amazing to see this because there was really a sort of shift in terms of the diversity of who was building. So while in earlier cycles, we had Bitcoiners building

• 11:16Speaker 02

  and a lot of these folks are just so brilliant, they're really almost like Bitcoin native thinker somehow. In 2021, though, the dev tools and the environment was more mature. And so we were able to see people that were not religiously Bitcoin or were not building because it was Bitcoin, but were building something within their space of expertise that could be benefited or advanced by Bitcoin and by Lightning. And so that was a shift we saw last year that I think will continue to drive the space forward in 2022.

• 11:48Anthony Pompliano?

  And so when you start to think about Taro, one of the critiques of it by some people in the Bitcoin community is, "Oh, it's introducing altcoins, it's introducing stablecoins, it's introducing all these things that we've been railing about in these other ecosystems." There's another large group in the Bitcoin community who believe, "No, this is exactly the idea of building kind of a digital economy on top of a decentralized ledger of the layer one of Bitcoin." How do you think through the differences between those two arguments? And is there a one right answer? Or is it something where like certain people will need these other assets and then some people will just use Bitcoin itself?

• 12:28Speaker 02

  Well, in the future, of course, we're hoping and aiming and working towards a Bitcoin-denominated world. So I think that we're all on the same page with that. I am certainly on that path. I'm hoping that we get there. Our work is in part targeted towards advancing Bitcoin. Bitcoin and Bitcoin's adoption to that point. However, in the interim, we have to acknowledge that people have very different needs. Um, while people of privilege and of great resource can use Bitcoin and can frankly, um, be mostly benefited by Bitcoin's volatility because we're able to hold for a longer duration. That's not true of everyone. And so I think one of the things that Satoshi was very clear about in the early days

• 13:11Speaker 02

  was that Bitcoin is meant to be for everyone in a very non-judgmental way. So we can't go into an emerging market, for example, and say like, hey, if you want to use this tech, even though we're able to give it to you without forcing volatility on you, we're going to hold that back and we're going to make you live in a Bitcoin-denominated world. And it doesn't matter what that means in terms of your family's safety. Uh, you know, I think that that breaks with Bitcoin's ethos. Um, and so I'm excited to see that we can have a broader user group by being responsive to some of the needs that have been observed when, when we really go broad.

• 13:50Anthony Pompliano?

  When you start looking at Taro, talk me through kind of what needs to happen for it actually to become a reality? Like, like, what are the, the big milestones or kind of sequence of events here that, uh, people should be paying attention to? To make sure that it's on, uh, track to actually become a reality?

• 14:06Speaker 02

  Sure. So what we want to see is this year, um, Taro launch. And then after Taro launches, the next important sort of tipping point in terms of Taro's potential impact is of course, um, the introduction of liquidity services. And so that will be sort of how the roadmap progresses. First, the protocol will be available and then after that, liquidity services will be available. And as we know, um, liquidity services are maturing and the intention of this is to allow people a more, a less frictionful experience of using Lightning. With the ultimate goal that Lightning as a protocol, just like Bitcoin, eventually can sort of fade into the background of many people's experience so that you're not feeling like you're using, you know, a cool new tech.

• 14:51Speaker 02

  You're feeling like you're having a seamless experience of integrating Lightning or a finance, um, of payments into your, into your day to day. And so that's, that's the target. That's the aim, same is true for Terra.

• 15:06Anthony Pompliano?

  So I asked the audience for a ton of questions before we got started. And there was a frankly, really sophisticated questions. And I just want to kind of read them out and you just fire away with answers.

• 15:21Speaker 02

  Okay.

• 15:21Anthony Pompliano?

  Somebody asked, how does Lightning scale, solve scalability issues? Their thought process is that 1 million transactions per second isn't enough, in their opinion, for a payment rail. And what I think they're getting at is this whole idea, in a digital world, you're getting more and more transactions because friction's going down in terms of the ability for people to transact. And will 1 million transactions per second actually be enough to serve as that kind of scalable solution?

• 15:47Speaker 02

  Is the assumption that that's the limit?

• 15:50Anthony Pompliano?

  I think their question is, but you can always disprove that assumption.

