In this episode, Harsha Goli from Magnolia Financial discusses the launch of their Bitcoin-enabled banking services across the US, navigating regulatory challenges, and the importance of partnerships with banks. He emphasizes the need for better user experiences in Bitcoin transactions, the role of price oracles, and the implications of the Clarity Act on Bitcoin development. The conversation also touches on the tension between traditional banks and the crypto industry, the future of community banks, and innovations in Bitcoin technology. Harsha shares insights on potential use cases for Magnolia’s services and the challenges of bridging the gap in Bitcoin adoption, while also addressing privacy concerns in Bitcoin transactions.
Takeaways:
🔸Magnolia Financial has launched Bitcoin-enabled banking services across all US states.
🔸The company aims to provide a better user experience in Bitcoin transactions.
🔸Partnerships with banks are crucial for navigating regulatory challenges.
🔸The Clarity Act is seen as a positive development for Bitcoin institutions.
🔸Stablecoins are currently dominating the financial landscape.
🔸Magnolia is focused on integrating financial services into Bitcoin applications.
🔸The future of community banks may involve adapting to crypto innovations.
🔸Innovations in Bitcoin technology, especially Layer 2 solutions, are promising.
🔸Privacy concerns in Bitcoin transactions are becoming increasingly complex.
🔸Harsha emphasizes the need for seamless money transfers in the Bitcoin ecosystem.
Timestamps:
(00:00) – Intro
(00:36) – Magnolia enabling Bitcoin-enabled banking
(03:10) – Regulatory hurdles in the US
(05:03) – Can Banks provide their own native Bitcoin rails?
(08:24) – Improving UX with Magnolia
(11:48) – Magnolia as Price Oracle in Bitcoin finance
(13:35) – Magnolia’s pricing and onboarding process
(17:10) – What is the impact of US regulations on Bitcoin development?
(21:11) – CLARITY Act
(25:00) – Tension between Banks & Crypto
(28:01) – Community Banks and Crypto?
(29:31) – What is Harsha excited about in Bitcoin and its L2’s?
(32:08) – Use cases of Magnolia
(33:48) – Stable channels & Taproot assets
(38:10) – Increasing Bitcoin adoption?
(40:51) – Bitcoin privacy and financial scams
(46:58) – Closing thoughts on building with Magnolia
Links:
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Transcript:
Stephan Livera (00:01)
Hi everyone, welcome back to Stephan Livera podcast. Today rejoining me is Harsha Golay from Magnolia Financial. Harsha has been a long time Bitcoin ⁓ developer, entrepreneur in the space, various companies, lightning labs, Fold, Swann, just to name a few. ⁓ so I know, you you were building Magnolia last time we spoke as well about, I think about a year ago. So, you know, give us kind of the high level update. What’s the big new thing from you guys?
Harsha Goli (00:30)
Yeah, so it’s been about a year now, a little bit more than that since we started working on this. And as of this week, we finally like launched in all of the US every US state, including the tough ones, New York, Florida, California, and Texas. So that was a really big win for us. And ⁓ yeah, I guess like, let me just talk about what is we’re launching. It’s, it’s a complicated thing, but also a simple thing. The simplest version of it is we’re launching a way for you to have a like Bitcoin enabled bank account, essentially.
⁓ This isn’t necessarily a consumer facing thing. This is something that any business can integrate. And this ends up being really, really useful because yes, you can create a exchange functionality. That’s easy and obvious. But you can also do really, really interesting financial flows with this. So a really popular one that we’re seeing right now is for Bitcoin back lending. People ⁓ actually want to have their…
their loan in actual dollars, not stable coins. And so when they get stable coins, that typically means that they have to go to a Coinbase or something, convert it, and lose a couple more points off. So we’re finding that integrators are using our services to just do the disbursement in fiat. So that’s like an example. it’s basically like,
Stephan Livera (01:40)
Right, so just to be clear,
would mean somebody who is currently a Bitcoin collateralized lending startup and they’re using you instead of having to like, or that might be an option instead of only doing stable coin to have actual fiat wire.
Harsha Goli (01:46)
Mm-hmm.
Yep, exactly.
Stephan Livera (01:56)
Interesting, okay. Yeah, so go on.
