Bitcoin’s Two Economies & Citadels

Hi and welcome to the Stephan Livera podcast, a show about Bitcoin and Austrian economics. Today for episode one hundred and seventy, my guest is Yuri de Gaia, a partner at L2B Global and doing OTC trading at Bitcoin Reserve. This show is brought to you by Kraken, one of the world's leading Bitcoin exchanges. They're one of the largest, they offer some of the best liquidity available, they are one of the longest standing exchanges. And they are consistently rated the best from a security standpoint. Kraken offer twenty four seven support and it's really easy to sign up with them. They also offer Kraken Pro mobile app, delivering all the security and features you love about the Kraken exchange in a beautiful mobile first design. Kraken also offer margin trading up to five times and futures up to fifty times leverage. Go and sign up at kraken dot com. Next up is Unchained Capital Bitcoin financial services. The team have been driving people to try- Out multi-signature before the halving. If you're bullish, you wanna try and improve your security, and Unchain Capital make it really easy for you to do this with this multi-signature vault. It's a two of three multi-signature setup. You can use Trezor and Ledger, and Coldcard is coming soon. They've also got some really cool updates coming on the open source side with Caravan, which I'm sure I'll be getting the guys on soon to show you that also. So keep an eye out for that. And if you want some liquidity, if you want USD, You can receive USD. Unchained Capital also have incredible content on their blog and on their website, so go and learn more at unchaineddashcapital dot com. Next, Swan Bitcoin, the dollar cost averaging revolution is rising. More and more people are looking for ways to stack Bitcoin without manual processing. If you are in the US, you must look up Swan Bitcoin at swanbitcoin dot com. You can link any major US bank account via ACH and just auto buy bitcoins weekly or monthly. Swan Bitcoin also have a focus on educating Education and Bitcoin advocacy, they're really trying to get customers to hold their own Bitcoin private keys. I'm an advisor and I have a small equity stake also. It's one Bitcoin are the cheapest for dollar cost averaging, and there's also a recent episode with Corey, so go and check that out. Finally, just go to one bitcoin dot com for your automated Bitcoin stacking. So Yuri de Gaia, he's a partner at L2B Global, the entity behind Bitcoin Reserve, which is an OTC service, Liquidity, a service for Swapping into L Bitcoin or L BTC and also Moon Tower. So in this episode, we talk about Bitcoin's two economies. We've got this regulated, compliant world, and then there's the defiant, crypto-anarchist world, and how will they grow? Do they support each other? And how does this all play into this idea of citadels and monarchy and anarcho-capitalism? So here is the interview. Yuri, welcome to the show, man.

Thanks, Stefan. Glad to be here.

So Yuri, I know, you have been doing a lot of interesting stuff in the Bitcoin space. You're, working primarily as like an OTC trader, but also doing some writing, and you've got Bitcoin Reserve Journal. so I think it'd be interesting to get into some of these ideas around what are Bitcoin's two economies, and I know you're also a Citadel, citadel addicts. but, so t- tell us a little bit about how you got into doing Bitcoin OTC.

Yeah, well, that was pretty much as soon as I, got into Bitcoin, late 2012. So I learned about Bitcoin from the local meetup group in Vancouver. there was literally six, seven people attending weekly at that time, so it was an interesting time. And I learned a lot from these people, but then, I'm a practical person, so I just wanted to see what I can do with it practically, and it just turned out that, I was asked For some Bitcoin from someone who didn't have them, and, I didn't have on a lot on me, so I saw an opportunity basically to just buy a little bit and resell it to that person at a slight markup, and, you know, worked, really well, and I was, like, "Well, there's an opportunity there," and, you know, I started doing a little bit of that. And as time went, you know, our interest grew obviously, and, especially after, the first halving, and then we started, getting, larger requests, and, I was, thinking about, leveling up essentially, and, you know, cash transactions they are tricky, and that, you know, cash is, It's difficult to handle and you never know who you deal with, so I wanted to get into, you know, so to speak, a white side of the business, right? So, I- started, doing OTC with the binary financial, one of the larger brokers out there, and at the same time, I got into the retail space by launching a Bitcoin ATM business, in Vancouver, which, right now is, pretty large in Canada, with over, seventy-five, kiosks across the country. So, that was a lot of fun and, I learned a lot from both from this, retail space and high net worth, space as well. And at some point, I just, decided to branch off and start my own company, which is, what I'm doing right now with, OTC brokerage. when it comes to OTC, there's different types of OTC deals out there. What I do is, mostly, help, individuals and, corporate clients buy and sell Bitcoin on a pre-funded basis. So that is the type of, deal that I engage in.

Awesome. You're ta- you're talking about OTC, and there is, in the Bitcoin world, you could argue there's almost two spheres of influence, right? We've got this whole regulated KYC white market world, and then we've got the, on the other side, the more defiant black market or grey market crypto anarchist world. So can you tell us a little bit about how you're thinking about those two different spheres?