• 15:53Speaker 02

  So I guess, I suppose if that's the premise, then I'm not sure that I would agree with the premise. But the way that Lightning scales Bitcoin, of course, is that as adoption grows in the Bitcoin space, block space will become even more valuable and frankly, more costly. And so if we're going to leave Bitcoin open for all, it's important to take some of the economic activity happening on Bitcoin up to higher layers, and more affordable layers, frankly. And that's the purpose of Lightning. And there will be other second layer protocols, of course, that help to do similar. And those protocols, the characteristics of them, the security models, the way that they process transactions, depending on those sort of features,

• 16:36Speaker 02

  people will, people will select protocols, or developers will select protocols that best match the utility that they're trying to introduce. So in Lightning, that's all about peer-to-peer payments. It's about quick, cheap, instant, global payments. On, in a sidechain environment, it might be about higher value transactions, where you want to be able to, you know, have a slower, perhaps, settlement time, or some sort of other characteristic to the settlement. of the transaction, you know, that suits it better. And so some of the economic activity happening on Bitcoin will be shifted to those environments as well.

• 17:16Anthony Pompliano?

  So when you think about the second layer solutions, this is my question, not from the audience, is it going to be a winner take all second layer solution? Or do you think that there will be multiple kind of options that people can choose built on top of Bitcoins? There's Lightning Network would be one of them. But do you anticipate there will be others? Or does all of the value and kind of popularity coalesce around one like the Lightning Network if that would be the winner?

• 17:39Speaker 02

  I anticipate that there will be others. And I think, you know, like I said before, I think what will be really important is matching the feature of the feature set of the protocol to the sort of utility that's taking that's that's happening on top of it. And and one of the most important features, or maybe feature is the wrong word, but one of the most important characteristics, of course, is the security mechanism that secures the ledger or the network. And there's many examples here. I don't know if it's how in the weeds we want to get technically for the audience. But I think that we're all benefited by Lightning being the first second layer protocol that really takes off in the Bitcoin

• 18:21Speaker 02

  space because it can be so easy to use and can be so cheap. And so really, the reward of using Lightning, the cost value perspective, it's really clear. As soon as people use Lightning, they can understand how their lives can be benefited, made easier in some way, once they use it. And, and so I think that it's, it's, you know, we're all advantaged by the fact that that happened first. And from a BTC, from the assets perspective, we know historically that as adoption grows, the price of BTC has increased. And I think that actually makes sense. Bitcoin becomes fundamentally more useful, the more people

• 19:02Speaker 02

  are holding it. And so to see adoption be a driver of BTC's exchange rate, you know, sort of underscores the truth of that. And Lightning, of course, is an incredible driver of adoption.

• 19:14Anthony Pompliano?

  So when you start to look at kind of where we are today, and let's go ahead and give ourselves the benefit of the doubt that Taro ends up getting built, launched and adopted, what are the types of businesses that you anticipate being built around that third layer? And maybe even businesses that you're looking to fund as this all kind of gets built out as an ecosystem and a technology stack?

• 19:36Speaker 02

  This is a really great question. So really, you can see what we think is important reflected in our current portfolio. And so the first thing that we wanted to do in preparation for Taro was to make sure that we were helping support the entrepreneurs that were advancing infrastructure critical to Taro's success. And so, and, and some of that really looks very similar to what's critical to Lightning's success and success at scale. And so although it becomes, I, I think probably more important in a world that includes Taro. So that looks like investments, for example, in Voltage, which is like an AWS for the Lightning Network, allowing people the easier capability to spin up and manage their nodes, including at scale.

• 20:20Speaker 02

  So as their business scales, Voltage can help with that. We also invested in a company called Amboss Technologies, which is an index of the Lightning Network. Of course, an index of the Lightning Network becomes much more important in a world of Taro, where you have other assets in addition to BTC being ultimately exchanged on the Lightning Network. And then finally, of course, merchant payment processors are going to have a new vitality through Taro, especially in emerging markets. And so with that knowledge, we invested in IVEX Mercado, which is the merchant payment processor and infrastructure provider that really led the way in El Salvador.

• 21:00Anthony Pompliano?

  And so as we continue to watch this, you know, be built out, Taro, you mentioned earlier, these digital kind of dollars or stable coins that are built on top of it. Is the anticipation that people could use dollars for transactions and not even understand that they're using Taro, Lightning, Bitcoin, just like all of that is kind of washed into the background and it's just superior payment rails? And I, as a user, would think that I'm receiving dollars or, or sending dollars? And that's kind of The magic of this all working.