Harsha Goli (01:59)
Yeah, that’s one example. We’re like, you know, a bank as a service for Bitcoin, ⁓ etc, etc. Like the point of view that we had when starting this was like, listen, you know, I’ve been working Bitcoin since, you know, college, right. ⁓ But custodians aren’t going anywhere. That’s just, you know, there’s a regulatory need for them and an actual like real need as we onboard the world, you know. ⁓ That doesn’t mean the custodians that we use have to suck, though, you know, and for the long time, that was kind of the case. So we’re trying to build one, you know, by Bitcoiners for Bitcoiners that actually serves
the needs that we have without skimping out on the technology, right? So there is a way to do things like as non-custodial as possible with, you know, lightning, like fiat lightning, right? And it just means moving the money as quickly through as you possibly can and getting it out of our system, you know, things like that.
Stephan Livera (02:44)
Yeah, and just
to be clear, are we talking about the legal custodian aspect of it or also and also the crypto cryptography, you know, self custody aspect of the custodian or both? Yeah.
Harsha Goli (02:56)
both in this this
instance. Yeah, but you are right. Like there is a huge difference, but we are set up to be both.
Stephan Livera (03:02)
Gotcha. Yeah. so I guess how’d you get the, you know, the big hard States, right? Like the bit license. And I’ve heard, you know, some of these other States, it’s very expensive that you have to put up, you know, certain amount of money or there’s all these regulatory and compliance total. So how are you handling that?
Harsha Goli (03:20)
Yeah, it is really expensive. ⁓ And also, what we found while going through this last year was the regulators were completely just ⁓ underwater in applications. We’ve always known there was going to be a long process, but it was getting very difficult to get feedback in from the smaller states. So we had to pivot our approach here. And we saw what Bridge was doing with Lead Bank, where Bridge was effectively using the banking institution’s licenses to ride in the US. ⁓ And we figured, OK.
you things are changing in the US right now. Maybe there’s a banker to out here that we can work with who’s a little bit more friendly. When Bridge was doing this about two years ago, that was not really the case. Their relationship with Bridge means that I’m sorry with lead bank means that they can’t do certain things, right? Things change a little bit. So we partnered up with a couple different banks in order to go to not only all the US but we’re actually looking at the EU as well here in just a little bit. So that was kind of our secret sauce, know, ditching the MTL like based approach.
using the compliance umbrella of existing banking partners ⁓ to reach more. that was a really big decision for me personally, because I really wanted to go to the individual licensing route. But what we learned overwhelmingly was for a lot of these businesses, doing this patchwork state approach is really, really tough. It’s hard to do from an implementation point of view. And what they really all cared about was how do we get as many
Americans on our platform as possible, right? And then from there, Europeans, right? And so we just went for the approach that gave us the most jurisdictions possible.
Stephan Livera (04:54)
Yeah, I see. so given the fact that you’re going to some of these banking partners, is there anything stopping them? Because I guess, couldn’t they also offer what you’re doing on their own? Or is that just kind of like, it’s not worth their time and effort and money, that they’re happy to just kind of let you handle this aspect of it? Like, isn’t there kind of a risk that if you’re building on them, that they could then eventually, you know, go after your own customers?
Harsha Goli (05:20)
Yeah, totally. I’ve thought about this too myself. But the way I think about it and the way I think that our partners are thinking about it too is there’s a parallel to building computer chips. Yeah, TSMC does own the billion dollar plants in Taiwan to manufacture the computer chips. And sure, people are just asking, hey, can you print out this blueprint for me for each of these chips?
then they’re reselling it for a significant amount, maybe putting them in laptops and stuff like that. And we’re basically a laptop manufacturer, right? Just like selling to individuals at this point in this metaphor. But my bet here is that TSMC is really focused on what it is they’re doing, which is making sure that they’re building the best chips possible. And as a result, what we’re doing is making sure that we’re building the best laptops possible. And there’s really like good symbiotic relationship because they’d like to focus on what they’re doing, which is making sure that, you know, to bring the analogy back home.
making sure that their banking institution runs as well as possible with the highest margins possible. And what we’re doing is making sure that we’re enabling payments to go through as quickly as possible, as best as possible, in as many jurisdictions as possible. ⁓
Stephan Livera (06:26)
I see. And so, and I guess you’ll also
be really more focused on the Bitcoin technology aspects of this where maybe they’re kind of a little closer to the regulatory kind of hurdles and regulatory compliance aspects and kind of general banking considerations. Whereas you’re going to be more sort of into the technical guts of what, you know, a Bitcoin payment person needs and also what the
like your customer who will often be an entrepreneur and developer who is building some kind of product that they want to have banking relationships in there.