Yeah, sure. So Essentially, the compliant part of the market is, what's represented by on and off ramps, such as, Bitcoin exchanges and brokerage houses, OTC desks. This is essentially any business that has to do with fiat and Bitcoin at the same time. Those businesses are, what I like to call them bridges between the two worlds, the world of Bitcoin and the world of fiat, and because they have to touch fiat, in terms of banking, transactions, they have to abide by the rules of the fiat world, which is, as, you may know, KYC and AML laws and regulations, and those Are pretty strict and they change over time and they get stricter and stricter. And the problem with that is that a lot of the time regulators don't really know, how to deal with certain transactions and certain situations, and what they decide to do is just, you know They see any problem as a nail and they just act as a hammer and, they decide to impose draconian regulations which result essentially in the suffering of, regular people and regular businesses who Don't really wanna do any shady transactions, don't engage in any anti-money, in any money laundering activities, right? So they suffer from that. Now, the other side of the coin is the, Defiant economy, as you called it, or a non-compliant economy, and by that I simply mean the economy that operates only on Bitcoin. So it's Pretty much the proverbial circular economy that we dream about, where your revenues are in Bitcoin, all your expenses are in Bitcoin, and you pay your suppliers in Bitcoin, and this is this magical world that we, really, want to happen. But, we all know that, Right now and probably in the long run, Bitcoin is going to be volatile, so at some point you have to interact with the fiat world, right? So that's why I think the, compliant economy is still, a lot bigger than the non-compliant economy, simply because players on the market have to exit and enter the, Bitcoin economy all the time, right? But it's definitely interesting to see how the circular economy will develop, especially with, various derivative markets where, you will be able to hedge your, Bitcoin and essentially lock the value of your Bitcoin so that you never have to, exit the Bitcoin economy into the fiat world, right? as far as I know, some, companies who do need to exist, they just do it, very minimally, you know, with, to say some bills like for, hosting services, VPS, some graphic designers sometimes who don't accept Bitcoin, they just need to pay in fiat. But those aren't difficult problems to solve, you can easily do that with, cash-based transactions, for example, just exchange bitcoins into cash and pay in cash. Or, exchange Bitcoin for a small amount of a, in a bank transfer and just pay like that. so yeah, those are the two differences between them, and I don't think they are, Fighting each other, these two economies, I think they coexist and they will coexist for a long time, but, the long game, for us Bitcoiners, of course, is to, drive out the fiat economy and just, absorb all of it into this Bitcoin world where we can just interact with one universal sound money.

Yeah, that sounds definitely very appealing and it's quite frustrating for many Bitcoin people when they have to interact with the regular- Military compliance world, because in many ways, it's almost like the state turns businesses into part of their own surveillance, and it makes them do their own bidding, and that can be unsettling for Bitcoiners, because for example, the state will say, "Okay, you must comply with this X, Y, and Z AML or sanctions rule, and as part of that, you have to do X, Y, and Z invasive questioning on your customer to know what are they spending, and who is it to, and where did they get this?" Money from, and, in, in some cases, it's all, it's also that the government laws and rules specify certain things, like, for example, in the AML parlance, there's a, there's a term known as tipping off, theoretically, and so you're not allowed to, disclose to the customer why they are under suspicion, and so then, y-, it makes the business then start reporting off to the government about on, transactions above a certain threshold. Known as, threshold transaction reporting or, and then there's also suspicious matter reporting or sus-- you know, suspicious reporting as well. So do you have any reflections there on that tension that the government regulation creates between Bitcoin companies and Bitcoin users and customers?

Well, yeah, for sure, because, if you look at it, even from the broker's point of view, especially, you know, in terms of high net worth brokerage and All transactions are pretty much large sizes, and in a lot of countries, these, AML guidelines require you to report any transaction over ten thousand dollars. Of value, right? So that's pretty much, every single client being reported to the government simply for the fact of transacting and deciding to buy or sell Bitcoin, right? So that creates a little bit of, mistrust because this is a, a lot of information, private information, that is being, sent to the government and, we don't know what they do with it. Maybe they just collect it for, you know, a further analysis. Maybe they monitor every single, Bitcoin user. We don't know what they're gonna do with that company. But what I know is that there are players on the market who decided to take advantage of this desire of the government to spy on Bitcoin users, right? And they created a service around that. The service is called Blockchain Analytics, and w- that's what, companies like, Chainalysis, Elliptic, and, others, engage in. So essentially, they realized that the government has this desire of, monitoring every single transaction, they want to know where the money moves and who moved that money. So, these companies came up with certain heuristics, in terms of, determining who the owner of the coins is This and where the coins are moved, and they managed to convince the governments and law enforcement agencies that, their heuristics are usable and, they should be used by those agencies, right? So they, they sell these services to them. It doesn't really matter whether these heuristics are correct or incorrect, whether the service works or doesn't work. What matters is that if the government decides that they are correct, it means that everybody has to suffer because of that decision, right? Because suddenly, if the government says, "Well," This transaction has, originates from a, gambling website five hops behind, right? So this person who is connected to this transaction may be suspected of illegal gambling activity. For example, right? And suddenly everybody who deals with, such, persons, is already in a tricky position. Should they deal with him? Should they not? Right? So this definitely creates some tension, so I, I really like to see where this is going and, one of the interesting, technologies, that's being developed to combat this is, CoinJoin, as you may know.

Yeah, and that's, the interesting point there as well that you, you mentioned some of these Bitcoin surveillance companies basically try to market themselves to government and say, "Hey, look, you need us." And there's also an interaction there in terms of big business prefers lobbying the government than competing in the marketplace in certain scenarios. So can you expand on that idea? How do you see that playing out? Is this an area where you see that playing out?

Definitely, I think the main argument here is that you need to understand that, all these big businesses in Bitcoin are founded and operated by individuals who come from traditional finance backgrounds. And if you are born in a traditional finance environment, then by default you like that system, you like playing with it, that system, and you realize that any access to- Government officials may bring benefits to you personally and to your company, so that's why these businesses like to create different consortiums and, pursue various, lobbying activities within different governments so that they can see various laws past. Obviously everything is, wrapped around, you know, customer protection, as it's usually done, but at the end of the day, it's the old game of, crony capitalism where people, create laws, that benefit them, you know, the big business scratches the government's back, the government scratches the big businesses' back, and, It's not different in Bitcoin either. That's why I think in the non-compliant economy, there will appear large businesses that will be able to Fight back or at least not fight back, but simply ignore these things because they accumulate, you know, financial weight essentially to just not be, not care about these types of situations.