• 21:33Speaker 02

  Right, that's right. So you wouldn't have to know how the tech works to receive the benefit. And I think, of course, the best technologies are like that. However, my my true expectation is is that receiving digital dollars on Lightning Network will be a great way to introduce Bitcoin and a Bitcoin standard to a broader audience. And so what I expect to see, for example, is is perhaps a distributed workforce developed to to backtrack for a second to integrate your last question with this one. One of the companies I think that will be benefited by Taro is a company like Stackwork that's managing a distributed workforce to introduce the opportunity to work and plug into the global economy

• 22:18Speaker 02

  just by completing work on your smartphone. Now, perhaps Taro allows a company or a platform like that to pay their digital workers in dollars. And and those workers could have the option to receive and hold in dollars in their checking account. While at the same time allocating some of their some Bitcoin or some of their digital dollars to Bitcoin to hold in a savings account. It gives people more flexibility to sort of decide, you know, how to make best use of their wealth, how to store it, what needs to go from monthly spending. And so, you know, I don't, Taro will allow people to use Lightning Network for the purpose of sending dollars.

• 23:01Speaker 02

  But my belief is that the repercussion of that will be that people become curious about Bitcoin because they see the value of the underlying tech. They're already using the network. They're already paying in Bitcoin, by the way, because when you send a transaction in the Lightning Network and when a transaction is committed in on the Bitcoin blockchain, you're paying in Bitcoin, regardless of whether you're sending ultimately whether this receiver is receiving dollars or Bitcoin, it's still being paid for in Bitcoin. And I think all of those things will create a curiosity in many that leads to the adoption of Bitcoin and Bitcoin for savings for, you know, a breadth of different groups.

• 23:41Anthony Pompliano?

  What are you seeing from a trend standpoint in terms of the types of people who are building these Bitcoin companies or Bitcoin infrastructure? Are they Bitcoin folks who then start companies? Are they entrepreneurs who are looking for a problem to solve and and end up liking and finding value in the infrastructure? Like, what does that journey look like before these? Companies actually get started.

• 24:02Speaker 02

  It's all purpose driven. So we are seeing, you know, long-term Bitcoiners, understanding what's needed for Bitcoin to scale and to gain both a greater number of users and a greater breadth of utility. So we absolutely are seeing that, and that's the majority of the companies that we back, by the way, right now. But we, in addition to that, we're seeing founders that are thinking about how to modernize the space they're building in. So let me give you an example, again, from our portfolio. It's a company called Pink Frog. Pink Frog is a game studio and the founders are formerly executives at King Studios, a very successful gaming studio. And actually, these founders are the folks that built Candy Crush.

• 24:44Speaker 02

  So they developed Candy Crush. They built it to a scale of 100 million monthly active users. Now, what they were thinking about with Pink Frog was how to introduce a modern game that really sort of fit with young millennials and Gen Z, both in terms of, you know, what the game introduced by way of entertainment, but also what it could introduce by way of gamers interacting with gamers and then with the game itself. And so they saw the opportunity to introduce Lightning Network as a way to increase engagement and the fun of the experience of community within their games. And so for them, Pink Frog is really just, it's a, it's a, it's a gaming company, right?

• 25:24Speaker 02

  It's a gaming-based startup, but that startup can provide a better experience to its users with Lightning. So that's not just going to happen in the gaming space, although gaming is certainly seems to be leading there. I also expect that we'll see founders from other verticals, from other sectors, that will recognize the opportunity of Lightning and Bitcoin to make their product better, even if Bitcoin and Lightning is not the core focus of their product.

• 25:50Anthony Pompliano?

  How do you look at nation-states or cities or states themselves and their ability to kind of help facilitate this? Obviously, we've seen, you know, the governor of Texas say they want to be the capital of Bitcoin mining. We've seen the mayor of Miami say that he wants to be a Bitcoin-first city or Bitcoin-friendly city. We've seen El Salvador really kind of take their entire country and try to plug it into the Bitcoin. Bitcoin network in a variety of ways. Will Bitcoin be successful without these different efforts? Are they helpful? What do you think are the best practices there? Talk to me about kind of the intersection of, you know, essentially government, both at the local, state and federal level and Bitcoin.

