Yuri de Gaia, Partner at L2B Global (Reserve Bitcoin OTC, Liquiditi, Moontower) joins me to talk about Bitcoin’s two economies: the regulated compliant world, and the defiant crypto-anarchist world. We also talk about Bitcoin Citadels.

  • How they will grow
  • Do they support each other
  • Citadels, Monarchy, and Anarcho-capitalism
  • OTC Trading
  • Liquid
  • Moontower

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Other relevant episodes:

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Stephan Livera links:

Podcast Transcript:

Stephan Livera:

Yuri, welcome to the show, man.

Yuri de Gaia:

Thanks Stephan. Glad to be here.

Stephan Livera:

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 addict. But tell us a little bit about how you got into doing Bitcoin OTC.

Yuri de Gaia:

Yeah, well that was pretty much as soon as I got into Bitcoin, late 2012 so I learned about Bitcoin from the local meet up 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 Bitcoins from someone who didn’t have them and I didn’t have on a lot on me, so I found opportunity basically to just buy a little bit, then resell it to that person at the 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 interest grew obviously, and especially after the first halving, and then we started getting larger requests.

Yuri de Gaia:

And I was thinking about leveling up essentially and, you know, cash transactions, they are tricky in that, you know, cash is 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 thought into the retail space by launching a Bitcoin ATM business in Vancouver, which right now is pretty large in Canada with over 75 kiosks across the country. So that was a lot of fun and I learned a lot from both from the retail space and the 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 deals that I engage in.

Stephan Livera:

Awesome. 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 gray market crypto-anarchist world. So can you tell us a little bit about how you’re thinking about those two different spheres?

Yuri de Gaia:

Yeah, sure. So essentially the compliance 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 in 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 results essentially in the suffering of regular people and regular businesses who don’t really want to do any shady transactions, don’t engage in any money laundering activities, right?

Yuri de Gaia:

So they suffer from that. Now the other side of the coin is the defiant economy as you called it, or 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, then 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 noncompliant economy simply because players on the market have to exit and enter the Bitcoin economy all the time.

Yuri de Gaia:

Right. But it’s definitely interesting to see how the circular economy 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 exit, they just do it very minimally, you know with to say some bills like for hosting services, VPS, more graphic designers. Sometimes who don’t accept fiat. They just need to pay in fiat, but those are not 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 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 this is a 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.

Stephan Livera:

Yeah, that sounds definitely very appealing. And it’s quite frustrating for many Bitcoin people when they have to interact with the regulatory compliant 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 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 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 it makes the business then start reporting off to the government about on transactions above a certain threshold known as a threshold transaction reporting or and then there’s also a suspicious matter reporting or 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?

Yuri de Gaia:

Well, yeah, for sure because if you look at it even from the broker’s point of view. Especially in terms of high net worth brokerage, all transactions are pretty much large sizes. And in a lot of countries, these AML guidelines require you to report any transaction over $10,000 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 a mistrust because this is 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, further analysis. Maybe they monitor every single Bitcoin user. We don’t know what they’re going to do with that company. But what I know is that there are players from the market who decided to take advantage of this desire of the government to spy on Bitcoin users, right?

Yuri de Gaia:

And they created a service around that. The service is called blockchain analytics. And that’s what companies like a Chainalysis, Elliptic and others engaging. 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 moves that money. So these companies came up with certain heuristics in terms of determining who the owner of the coins is and where the coins are moved. And they managed to convince the governments and law enforcement agencies that their heuristics are durable. And they should be used by those agencies, right? So they sell these services to them. It does not 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 a person is already in a tricky position. Should they deal with him? Should they not. Right. So this definitely creates some tension. So I really like to see where this is going. And one of the interesting technologists that’s being developed to combat this is CoinJoin, as you may know.

Stephan Livera:

Yeah. And that’s the interesting point there as well that 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?

Yuri de Gaia:

Well, 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 a born in a traditional finance environment, then by default you like that system, you like playing with it, those systems, 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 passed. 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 business scratches the government’s back, the government scratches the big business’ back. And it’s not different in Bitcoin either. That’s why I think in the noncompliant 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 financial weight essentially to just not be, not care about these types of situations.