Harsha Goli (07:03)
Yeah, and you’re completely right, right? As a result of my background in lightning, there’s a lot of really cool tricks and stuff that we can use in our space to bring a lot of cool functionality to a lot of end users. And that’s stuff that our upstream partners aren’t capable of really working on. They were built for a more layer one-centric world, and our systems are very much built for a more layer two-centric world, ⁓ like things like Arc, Spark, et cetera. ⁓ But…
I think like the core for us, the thing that we really care about is making sure the most features exist for the people that partner with us. So that’s a huge thing. Right? So you might like, you might, you know, wonder why doesn’t some app have DCA or something like that. It’s because their, their financial partner doesn’t allow them the option to do something called ACH pull. Right. And that, that gets really annoying. You might wonder why your favorite app doesn’t have Apple pay, you know, and that’s because
their payments processor doesn’t have a vendor that’s partnered with Apple Pay. It’s something that gets in the way and adds friction to actually onboarding pre-coiners. And that’s what we’re trying to solve here in as many places as possible.
Stephan Livera (08:12)
Yeah, and I guess maybe another analogy, or I’m curious to hear your thoughts if this is relevant, but what you see in a lot of countries around the world is they may have some of these wallet apps that have like buy Bitcoin and actually it’s like a MoonPay integration or like they’ve got some of this kind of integration and then that maybe might be a slightly more clunky experience because it’s like sort of an iframe or a redirect style as opposed to like something that’s kind of more native, it’s kind of
in the app per se, or feels a bit more slick, is that sort of what you’re trying to do as well, that you’re trying to do that more slick experience as opposed to the iframe or redirect kind of thing?
Harsha Goli (08:51)
Yes, exactly. I cannot tell you how often I hear people complain about MoonPay because it’s clunky, it’s got higher fees than most anyone else, and the functionality is super limited. So you can’t do like auto-pay or any kind of like, you know, recurring subscription type payments with MoonPay.
Stephan Livera (09:07)
Yeah, interesting. I guess, and it’s kind of like, it’s like how, you know, people whine about Western Union as an example, because like, they’ve got such high fees. But maybe it’s kind of like what they’ve done is kind of get really good at dealing with the regulatory burden. And in some cases, they’re the only the Western unions of the world in some parts of the world. It’s like that was the only option people had, you know, so it’s sort of, that’s kind of what’s happened, how we ended up in this place where a lot of Bitcoin and crypto wallets had had like some kind of
you know, buy Bitcoin with MoonPay sort of thing and then people feel like it’s a bit clunky or it’s not as like nicely integrated, things like this. it’s sort of like there’s a reason they exist, but at the same time, you know, over time, hopefully the experience improves and obviously we would like, obviously if we’re Bitcoiners, we want adoption, we want more apps to be able to integrate this as well. So I guess that’s, as I’m understanding the difference there.
Harsha Goli (09:58)
Yeah, no, exactly. think like something Moonspey did really well from a business point of view forever ago.
was they made it really easy for everyone to integrate MoonPay, right? To get it in everywhere. And so every random application has MoonPay. And that’s great, right? From a business point of view. But at a certain point, those applications need to migrate off of MoonPay. And so we figured like, OK, there’s got to be a middle ground here where you don’t have to leave your application or leave your payment processor when you’re scaling up because you need a better UX, but it’s still easy to integrate. The fees make sense when you’re at a much lower scale and volume. And that’s something that we’re working on.
here Magnolia and I think we’ve got some really good announcements on that coming out in the next couple weeks here.
Stephan Livera (10:38)
Cool. So who do you see as the main customers for Magnolia? Are they existing Bitcoin applications or are we talking crypto applications or are we talking things that don’t even have Bitcoin or crypto in them at all?
Harsha Goli (10:53)
Yeah, honestly, all across the board. So right now we’re finding a lot of interest from folks who like, you know, either do a capital markets related play or they do something, you know, super niche, like, you know, allow people to, I don’t know, sell part of their home equity for for Bitcoin. Right. Like there’s a there’s a part in their flow where we really like fit in Bitcoin lending infrastructure just across the board there because, know, we also do price oracles. And then, of course, the very simple I have.
a really cool wallet with a retail audience. I’d like to monetize this somehow, you know, to help pay bills. Can we get a buy Bitcoin like button in here or DCA button in here, stuff like that, like really all across the board.