• 26:26Speaker 02

  That's a, that's a big question. So how should I answer that? So I'm excited about what we're seeing domestically, of course. I've spent a lot of time in Miami. I'm a fan of Mayor Suarez, your friend. And I think that they're doing a lot of smart work to make sure that their cities stay modern and at the cutting edge of what's possible via Bitcoin and Lightning. However, the, the, that benefit accrues to their city and to the citizens in that city. Bitcoin is fine without that. Now, it has been really exciting for me. So I, I came into Bitcoin in 2013 because I thought I recognized it as fintech for poor people.

• 27:07Speaker 02

  That's a massive market, but it's also an opportunity to do well while doing good work. And so to see a country like El Salvador have the appetite to be an early adopter was incredibly, you know, reinforcing for me in terms of the time and attention and dedication that we've put into the space. Because my hope is that by being early in the space, that the citizens will ultimately accrue a greater advantage. And so I think that that's likely. I'm hopeful that it's, that it'll happen. And I recognize the efforts of a lot of really mission-driven founders in El Salvador to continue to support the maturation of that ecosystem.

• 27:50Speaker 02

  But like I said, Bitcoin is sort of, Bitcoin's fine without that, without any of that. And we've, you know, I think that that's a change that's happened in the past, you know, decade or almost decade of my time in the Bitcoin space is that we're not really worrying anymore about if Bitcoin is going to be okay. We're more, we know that it will be. And now we're focused on the even distribution of its benefit. And it's great to see efforts in Miami, El Salvador and Texas for that to happen. Now, in terms of what states and countries should do, I think that from a security perspective, it makes a lot of sense to want to lead and be smart on mining. As we've seen happen in Texas.

• 28:35Anthony Pompliano?

  When you start looking at the venture kind of landscape, obviously, the price of Bitcoin is down about seventy percent. There's been about one point five trillion dollars of value wiped out of kind of the overall industry market cap. Are people still excited? Are they still funding these businesses? Are they waiting to kind of see what plays out here? What are you seeing kind of on the ground day to day?

• 28:57Speaker 02

  Well, we're not seeing a pullback in terms of interest in backing Bitcoin companies, that's for sure. Now, remember that most companies in the Bitcoin ecosystem are not directly exposed to the price of BTC. And when we're investing, we're investing as traditional venture capitalists, which means that we're investing to purchase equity stakes in the company and the company is receiving that capital. Now, one of the things I think that's really overlooked in the sort of like the haze and chaos of crypto versus Bitcoin is that the illiquid nature of venture and traditional venture capital investing is a feature of venture capital, it's not a bug.

• 29:39Speaker 02

  And so when we see crypto projects raising, you know, massive financings driven by a venture capitalist or really sort of a hedge fund investors desire to purchase tokens, that of course instantly creates a liquid market and so that company or in the brand equity of that company is very exposed to market conditions and the crypto bear market. Bitcoin companies, on the other hand, have a very different dynamic. They get the benefit of the illiquid nature of venture capital. And besides that, they're always, they're always offering a product that goes above a sort of speculative bet on an underlying token or even on the underlying value in terms of exchange rate of Bitcoin.

• 30:24Speaker 02

  And so we aren't seeing, you know, really any sort of difference in terms of the appetite for the space. For early-stage founders, it's important to note that recently we saw a greater influx of capital into the space for pre-seed and seed-stage companies. And then at the Growth stage, I think that generalist funds where it still more often partners with generalist funds. Once companies get to the series A, series B stage. At that stage, generalist investors are becoming more sophisticated in their evaluation of Bitcoin and crypto companies. They're asking better questions for sure. And at that point, your metrics can really speak for you.

• 31:05Speaker 02

  And it, you know, it's sort of that there's much less noise once companies become more mature. But early stage founders now have the benefit of more Bitcoin focused species.

• 31:15Anthony Pompliano?

  So I got a couple of other things I want to talk to you before I let you go. Uh, the first is this idea of Bitcoin versus crypto. And you've tweeted a whole bunch of different things, uh, in and around this. When you think of Bitcoin versus crypto, I, I really think the big question is like, do you expect all of the other coins to eventually go to zero, disappear? Will people start building those and they'll eventually move over to lightning and terror? Like, how do you just see Bitcoin maybe fitting in with what from the outside? I think many people see as this really big industry with, you know, 20,000 coins. Uh, I think that once you get inside of it, there's a lot of folks in the Bitcoin community specifically say, look, it's Bitcoin and then there's everything else. How do you see those two things interacting? And what do you expect to happen to all of the non Bitcoin, non Bitcoin stuff over the coming years?