Yeah, that's, that's a great point, and to add to that, there's also just the physical, meat space risk. So if you are an entrepreneur, you're starting a Bitcoin business, and you are a publicly known name, then you have risk to your person as well, that you can't just shrug that off, that if you were to-- because basically your options are either comply with the regulation, shut down the business, or go the underground pathway of not complying. And anyone who tries to take that underground, not complying pathway, does risk getting, you know, physically, attacked or, you know, locked away in a cage and so on. So that is ultimately, I guess, the meat space risk that any public name Bitcoin entrepreneur faces. And so that is also another sort of angle and that's part of, you know, that's part of the difficulty. And I suppose that is why, some individuals in the space operate under a pseudonym only.

Precisely, and, that's why, us being public, figures, we have to just, you know, play within the system and play by their rules, and we have to run our companies and follow these KYC, AML guidelines. We can, shitpost about them all day long, but it doesn't matter, right? We can, we have to still follow if we want to keep operating. The way I see it is that while it's not very convenient to do so, we still provide a valuable service to people who want an on-ramp to the Bitcoin economy, right? So while it's still possible for people to actually come to us, send us money, and get a load of Bitcoin we will do everything we can to make that happen because I believe that right now, there still needs to happen more this, decentralization of UTXOs, if you will, you know, more hands need to, have bitcoins because, right now, especially with, larger custodians out there, you know, some people sit on huge piles of bitcoins just waiting to be, hacked one day or stolen in some way and, Our job as the on-ramp is to help decentralization of, that. at the same time, as you mentioned, there are these, anonymous or pseudonymous, entities out there who create quite valuable services. you know, Samurai Wallet is one of the examples, say, creating a, CoinJoin wallet that allows people to mix their UTXOs, and, most of these guys are, anonymous as far as I'm concerned, and the thing with them is that Because they are a Bitcoin only business, they don't really care about regulations much because they don't really interact with the fiat world. and as I mentioned, if you don't interact with the fiat world, you don't, need to follow much of the regulation. You don't have bank accounts, you don't use dollars, you only accept and spend Bitcoin in your business operations.

Yep. And the question of scale, so might be one thing to be a one hundred percent no fiat business, but it might arguably be the questionnaire around if somebody wanted to buy a certain amount of Bitcoin above a certain size, they are naturally just going to have to go towards the regulated economy for now, until the Bitcoin only, non-compliant defiant world grows a little bit. So what's your thought there? On people that, that trade-off of who, you know, wants to be able to buy a certain amount of bitcoins at scale, versus the tension of people wanting, say, more privacy or to operate in the non-compliant world.

Yeah, well, I think all of these things will develop with time. We just need to be patient because, Bitcoin is only ten years old. It's a very new technology. one would argue it's still experimental and you shouldn't, play with it too much, right? the, the biggest scare for people is, losing their private keys, right? so but, technologies, in terms of privacy and scaling are already happening right now. CoinJoin that I mentioned just a moment ago is one of those technologies, for scaling, the Lightning Network is already, it's not just a separate technology, it's, its own industry already with its own conferences, right? So, yes, it's a bit clunky right now and, requires some manual setups and, sometimes things fail, but you can consider these technologies, as Bitcoin in two thousand eleven, two thousand twelve, where things aren't very convenient. so let's wait for another five, ten years. I think it will be faster than ten years. Bitcoin, one Bitcoin year is ten fiat years, right? So Essentially, things are developing very fast, so, with the new technologies, coming up like, Schnorr signatures, Taproot, we'll see a lot more, development in the privacy, space as well and all kinds of new, types of transactions. so these things are being developed and I wouldn't really worry about them right now. I, I would argue that the average consumer doesn't care about these things.

Yeah. Yeah. And one other, I suppose, risk that's worthwhile talking about from the compliant world is

hypothetically, if an exchange is, upfront publicly known business, the governments can easily, or more easily, go and demand from them, "Hey, give me your customer list and show me where did those coins go. Where did, when they did a withdrawal from your exchange or from your service, where did those coins go? And now I'm going to try and..." Use that to, basically go for taxation on those individuals. That is a risk that people face, right?

Yeah, that's correct. And I think these, cases have happened in the past, and, some exchanges, decided to succumb to such requests, while others decided to challenge them. I think Kraken was one of those examples that decided to challenge such requests, right? So props to them. but, these things will happen, more and more often And we'll just have to be ready for them. And, I'm not really sure how we can actually fight them, because if you are a multi-billion dollar company, obviously you can hire an army of lawyers and fight off these risks, but if you're a, more or less small brokerage firm, even like us, we're quite lean, then, we- Probably don't wanna fight them off and, piss them off even more.

Yeah, yeah. so turning now to the more kind of defiant world, the non-compliant world, people who wanna, say, operate in this circular Bitcoin economy. They will have to deal with the volatility because it's kind of, it's difficult to price things directly in sat while the price is moving around a lot, correct? so And, and I guess the other thing is, there can be some difficulty in getting Bitcoiners to give up their Sats if they are fundamentally bullish, well, it's kind of difficult for them to do that too. So, how- How do you think people will try to deal with that? Is that, maybe one good example here is something like BitMEX, the exchange, right? Because they're Bitcoin in and out only, and yet they still have trading on there, but you theoretically, have a way of- Going back to fiat theoretically in a, what's the best, in a synthetic sense, while still obviously there is custodial risk associated with that, but it's hypothetically, something that someone can do to try and go back to synthetic USD. Is that a strategy that you see, or do you think it's more just like, it just takes time for it to build out over time and people will just still directly price things in sat or use US dollar but use Bitcoin as the, as the rail?