Stephan Livera (11:32)
Interesting. It’s interesting you mentioned the Oracle thing. just remembered as well because I just did an interview with the Lagos guys as well. So they mentioned you’re actually their Oracle. So was like, funny enough. So I guess, give us a bit of like, what’s it like being an Oracle? Like, what does that mean for people? What do you, do you see an opportunity there like business-wise, like longer term? What’s the thinking there around being an actual DLC price Oracle? Well, I guess not just price, but other things too. Yeah.
Harsha Goli (11:41)
Yeah.
Yeah, I mean, so you know,
Yeah, yeah, yeah. If you look at docs, we do like all sorts of attestations. I mean, it just makes sense with with our background and what is we’re trying to do. We’re trying to bring a lot of these like financial tools to Bitcoin companies in an easy, affordable way for the Lagos like related folks. ⁓ What they’re trying to do or what they needed rather is they needed a price oracle that wasn’t run by themselves, that was run by someone that was trustworthy in the community, but that also wasn’t like a fly by night institution. Right. And so because we’re well regulated, a lot of people in this space know me very well.
I definitely put in the work and have been here for 10 years. ⁓ That’s a really good name for them to go with and we’re able to spin that up because of my background, my team’s background, in a relatively short amount of time. So it just made sense for us to the LIGO folks out. ⁓ Long-term, the strategy with our price protocol is it’s great to run. It’s very easy for us to run. It ⁓ integrates very well in our systems.
And it’s really good attraction for a lot of other companies in the space who would like to also run a price Oracle because like I said, our core products are very complimentary toward price Oracle. So if they start using our price Oracle, that’s awesome because that’s a way for us to onboard a lot of other financial tools to make their customers lives happier.
Stephan Livera (13:13)
Got it. Give us an overview on the rates and things like this for people to sign up with you. So I presume what we’re talking about here is like businesses and apps who want to sign up with you. Give us or give an idea there of what kind of rates they can expect to pay there.
Harsha Goli (13:31)
Yeah, so our spread, depending on volume, right, I think starts at 1.75 and then the more volume you have, the lower we can get that. Right, for us, we’re a very volume based entity and, know, just completely transparently, we have to justify our volume to all of our upstream partners. So the more that we get, the better rates we’re happy to give everyone, right? As far as like the monthly costs go, we basically have two tiers right now. One is for, you know, typical amounts of volume where there’s a monthly minimum, depending on the amount of volume that we expect.
That’s going to be more of an enterprise level category. And then I’m specifically working on a way to basically provide a $0 minimum. This is effectively one of the announcements that I’ll be doing in like a month or two, or a couple of weeks here. But a way to have a $0 minimum with a decent spread so that anyone can just pick up our tool, slap it into their application, and get going here. That means a real bank account set up in minutes, as long as you’re able to pass KYB.
⁓ So we’re really trying to make that work and that’s even easier if all you’re working on is Bitcoin and Lightning. And that makes our lives very easy from a compliance standpoint, so why not? Why not make it easy for people?
Stephan Livera (14:40)
that’s cool. So it can make it easy for entrepreneurs who like currently hear about entrepreneurs who sometimes in some parts of the world, it’s actually hard to take, you know, fiat payments and things like this, or I guess in the US case, I presume your customers will be mainly in the US.
Harsha Goli (14:55)
⁓ Yes, so we have a list of countries that we’re not allowed to onboard, but the institutions can be outside of the US as long as they’re servicing ⁓ US end users.
Stephan Livera (15:06)
Got it, okay. And then in terms of the banking aspect that you’re providing, is this to also have like a US bank account that they can send fiat into to get, to buy Bitcoin with it or like, and then the idea is the developer or the builder of the app who’s partnering with you, Magnolia, are they just gonna have like one bank account thing or is it gonna be like for each of their end customers, end users?
will have their own bank account to send stuff to. I presume it’s each of those customers, right?
Harsha Goli (15:38)
Yes, each of those customers. the model that most banks try to like, you know, get you to use is what you described at beginning. It’s called an omnibus. It’s where you have one large bank account that everyone like puts their money into. And so there’s like an accounting error or something that goes wrong. Technically everyone’s money is at stake, right?
That didn’t sit right with me. doesn’t make sense to use one address for everyone’s money, right? That just seems a little bit kind of crazy to me. So the solution that we try to go here with is one where everyone’s funds are individually segregated. ⁓ And so everyone has their own routing and accounting number. So there’s no way for things to go wrong and for someone else’s money to get affected.