• 31:58Speaker 02

  Well, I think that there's a lot of folks holding other cryptocurrencies beyond Bitcoin that don't understand what they're holding. I'm not talking about retail investors now. So we talked to institutional investors where questions are, um, you know, oh, is, is Lightning Network not on other cryptocurrencies? Is Lightning Network just for Bitcoin? Or confusion about whether, you know, Ethereum and other altcoins are settled and benefit from the security of Bitcoin's blockchain. And so there's a lot of, um, you know, just it, it's a noisy space, right?

• 32:39Speaker 02

  So we know that there's a lot of, um, really strong and solid storytelling happening in the altcoin space. And some of that can, you know, look or feel almost like an attack on Bitcoin now. When folks have a greater experience. of these technologies and start to be able to discern um you know fact from fiction then I think we will see a you know a greater shift towards Bitcoin so Bitcoin will achieve even greater greater market share um in terms of entrepreneurial activity though which is where Stillmark is focused we talk to founders all the time building in other spaces with the intention of switching to Bitcoin the example that I always give of course is Atomic Finance who launched in Ethereum space

• 33:22Speaker 02

  was able to secure easier funding in the Ethereum space and then as soon as the technology permitted for Atomic Finance to build in a Bitcoin environment they did they switched over um we've seen we also know that BitMatrix for example essentially used an altcoin protocol as a bit of a testnet to explore how to best develop an AMM on top of Bitcoin ultimately and so you know these are examples public examples of entrepreneurs building testing in other environments as they ready themselves to launch in Bitcoin but we talk to founders like that all the time at least on a weekly basis and I you know I it makes sense because founders want to build on the most solid ground and Bitcoin is certainly that

• 34:06Anthony Pompliano?

  recently we saw uh Jack Dorsey uh TBD uh they announced Web 5 which uh if we put the name aside for a second uh there's a lot of folks who say wait a second are you trying to build other things than just payments on top of Bitcoin uh specifically around these decentralized IDs uh talk a little bit of what you're seeing there as other people are trying to not just build financial services but could build other types of applications on top of Bitcoin

• 34:33Speaker 02

  sure so the important thing there is that we match um that we're able to evaluate the protocols critically so that we understand if what a founder intends to build is really in sync with what the protocol is capable of and so that applies to sort of the full set of questions around what can Bitcoin or Lightning Network do beyond payments now to give an example of how important it is to diligence um the company and products relationship to the core protocol Depends on, we can take a historical view back to 2014 when a lot of dollars went into merchant payment processor companies. And they then ended up in this, you know, you know, sort of like

• 35:14Speaker 02

  fundamental challenge, which was how do they scale when Bitcoin as at the core protocol level wasn't built for, you know, scaling and that level of scaling and speed. It was, you know, sort of built for the opposite. And so I think that's really those sorts of tensions between capital going into companies that didn't really match with the state of the underlying open source protocols that of course are led by developers that the companies don't control in any way. That ultimately led to what we saw in the SegWit 2X, you know, sort of ruckus in the space in 2017, I think that was. And, and so when we're looking today at

• 35:59Speaker 02

  companies that are trying to press the bounds of what Bitcoin and Lightning Network and side chains can do, we entertain all of those discussions, but with a critical eye for if it matches to the underlying open source protocol. And then beyond that, it's important that founders building that sort of product, you know, have communication, lines of communication open with the open source developers contributing to the protocol, so that the entrepreneurs, the founders of these infrastructure app companies can have great sight into what the roadmap will look like for the protocol they depend on, and the trade offs that developers are making when they, you know, advance or maintain these protocols. Does that make sense, Pop?

• 36:42Anthony Pompliano?

  It makes a ton of sense. My last question for you is around proof of reserves. I know you've made an investment here in a company that helps kind of provide infrastructure, but obviously, given a lot of the recent events across the industry, it's a topic that has become much more kind of top of mind for folks. What is the importance of proof of reserves? Why is it that these bearer assets kind of provide for this in maybe other areas of finance that they're not available? And then talk a little bit as to how you think infrastructure or technology companies could help kind of facilitate this proof of reserves

• 37:14Speaker 02

  A testament at all times. So there's two lessons that we can pull from what's been happening with the unwind of the DeFi space over these past few weeks, and that is the importance of proof of reserves and the value of self custody. Both proof of reserves and self custody act as a protective, a natural, a native protective layer for end users. So Hoseki is the first company to focus on a proof of reserves product. It's led by Sam Abasi, who comes from Fidelity and has done a lot of research and authorship around the concept of proof of reserves. Now, retail investors can benefit in two ways.