Yeah, well, right now, as you can see, the price of Bitcoin is starting to move up again, so, definitely when you price things in sat, then, your offer, Grows up in price, with Bitcoin. So, people usually use APIs just to connect to some kind of a price feed and essentially price it in US dollars or in local currency and transform that into sat. And it's very understandable. At the same time, there are businesses, who are one hundred percent Bitcoin. There are also individuals who live one hundred percent on Bitcoin. They don't have any fiat, so somehow they manage the situation, as far as I understand. while they don't touch, most of their Bitcoin holdings because it's just their long-term stash, they have, a little bit of an allocation that they may short on Bitmax, for example, thus creating this, synthetic US dollar, that they can use anytime they want, right? They do pay with Bitcoin, but they have a little stash that keeps its value in terms of US dollars in perpetuity, Well, less some fees that they pay to the exchange for this service, right? So I think it is possible and with more and more liquidity in, the economy, it will be easier to achieve. What I'm looking forward to is The alleviation of this, custodian risk by the creation of, peer-to-peer exchanges, peer-to-peer derivative places like, BitMEX, but on sidechains like Liquid, for example, and, there are firms that are already working on peer-to-peer derivatives, so it will be really great to see, such things appear because suddenly you have bitcoins in your own possession and you can still hedge the risk of volatility, right? So that gives you a lot of power. You- You know, with enough liquidity, you really don't have to worry about fiat money anymore, and people can just accept the Bitcoin without worrying about volatility either.

Right, right. And so in that world, so let's say hypothetically somebody is using Tether on Liquid or somebody is using, you know, LCA D as an example or one of those, things, I guess the way some people might think though is, isn't that just pushing the custodial risk back one problem? Because now you're just trusting then that there's enough- Let's say L, like Canadian dollars backing the LCAD or that Tether has enough US dollars backing their liquid USDT Tether, right?

Yeah, well, when you talk about, so-called stablecoins, which are essentially fiat tokens that are backed by a fiat balance, in someone's bank account, then definitely such a risk exists, it's, out there, and sometimes it's even impossible to audit the reserves of such a company. So For example, Tether has had a lot of, bad press, you know, even though it hasn't been proven that, they may or may not be insolvent, people still talk about it, so that's why, you know, it, it's traded, tether is traded slightly off one to one, you know, just a little bit, because, there is still a little bit of risk, but so far we can see the- Confidence in tether is pretty high because it's pretty much on par with US dollar. But what I talked before was more of a synthetic US dollar where, there is no cash balances on anybody's bank account. It's simply created by, creating a derivative contract and essentially shorting Bitcoin. So this is what the Bitmex's perpetual, USD contract is. It's a synthetic dollar, in terms of, its value. You don't really have any dollars in your bank account, but the value keeps, pegged to the dollar value, right? So it's, you know, even I don't understand fully how, derivative markets work. I don't have traditional finance background. But I understand this much, and I think even with this much, there is a lot of potential out there for people who want to exit the fiat world completely.

Right. And so I guess as you're saying, they would keep most of their stash in Bitcoin, but then let's say their day-to-day spending amount, that would be where they might keep some in this float, let's say, and that's where they're using like- In this hypothetical example, something like BitMEX 1x short, which is kind of equivalent to just keeping it a, a Bitcoin amount that is stable in US dollar terms. That's probably the way to summarize that. Yeah. Okay. And in terms of the two worlds, are there other ways that, that we could see attention? So a quick example here might be something like, let's say in a few years' time, we, in the Bitcoin world, want to move to Schnorr aggregated signatures, upgrade, right? So not the current Schnorr Taproot fork, but the potentially in the future, that idea. Could something like that get blocked by the KYC compliant world? What's your view there?

Well They will certainly try, I don't doubt that, as some people say, the next wars are the privacy wars in Bitcoin, the scaling wars being behind. but, you know, with the decentralization of, Bitcoin capital, decentralization of Bitcoin development also happens, right? So there have been a few articles about, how Bitcoin development is funded and how it's distributed in the world, It's not a really bright story in terms of, optimism because there is a little bit of pessimism in terms of, the amount of developers working on Bitcoin co-core and Bitcoin protocol in general. However, I think that, due to an increase in amount of, Bitcoin developers and the fact that a lot of them are, anonymous this will be very difficult to pull off. At the end of the day, you may or may not force a Bitcoin developer, or even the maintainer himself, to merge a certain commit into the code, but you won't be able to force the users to upgrade to that version of the code and, run their full nodes with that code, right? So Bitcoin developers are the servants of Bitcoin, just like miners are the servants of Bitcoin, and it is the users who decide, what happens and what doesn't happen on Bit- on, the protocol level, which was very well demonstrated with the previous, fork wars and the, scaling debate and the UASF movement.

Right, and I think the other important factor there is this concept of economic weight. So hypothetically, some nodes are worth more than other nodes. So hypothetically, Coinbase holding a lot of bitcoins, their node holds a lot more, quote unquote, economic weight. So if a lot, if they hold a lot of bitcoins and a lot of people are just not self-custodying, then potentially that's a vector as well that, say Coinbase is more or whatever, like it's not a- About Coinbase, it's about whatever big, you know, custodial exchange, if they face pressure from the government saying, "Hey, we don't like this upgrade, don't go with it," then that's potentially an angle there, for, conflict.