Stephan Livera:

Yeah, those are great points. And to add to that, there’s also just the physical meatspace risk. So if you are an entrepreneur, you’re starting a Bitcoin business and you are a publicly known name, then you have risks 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 meatspace risk that any public name, Bitcoin entrepreneur faces. And so that is also another sort of angle. And that’s part of, yeah, that’s part of the difficulty. And I suppose that is why some individuals in the space operate under a pseudonym only.

Yuri de Gaia:

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’s still needs to happen more 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.

Yuri de Gaia:

And our job is 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, Samourai Wallet is one of the examples, 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 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.

Stephan Livera:

Yep. And the question of scale. So it might be one thing to be a 100%, no Fiat business. But it might arguably be the question there- 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 noncompliant, defiant world grows a little bit. So what’s your thought there on people that, that trade off of who 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 noncompliant world?

Yuri de Gaia:

Yeah, well, I think all of these things will develop with time. We just need to be patient because Bitcoin is only 10 years old. It’s a very new technology. One would argue it’s still experimental and shouldn’t play with it too much. Right. The biggest scare for people is losing their private keys. Right? But technologies in terms of privacy and scaling are already happening right now. CoinJoin that I mentioned just a moment ago. He’s 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 set ups and sometimes things fail. But you can consider these technologies as Bitcoin in 2011, 2012 where things are not very convenient. So let’s wait for another five, 10 years. I think it will be faster than 10 years, Bitcoin. 1 Bitcoin year is 10 fiat years, right?

Yuri de Gaia:

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 would argue that the average consumer does not care about these things.

Stephan Livera:

Yep. And one other, I suppose, risk that’s worthwhile talking about from the compliant world is hypothetically, if an exchange is a upfront, publicly known business, the government can easily or more easily go and demand from them, Hey, give me a 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 these 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?

Yuri de Gaia:

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 a request. Right? So props to them. But these things will happened 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 want to fight them off and piss them off even more.

Stephan Livera:

Yeah. So turning now to the kind of defiant world, the noncompliant world, people who want to 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 sats while the price is moving around a lot. Correct. 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 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, 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 would just still directly price things in sats or use U.S. Dollar but use Bitcoin as the rail?

Yuri de Gaia:

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 sats, then your offer goes up in price with Bitcoin. So people usually use APIs just to connect to some kind of a price feed, then essentially price it in US Dollars or in local currency and transform that into sats. And it’s very understandable. At the same time there are businesses who are 100% Bitcoin. There are also individuals who live 100% 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 BitMEX, for example, that’s creating this synthetic U.S. dollar that they can use anytime they want.

Yuri de Gaia:

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 the 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 custodial risk by the creation of a peer to peer exchanges, of 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 this gives you a lot of power. You know, there’s enough liquidity, you really don’t have to worry about fiat money anymore and people can just accept Bitcoin without worrying about volatility either.

Stephan Livera:

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

Yuri de Gaia:

Yeah. Well, when you talk about so-called stablecoin, 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 has not been proven that they may or may not be insolvent, people still talk about it. So that’s why, you know, it’s traded, Tether is traded slightly off one to one. You know, it’s just a little bit because there is still a little bit of risk. But so far we can see the confidence in Tether’s pretty high because it’s pretty much on par with US Dollar. But what I talked before was more of a synthetic, U.S. dollar where there is no cash balances on anybody’s bank account.

Yuri de Gaia:

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 derivatives markets work. I don’t have traditional finance background, but I understand this much. And I think even with this much, there’s a lot of potential out there for people who want to exit the Fiat world completely.

Stephan Livera:

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 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 we could see a tension? 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?

Yuri de Gaia:

Well, they will certainly try. I don’t doubt that as some people say the next wars are the privacy Wars in Bitcoin. 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 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 maintainers himself, or to merge a certain commit to the code, but you will not be able to force the users to upgrade to that version of the code and run their full nodes with that code, right?

Yuri de Gaia:

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 does not happen on on the protocol level which was very well demonstrated with the previous fork wars and the scaling debate and the UASF movement.

Stephan Livera:

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 it’s, 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 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 a conflict.

Yuri de Gaia:

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 multi sig wallets. 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 antifragile Bitcoin is longterm. And so far I’ve been optimistic and I have no reason to believe that this will be otherwise.

Stephan Livera:

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 around, so we’ve got these two different worlds. Which one do you think newbies are more, you know, newcoiners are more inclined to join?