• 37:59Speaker 02

  First, you can use proof of reserves to prove that you have these digital funds in order to use that to secure a loan or a mortgage, for example, or to sort of vouch for your assets. Proof of reserves and Hoseki specifically will allow you to easily do that so that your Bitcoin holdings can be a part of your portfolio that you can leverage. Now, what you can also do, though, with proof of reserves and what Hoseki will also enable is for users to begin demanding from exchanges, from firms they back that hold Bitcoin, for example,

• 38:38Speaker 02

  or from other large BTC asset holders, that they prove that they actually have those funds. And so Hoseki offers that SMB or enterprise software so that exchanges can show proof of reserves, which is, for instance, something I think that Kraken has independently advanced. It's important to end users. Kraken knows that, and so they've been at the forefront of doing this. Hoseki will make it easier for similar exchanges to do the same and also create sort of, hopefully, a drive and empowerment for users to demand that from the places where they hold their BTC. Now, I also mentioned self custody. Pomp, you mentioned it at the jump.

• 39:22Speaker 02

  Self custody is also something that We're again learning the value of. So as we see, you know, um, some of these things unwind, let's even just talk about the institution of um, Three Arrows Capital. You know, it's see, some of the rumors are that there were um, portfolio companies of this firm or co-investors that were actually holding assets. And that could have been more safely, um, you know, managed by oneself, right? So instead of having um, a firm like Three Arrows Capital or maybe someone more responsible, hold your BTC for you, it makes much more sense to take advantage of Bitcoin's native ability to be your own bank.

• 40:05Speaker 02

  Um, and self custody and a really secure solution like multi-sig that Casa offers is a great way to do that. So my hope is that the, the chaotic environment of the past couple weeks or maybe um, month or more, as DeFi unwinds is going to allow us to um, see the value of, you know, these, these, these core applications of Bitcoin um, or core capabilities of Bitcoin like a proof of reserves or a self custody and multi-sig solution.

• 40:37Anthony Pompliano?

  I, I, I could talk to you about all the nuances of the Bitcoin industry for quite a while. Uh, for the founders uh, who are building companies and would potentially want to uh, to talk to you about funding their businesses or their products. Uh, where can we send people to find you on the internet or find out more about Stillmark?

• 40:53Speaker 02

  So we're at stillmark.com and we have, we receive um, messages from founders at [email protected]. I'm also on Twitter, my colleague Bakash Singh is on Twitter and you can really reach us um, anywhere. We check all of those emails daily and are always excited to hear from founders.

• 41:12Anthony Pompliano?

  Awesome. I, I just dropped your uh, Twitter uh, link in the chat as well, anyone who wants to uh, uh, to follow her, I highly suggest it. Elise, thank you so much for, for taking time to do this. Uh, we would definitely have to bring you back and then kind of continue uh, watching as this all uh, develops and you know, there's a lot of companies uh, as you pointed out, that are building on top of Bitcoin in a variety of different ways. And funding them is incredibly important because ultimately continues to kind of drive the entire ecosystem forward. So, you know, buying and holding Bitcoin, I think, is what a lot of retail or individual people see as, you know, part of their contribution to the space. But we also need people funding the businesses and infrastructure around it. So I'm a huge fan. Any founders out there who are building in and around Bitcoin, highly,

• 41:56Anthony Pompliano?

  highly suggest you go talk to Stillmark and we'll go from there. Thank you, Pom. All right. We'll talk again soon, I hope. All right. Sounds good. Talk soon. All right. Bye bye. Thanks so much for listening to today's episode. I really hope you guys enjoyed this one. Make sure you subscribe on Apple, Spotify, or your favorite podcast player. And if you're looking to try to transition to get a new job in the Bitcoin or crypto industry, we've got you covered. Head over to pompscryptocourse.com. We've developed a curriculum with the top teams across the industry. It's a three-week intensive training program with over 50 events packed into that three-week time period. Go to pompscryptocourse.com to learn more and I'll meet you guys for the next episode.