Yeah, yeah. I'm not sure if it's entirely correct to say that their node holds any money, because, I'm sure that most of their funds are in cold storage and most likely in a multi-sig wallet, right? the node being, for the most part, a hot wallet In many places, right? so, but you're correct, some of these players may exhibit such behavior, it has been, done before, and it will happen again, so we will only have to see how anti-fragile this coin is long term, and, so far I've been optimistic, and I have no reason to believe that this

True, true, yeah. And I think there, I was referring more to the idea of their node being able to reject an incoming payment that they don't agree with, and let's say that payment is coming from a node that does want aggregated signatures, in this hypothetical example, right? but, another interesting one is a, is around, so we've got these two different worlds. Which one do you think newbies are more, you know, new coiners are more inclined to join?

I really wanna say the non-compliant one, but at the same time, you know, I would be naive to say that because, most people are really, followers and they just, follow the general program, so to speak. So they'll just go with whatever's easier Whatever, whatever looks sexier, whatever is easier to use, right? user experience matters a lot to the average user. So I would say the, companies that are popping up right now, and even Coinbase itself, will still be, those companies that lead the way in terms of, So-called mass adoption, yeah, but, there will definitely be a wave of users who will take a little more time to study the topic. a little more deeply and learn about self-custody, learn about, privacy protections. So, they will, they will prefer the second type of the economy eventually because once you understand the full potential that Bitcoin can, provide you, You just, can't resist really, and just go back to the fiat world and participate in their, fake, economy.

Right. And We've got these two different worlds, there's two economies. Does it matter if only one side works, and do they benefit from each other existing?

Well, yeah, I think it's a synthesis right now because, like I said, a lot of the, movement still happens in and out of the Bitcoin economy, and, and that's where these on and off ramps, excel. you know, no matter how much, laws and regulations there are, people will still use them, and, there are large institutions waiting for Specifically that for a super-regulated, over-regulated entity that can provide them, an entry into the Bitcoin world and maybe even custody Bitcoins for them, but it doesn't matter, they still exist. So I think they, these- These two economies will be, complementary for a long time. when we achieve our Bitcoin utopia where Bitcoin is, the only currency in the world, it will be a happy day, but, you know The word utopia, you know, already has this, connotation of maybe it's not gonna happen.

That's right. and, another, well, I guess arguably we could say Bitcoin, the compliant world benefits from the existence of the non-compliant world, because it's almost like the existence of that gray market Bitcoin is some kind of evidence that there really is a sense of resistance, and there really is seizure resistance to Bitcoin, and that kind of adds to the overall value of having this money that is outside any government's control or outside any one company's control, right?

Yeah, well, I think the mere existence of Bitcoin affects how the fiat economy develops as well and the tools that the fiat economy uses. For example, we have actually seen quite, major improvements in the banking system over these, last ten years. I still remember just ten years ago, a wire transfer would take, you know, three, five business days to clear. Right now, it's, almost the same day every time we use wire transfers, because they can see how, first of all, private companies like PayPal or TransferWise can do it much faster, so they have to compete with those, but they also see that people really love the idea of transferring large amounts of, value, across the globe instantly and with minimal fees. So They are trying to, compete, as much as they can. So, you know, there's benefits both ways.

Right. And, the optimist in me might say, "Well, look, that's making it easy and easier for people to onboard into Bitcoin. They're making these, you know, swift GPI or whatever things that will speed up the transfers that allow more people to buy into Bitcoin when, when they're ready, right? Because obviously, everyone has their own timeframe on which they are ready." And speaking of making the world ready We also need citadels. I know you are, an advocate of the Bitcoin Citadel idea, and you have spoken a little bit about "rootless men of the world" having our own nation. So what are you getting at there?

In terms of the rootless man, I talk primarily about how I feel about myself because I come from Russia and then, I spent quite a bit of my life in Canada and I currently travel as well. So You may argue that I'm not really attached to any particular jurisdiction. I don't wanna become a digital nomad for the rest of my life, because that's not my, intention, but also I don't feel like I have, very deep roots in any particular jurisdiction. So this led me to think that there are other individuals in the world who are like that. So we're not Connected in terms of, our ethnicity or nationality or anything like that, but we may be connected, in terms of shared values, shared culture, the way we think about, life in general and traditions, right? So why not get together and create these, communities where, shared values are the uniting factor rather than, you know, an ethnicity, for example? So this is where the idea came from, but then, obviously you need some, economic factors, baked into that as well, and, you know, reading, Hopper or reading even, the, sovereign individual, which, made a huge impact on me personally you start realizing that the world of today could be improved by a lot simply by, changing a few variables in how, societies are organized, right? And if you take a group of people, a group of rootless men like myself and, unite them economically and, ideologically, you can create these, communities, cities, city-states, or citadels, as we like to call them. After the, Bitcoin meme of several years ago, you can create these, places. They're not utopias in any way, it's, Simply a city or town or community that has shared values and that has, traditions and culture that they want to abide by and, you know, there can be different types of citadels. There can be citadels based on, you know, common religious, affiliations. There can be citadels, based on common language or simply citadels of, theater lovers.

Right. And, Do you believe that might represent a security risk for the, let's say there's a lot of rich individuals in that town or, in that citadel? Is that a security risk, or do you think it's more like they would invest heavily into the security of that citadel?