Yuri de Gaia:

Well, I really want to say the noncompliant 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 is easier whatever looks sexy or whatever it is easier to use, right? UX 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 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 to go back to the Fiat world and participate in their fake economy.

Stephan Livera:

Right. And we’ve got these two different worlds, these two economies. Does it matter if only one side works? And do they benefit from each other existing?

Yuri de Gaia:

Well, yeah, I think it’s a synthesis right now because like I said, a lot of the movements still happens in and out of the Bitcoin economy and that’s where this 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 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 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 day. But you know, the word utopia, already has this connotation of maybe it’s not going to happen.

Stephan Livera:

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 censor 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?

Yuri de Gaia:

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 a major improvements in the banking system over these last 10 years. I still remember just 10 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.

Stephan Livera:

Right? And the optimist in me might say, well look, that’s making it easier 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 they are 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?

Yuri de Gaia:

Well 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 turned to travel as well. So you may argue that I’m not really attached to any particular jurisdiction. I don’t want to 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 a very deep root in any particular jurisdiction. So this led me to saying 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.

Yuri de Gaia:

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 Hoppe or reading 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 man like myself and unite them economically and ideologically, you can create these communities as 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 a town or a 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 someone’s religious affiliation, there can be Citadels based on common language or Citadels of theater lovers.

Stephan Livera:

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 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?

Yuri de Gaia:

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 walls and, it 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 HODL, who was on your podcast that mentioned one of these citadels where its essentially a luxury community within the 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 maybe making them a little bigger because it doesn’t have to be a congregation of only the rich man, rich men can definitely be there. And if they are a man of values, they can be the leaders of such Citadels, but the general population as 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.

Stephan Livera:

Right. And you mentioned Hans-Hermann Hoppe and I presume Democracy: The God That Failed, one of his well known books. How did that book influence your view on citadels and say monarchy and anarcho-capitalism?

Yuri de Gaia:

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 its just an extension of the welfare state of the socialist state with 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 leader stands 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 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.

Yuri de Gaia:

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 will not 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 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.

Stephan Livera:

Haha.

Yuri de Gaia:

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 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 do my best to make sure that this piece of land develops really, really well. And 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.

Stephan Livera:

Yep. And so do you see it like there? So as I read it, Hoppe’s view is something like anarcho-capitalism, although he might use a different term, he might use the term private law society is his best, his first best way of society organizing. And then in his view he’s saying monarchy is better than, is not as good as that, but it’s still better, far better than democracy. And that’s the argument. You were aligned with what you were saying and that’s the argument Hans-Hermann Hoppe makes. And so in your view, is there like a tension there or 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?

Yuri de Gaia:

I think the first thing that people need to understand is that in our case, in my case, monarchy 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 simple law of nature that there’s hierarchy in the world. There’s 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 a chairman. Right? So that is also a Monarch, that’s also a Prince who makes most of the decisions and he may have 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 going to be really a resisting hopefully, right? Because it’s just your own decision. It’s just about titles or just like in corporate environments, CEO, CTO, they are more or less just nomenclature, you know, they are a completely arbitrary, you can call yourself anything you want. This is an example. It’s just monarchy and titles like the prince, or king, are working, are quite Lindy. They are quite awesome in their own way, you know?

Yuri de Gaia:

So portrayed these 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 monarchy and, you know respect him. And one of my favorite examples of that is the Prince of Liechtenstein, whom people love very much.

Stephan Livera:

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 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 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 Bitcoin circles. One interesting point from that is this idea of the competitive tension. The competitive jurisdictions that over time we will see many city states and they will compete to try and have visitors and people come and live there because there and then in doing so they will have to compete on things like taxes or in this world it might be more like the costs, right? The price of coming to live in that Citadel. Is that something you see applying into this idea of Bitcoin Citadels?

Yuri de Gaia:

Yeah, exactly. And such projects already underway in some places. And there are groups of individuals and companies around the world who work to make this a reality such as Titus Gebels, 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 is not whether it’s possible. The issue here is whether someone will actually do it. And I personally encourage as many of these teams to actually start doing this and setting up these cities. So the more the better, of course, as I tweeted once, I want to see a world of a thousand Liechtensteins.

Stephan Livera:

Right, right. And the question also is 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?