I'm sure they will, especially if the citadel itself becomes a sovereign entity, then you simply have to, invest into defense systems. It can be, actual physical borders and- Wolf can be, you know, you can hire contractors, military and defense contractors to, guard you, but, it's nothing new because, right now, I would argue that citadels, already exist in some places and, actually, American Hodel, who was on your pa-podcast, mentioned, one of these, citadels, which is essentially a luxury community within a luxury community that is separated from the rest of the world By several walls, right? So they already exist, it's just, more about formalizing them and, and maybe making them a little bigger because it doesn't have to be a congregation on the rich men. Rich men can definitely be there, and if they are, men of, Values they can be the leaders of such citadels, but, the general populace is welcome as long as they agree to abide by the rules of the citadel, which, as far as I understand, men of, values Will create, you know, in accordance with those values, will be just a very, very natural private property respecting rules.

Right. And you mentioned Hans Hermann Hopper and I presume, democracy, the God that failed, one of his one known books. How did that book influence your view on citadels and, say, monarchy and anarcho-capitalism?

Yeah, well, I'm actually, writing a piece Right now that I will publish very soon, but, essentially the way I see, democracy is that it's just an extension of the welfare state, of the socialist state, with a, a simple trick, and that trick is that Through, democratic, elections, you make it look like people have a choice of their leaders, right? which is, completely false, of course, because through populism, through all kinds of, manipulative tactics like propaganda, only the desired leaders end up at the top, right? And, you don't really value skills, And, integrity, in democracy, only value, skills like, who is, more clever, who is more, like a snake, you know, can, can find their way to the top, right? things like that. With the democracy, the biggest problem is that there is absolutely no skin in the game for anybody who wants to be, at the top of the pyramid because the terms are very often limited. So for example, in Russia, the term was four years, now it's six years, but it's still, the same, limited term. And when you have only four years, to spend, trying to make a country better You won't really try to do anything good for the country, you will try to use that time as efficiently as possible for yourself and to advance your own personal goals, right? Because It's similar to renting a house instead of living in one for the rest of your life, right? If you live in the house for the rest of your life, you tend to care about it more, you clean it more, you take care of, of the roof, of the windows, you take care of the backyard, everything must look nice. When you rent it, you don't care that much because someone else will come after you and, you know, they'll do the job probably. So this is where the idea comes, yeah. So when you talk about monarchy, for example, obviously a monarch is someone who is attached physically to the, to the piece of land that they own, right? And they live there for generations and generations. So, if I had a piece of land that I know my children and grandchildren will live on, I will I will do my best to make sure that this piece of land develops, really, really well. And if I help, if I have subjects, you know, the population out there, I will do my best to make sure that they are happy and well fed and taken care of, because, the wellbeing of such a state depends on the wellbeing of its, citizenry.

Yeah. And so, do you see it like the-- So as I read it, Hopper's view is something like anarchocapitalism, although he might use a different term. He might use the term private law society is his best, first best way of society organizing, and then h-- in his view, he's saying monarchy is better than, is not as As good as that, but it's still better, far better than democracy, and that's the argument you were, you know, aligned with what you were saying, and that's, that's the argument Hans Hermann Hoppe makes. And so in your view, is there like a tension there, or can-- do you see it like Bitcoin citadels of the future may have a kind of monarch, but you sort of opt in and opt out of it if the citadel is a good one or a bad one?

I think the first thing that, people need to understand is that in our Hierarchy is not a prescriptive, it's more of a descriptive term. It's a term that describes, a certain type of leadership, a hierarchy, if you will, because It's a, it's a simple law of nature that there is hierarchy in the world, there is the top and there's the bottom and there's the middle, right? So you don't have to call yourself a prince or a king, you can be the CEO and the citadel can be owned by a property development corporation where you are chairman, right? So that is also a monarch, that is also a prince who makes most of the decisions and he may have a, a board of directors to assist him in, the decision-making process, right? So I don't think there is a conflict at all if, because, in the privacy of your own family, you can call yourself the king and no one's gonna be, really resisting, hopefully, right? Because it's just your own decision, it's just about titles. just like in corporate environments, CEOs, CTOs, they are more or less, just, nomenclature, you know? They are completely arbitrary. You can call yourself anything you want. this is a, this is an example. It's just Monarchy and titles like the prince or king are quite lindy, they are quite, awesome in their own way, you know, and they also Portray this, this, feeling of tradition, right, and culture, where the monarch is usually the face of the nation. He represents the nation. He is, Always in, public relationships, and people normally gather around the monarch and, you know, respect him. And, one of my favorite examples of that is the Prince of Liechtenstein, whom people love very much.

Right, yeah, I think that's probably one of the best examples because, funnily enough, I think-- Someone correct me if I'm mistaken, but I believe he-- The Prince of Liechtenstein is actually a fan of Hans Hermann Hoppe and he's actually friends with Hoppe, and like they actually talk about stuff, yeah. So it's a, that's a really interesting example for listeners who want to understand a little bit more about how that could potentially be a thing in the future. And also, you mentioned The Sovereign Individual, which is a very well-read book within One interesting point from that is this idea of the competitive tension, the competitive jurisdictions, that over time we will see many, many city-states, and they will compete to try and have visitors and people come and live there because the-- and then in doing so, they will have to keep compete on things like Taxes, or in, in this world it might be more like the costs, right? The price of coming to live in that citadel. Is that a-- is that something you see applying into this idea of Bitcoin citadels?

Yeah, exactly. And, such, projects are already underway in some places, and, groups of individuals and companies around the world who- Work to make this a reality, such as, Titus Gabel's Free Private Cities project, which, essentially, is building a framework or a blueprint, if you will, for, such a city-state. Then you take the blueprint and if you find a territory on the planet, that will, for example, within a nation or maybe a private island that will be suitable for such a project, you build it, right? So the issue here isn't whether it's possible, the issue here is whether someone will actually do it, and I personally encourage as many of these, you know, teams to actually start doing this and, setting up these cities. So the more the better, of course. as I twi-tweeted once, I want to see a world of thousand Lyssinsteins.

Right, right. And the question also is, does it turn, does it turn on more funding? So essentially, do we need a couple more bull runs to make it happen, to make enough rich bitcoiners, or can some bitcoiners start it today?

Well, some bitcoiners can start it today for sure. I would wait for another cycle or two to- So that we can see the creation of a more wealth transfer basically and the creation of more Bitcoin millionaires out there, because not all Bitcoiners out there purely for money, money is only, great if you have the use for it, right? It's just a tool, a means to an end and not the end itself. So if there are enough, idealistic individuals, like myself, as well, in the world, I think they will start it. Some will fail, some will not, but, we will see a lot of these, things happen because now we have this uncontrollable, unsensible money and suddenly not not a single government can tell you what you can or cannot do with that money. If you feel like funding a, a crazy project, you just do it and you don't ask anybody.

I love that. Let's bring it back to OTC trading. So Do you have any, just wondering if you've got any interesting stories that you could share with the listeners on, you know, maybe any funny OTC deals or maybe, is it difficult to negotiate because sometimes you'll get some customer who feels like they should be getting a discount when they really should be paying a premium on the price and things like that?

Yeah, well, we didn't really spend too much time in that type of OTC world, but, we have had our fair share of, experiences and some of them essentially involve the scammers who, you know, pretend to work for some billionaires, billionaire investors and, the obvious- You know, rules is usually to, meet in the physical world somewhere, you know, on a neutral territory or they will tell you that they will come, to you and, They will explain to you how successful they are, how much money their investors have, and then on the spot they will require to do a test transaction of, let's say, three hundred thousand with cash. So That happened to us, yeah, and, obviously being more or less, experienced, we, first of all, we don't carry bitcoins on us ever, right? We don't sell, this way because everything is done electronically with us, but, yeah, we decided to give it a shot, a couple of times and the, both times it ended in, In that way, we decided not to deal with those types of OTC deals anymore because it's just not worth it. You spend a lot of time, people just waste a lot of your time, on negotiations. At the end of the day, nothing happens. right now, I would say, The Bitcoin world needs, reputable businesses that have, just a good reputation because it's still about trust, no matter how you put it. If you want to buy bitcoins from us, you still have to send money first and then expect bitcoins in return, right? There is no way to do that. other than, you know, if you're extremely advanced and you have, Bitcoin on the liquid network and you have, USDT, USDT, Tether on the liquid network, then you can launch this advanced atomic swap tool and do it in a no-custodial way, way, but, you know, I think it's gonna take another few years before all of this, Becomes the industry standard. So right now it's all based on trust, and we don't mind it because, you know, I like, I like doing deals on trust, based on trust, it, it just builds relationships.

Right, right. And so in, in your brokerage, what's, what are the sort of limits? Like, what's the smallest deal you would do, and then what sort of size on the upper side would you do? What, what, whatever you can disclose that is.

Yeah, I mean, the minimum is There's really no maximum, and whenever people ask me what's your maximum maximum, I know that they're not gonna proceed with any deal because, normally when such relationships start, you send, you know, either the minimum or if you are really loaded, you may send a hundred thousand, then two hundred thousand, then a million. But no one sends fifty million or twenty million in one shot, and it's like whoever tells you that they will is full of it.

That's a good heuristic, I think. And so do you get a lot of like new people coming to you for the first time, if they're like a wealthy investor, or do they tend to be someone who's already gone for like an exchange, say, and bought a small amount there, and then they come to you for larger amounts on, on an OTC?

Yeah, I would say on average, our, clients already know what they're doing most of the time. We do want to attract, new investors, and we're really happy to talk to them and walk them through the process of how everything works, how to set up a wallet, and tell them, you know, what custody solutions to use, and what custody solutions already exist. But, so far based on the data, it's mostly experienced users.

Yeah, gotcha. Okay. and in terms of, in terms of Liquid, so I know you have a product for Liquid as well, it's called Liquidity with like ITI at the end. tell us a little bit about that and why you started that.

Yeah, well, Liquidity was a fun project. First, I just wanted to experiment with the Liquid network itself because we are a member of the Liquid Federation. So, I saw no easy way To actually get, Liquid BTC, which is the native token of the Liquid Network that represents Bitcoin one to one, and, the only way was through a couple of exchanges, but, you know, I don't want to register for an account at an exchange just to get some, Liquid, bitcoins in exchange for real bitcoins. So I just decided to make a little tool for, myself, and together with our developer, we, you know, spent a couple of weeks, designing it, and then essentially, we decided to open it up to the public because, we were getting requests from, "Where do I get liquid, BTC?" Right? So we decided to open it up, and suddenly it became quite popular. people are- Are using it every single day, we are getting feature requests and people already asking us to add more pairs like Tether, Liquid Tether, Liquid Canadian Dollar to- To the system, so and open up the API, so we're working on all that. I would say initially it was intended as a, content or like value marketing strategy for us, you know, let's just create something valuable and let it, you know, out there for free so that we can attract people to our main business, which is Bitcoin brokerage, right? But it looks like it's growing its own legs, and I love it personally.