Yuri de Gaia:

Well, some Bitcoiners can start it today for sure. I would wait for another cycle or two so that we can see the creation of a more wealth transfer basically in the creation of more Bitcoin millionaires out there. Because not all Bitcoiners are 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 you’ve got 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, uncensorable money and suddenly not a single government can tell you what you can or cannot do with that money, so if you feel like funding inaudible projects. You just do it and you don’t ask anybody.

Stephan Livera:

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?

Yuri de Gaia:

Yeah, well, we did not 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 scammer who, you know, pretend to work for some billionaires, billionaire investors, and the obvious, you know, rule is usually too 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 $300,000 with cash.

Yuri de Gaia:

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 both times ended in in that way we decided not to deal with those types of OTC deals anymore because it’s 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.

Yuri de Gaia:

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 the USD Tether on the Liquid network, then you can launch this advanced atomic swap tool and do it in a non-custodial way. But you know, I think it’s going to 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 doing deals on trust, based on trust. So it just builds relationships.

Stephan Livera:

Right. Right. And so in your brokerage, 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? Whatever you can disclose that is.

Yuri de Gaia:

Yeah. I mean the minimum is normally 25,000 whether it’s euros or US dollar and there’s really no maximum. And whenever people ask me, what’s your maximum, I know that they’re not going to 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 100,000 and 200,000 then a million, but no one sends 50 million or 20 million in one shot and it’s like whoever tells you that they will is full of it.

Stephan Livera:

I know that’s a good heuristic I think. And so do you get a lot of like new people coming to you for their 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 an OTC?

Yuri de Gaia:

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 them, 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.

Stephan Livera:

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 a liquiditi with like I-T-I at the end. Tell us a little bit about that and why you started that.

Yuri de Gaia:

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 bitcoin. 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?

Yuri de Gaia:

So we decided to open it up and suddenly it became quite popular. People are using it every single day. We are getting feature requests and people already asking us to add more pairs like tether, liquid tether, Canadian dollar to the system. So, and open up the API. So we’re working on all of that. I would say initially it was intended as a content or value marketing strategy for us. You know, let’s just create something valuable and 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.

Stephan Livera:

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 L-BTC, which, you know, what I’m getting at here is there’s some debate in the community around things like 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?

Yuri de Gaia:

I think this is a risk that can be managed. But the first thing people need to understand is that L-BTC 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 a liquid Bitcoin, it is a consortium of 15 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.

Yuri de Gaia:

In terms of its members. Yeah. So, but that is not 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 out. It’s going to be a slow process, like the peg in as well. But you will be able to request the self peg out and go. I’m not really sure how long it will take probably a day or two. You will be able to get your Bitcoins back. So you know, it’s an early technology as well. 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.

Stephan Livera:

Right.And I think that, 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 as long as they know what are the trade offs they’re making, they’re entering into it with open eyes. And for some people that’s just not acceptable. They will never go there. But for many people that is an acceptable trade off that they would like to accept. Also wanted to talk about Moontower. So what’s Moontower?

Yuri de Gaia:

Well, 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 a month 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, for example, want to invest a hundred dollars per week, you’ll be able to do that with Moontower. And the service is primarily targeted at the European clients because we are licensed and based in Europe.

Stephan Livera:

Fantastic. So what’s the expected timeline for Moontower?

Yuri de Gaia:

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

Stephan Livera:

And I guess the other question from a Europe perspective, there are some businesses who recently faced trouble there in terms of AMLD5, AML, I think directive five or whatever. There were some businesses I believe in the Netherlands, so Bittr, Ruben 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 believe you’ll be able to handle that compliance workload or burden?

Yuri de Gaia:

Yeah, well, we are already a licensed business and we comply with all the KYC AML 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, unsavory 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 the license. And you know we’ve had the license for all this time, but we still have to comply with our 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 companies from European jurisdictions like Estonia, Malta, they just drop out and they decide to move or shut down.

Stephan Livera:

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 Moontower or they want to follow your Bitcoin Reserve Journal. Where can they find you online?

Yuri de Gaia:

Well my personal blog is degaia.co the Twitter is @Y_deGaia. And you can find all our projects, business projects at ltb.global. That’s where all of them are listed. We’ll be happy to answer any questions. There you go.

Stephan Livera:

Fantastic. Thank you for joining me.

Yuri de Gaia:

Thank you, Stephan. Glad to be here.

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