Oh, that's cool. So in your view, do you see a vector for the censorship there? That, okay, so with Liquid, obviously I see it's great for anyone who's a trader, anyone who's a broker, anyone who's an exchange trading amongst themselves and quickly moving bitcoins around using LBTC, which, you know, what I'm getting at here is there's some debate in the community around things like How, how much of it isn't-- is it an IOU? It's not Bitcoin itself, but at the same time, it can be, useful as a tool for certain people, but then also the risk potentially, and this is probably the main one, is that your peg out of liquid back into Bitcoin could get theoretically denied. And so, is that a risk that you see that people might be wary of, or do you see it like that is a risk that can be managed?

This is a risk that can be managed, but, the first thing people need to understand is that LBTC is a, an IOU on Bitcoin. It is a token that represents Bitcoin and it's not Bitcoin itself. Now, the difference between- A centralized custody and custody on the Liquid network is that when you store, when you have a balance on, Coinbase for example, it's just a Coinbase that stores Bitcoin on your behalf, but when you have a balance on Liquid in the form of, Liquid Bitcoin, it is a consortium of, fifteen- Members of the Liquid Federation that store your Bitcoin. It's a multisig wallet and not a single player, from the federation can actually take, your bitcoins or deny you the peg out capabilities, right? So, the vast majority of them actually have to agree on that. Now There is a, limitation on the amount of, functionaries, who can sign transactions on the network, because of the technical limitations of the multi-sig wallet currently, right? But in the future, with so-called dynamic federations, the amount of functionaries can be increased dramatically, and federation will become more, liquid, if you will, in terms of, its members. Yeah. So, but that isn't all, because, if, people are worried about, not being able to peg out, their, liquid Bitcoin back into Bitcoin, as far as I remember, Blockstream is working on a self-peg out feature for, users. So the average user will actually be able to self-peg out. It's gonna be a slow process, like with the peg in as well. but, you will be able to request the self-payout, and I believe-- I'm not really sure how long it will take, probably a day or two, you'll be able to get your bitcoins back. So, you know, it's- It's, it's an early technology as well. It's, it's in production, it works right now, and people use it right now, primarily businesses, but, give it a little more time, just like with anything else, and, I think it will prove itself.

Right, right, and I think, nobody's really disputing the point that in a B2B sense, right? So traders, businesses, exchanges, absolutely, go for it. I think, yeah, the question here is more around should individuals be using it, and so long as they know what other trade-offs they're making, they're entering into it with open eyes, and for some people, that's just not acceptable, they wouldn't ever go there, but for many people, that is an acceptable trade-off that they would like to accept. Also wanted to talk about MoonTower

We are in the high net worth brokerage business, but we also see quite a lot of opportunity in the retail space. And right now, what's getting really hot is the, DCA, bandwagon, right? So, we actually decided to develop a DCA app, months ago, it was at the end of summer, but, you know, we were engaged in other activities and now we're fully onto it. So MoonTower is a, passive investment platform that you will be able to use to, accumulate Bitcoin over time, based on your, settings. If you, for example, want to invest a hundred dollars, per week, you will be able to do that with MoonTower, and, the service is primarily targeted at the European clients because we are licensed in the-

Fantastic. So what's the expected timeline for Moon Tower?

I'd like to say as soon as it's ready, but, within a few weeks, yeah, I would really like to, like it to happen, especially now that the halving is coming in. And, you know, we may not see the fall right away, but it would be really nice to position ourselves to, at that time.

Yeah. And I guess the other question from a Europe perspective, there are some businesses who recently faced trouble there. In terms of AML Directive five, AML, I think Directive five or whatever, there were some businesses, I believe in the Netherlands, so Bitter, Ruben, un-f-unfortunately said he had to, basically wasn't able to comply, so he's choosing to shut down the business. Is that a risk that you see for yourself, or is it more like you, you believe you'll be able to handle that, compliance workload or burden?

Yeah, well, we are already a licensed business and we comply with, all- The KYCAML regulations already, it is true that, the regulations are getting a little tougher and that is the primary risk. The primary risk is, not the regulations themselves, but uncertainty around the regulations. For example, when we started, our, company in Estonia, regulations were a lot softer, but right now due to those soft regulations, a lot of, you know, unfavoury characters, got licenses and, took advantage of that, loophole so to speak, and, the government wasn't really happy about that, so they decided to really crack down on those businesses and increase, the amount of, you know, Hurdles that, people have to go through to get licensed and, you know, we've had the license, all this time, but we still have to comply with the additional requirements that, that are coming this summer. you know, we'll handle it, because we're in there for, the long haul, but, we definitely see a lot of, Or companies from European jurisdictions like, Estonia, Malta, they just, drop out, and, they decide to move or shut down.

Yeah, yeah. Well, we'll see how that, all plays out. So, in terms of, Listeners who want to find you online, let's say they're a listener and they want to get an OTC deal with you, or they're interested in Moon Tower, or they wanna follow, your Bitcoin reserve journal, where can they find you online?

Well, my personal blog is degaia dot co, the Twitter is y underscore degaia, and, you can find all our projects, business projects, at ltb dot global. That's where all the, all of them are listed. I'll be happy to answer any questions. There you go

Fantastic, thank you for joining me.

Thank you, Stefan, glad to be here.

I hope you enjoyed the show, and just a quick request before I let you go, I'm looking to try and start doing some more live video interviewing, so I will be doing some more interviews on my YouTube channel, so please go and subscribe YouTube dot com slash Stefan Livera. Of course, I will put those interviews onto the SLP audio stream, and you'll definitely wanna subscribe because my next coming interview is with Plan B and Safdean. Find the show notes and transcript at StefanLivera dot com.