Stephan Livera (16:11)
Got it. And then does that mean the each of the user, let’s say you’re an app builder now and you’re thinking about building, you know, partnering with Magnolia. Does that mean the app builder has to build in some kind of KYC or is that happening at your level or like how is that being dealt with for the end user KYC?
Harsha Goli (16:26)
Yeah,
the KYC happens to our partner, Persona. That’s an iframe that we have to pop up. If there’s a lot of flags in the Persona iframe, you might go through what’s called a…
It’s like hardened KYC or something along those lines enhanced KYC, right? And that’s something that we have to go through That’s more like not really a like we don’t believe you are who you are kind of thing That’s a we suspect fraud is going on in this area You know, this is like coming from a specific neighborhood and you know Chicago where there’s you know A lot of activity in fraud and one specific square block and stuff like that that tends to kick up those flags
Stephan Livera (17:01)
Interesting. Yeah. Yeah. Okay. So I guess I’m curious to get your take on how things are with the Trump administration, right? Like lastly, so because about a year ago, Trump was only just in now he’s been in for about a year. Some of the Biden era stuff is being unwound. What is it like nowadays? Building Bitcoin stuff in the US?
Harsha Goli (17:24)
Yeah, it’s it’s different for sure. Right. So the genius bill got passed. Right. We’re really happy and excited about that. The Clarity Act is, like people are figuring it out right now. I do think it’s going to pass as well. There’s actually a lot of pressure from the White House currently to to get the banks and the crypto people in the same room just hug it out and figure it out. That’s really exciting. I think Clarity Act is is really, really, really, really good in lot of ways. Something that I don’t see people talking about with it is it clearly
⁓ It clearly does not establish a ⁓ federal license like Micah, right? So we’re gonna be stuck with the MTL system here, so that’s gonna be a pretty big buried entry for anyone who’s trying to start a business like this. ⁓ But aside from those things, the way how things have panned out this whole last year have been kind of fascinating, right? Specifically with ⁓ the loophole in the Genius Bill where you can just get rewards in stablecoin yield, and that’s been kind of fascinating.
We’re watching the banks get upset with that and kind of actually fight back now. And we’re watching the fight where I think the Tether CEO actually sided on the side of the banks to try and get rid of that loophole, which is really interesting. a ⁓ lot of things have changed from the licensing standpoint and compliance standpoint. ⁓ A lot of the organizations that were in charge of making sure that the licenses get applied and that rules are being followed, they’ve all been gutted a little bit, especially at the federal level and in certain
jurisdictions like California. And so there’s not really anyone really watching a lot there. And then in the other jurisdictions, ⁓ there has been a lot of ⁓ like their budgets have also been cut, but they’re they don’t respond anymore to requests, right? Because they’re they’re kind of like, you know, overwhelmed. And that’s kind of a really interesting development. ⁓ So there’s a lot of self policing going on is something I’ve noticed. ⁓ And with self policing come cracks, right? So like an example of a
crack in the in the system that I’ve seen is right now in broader crypto. There’s this idea that you know, like stable coin Like stable coin credit cards or stable coin cards. That’s like a really big deal right now There have been a rise of no KYC debit cards or credit cards, right? And the way how these work is through a compliance Loophole where you know if you get a debit card through for an individual you have to do KYC But if you get a debit card or a credit card
as a business user, if you’ve ever been employed by like a company that uses ramp or something, you’ll notice, you’ll remember when you get your credit card from ramp, there wasn’t a KYC step there, right? That’s typically because ⁓ the compliance departments feel like, okay, this is an enterprise contract, you know, their employees are probably vetted by, you know, the actual employee employers, and it’s probably fine. A lot of trust there. And we’re seeing a lot of companies abuse that trust currently, and use that to create a lot of
credit card and debit cards for end users who don’t actually ⁓ work for that given employer. And so that’s an example of cracks that people are taking advantage of. And it’s just funny, I’m reading this on Twitter.
Stephan Livera (20:26)
Right. Yeah.
Yeah. And I guess it could kind of
come back to bite the industry in the ass, right? Because if genuine, obviously I’m in principle, you know, I’m against AML and sanctions laws, if genuine like fraud and scammers use that route, you know, that could then become a political issue in the next election. And then it gets shut down and clamped or locked down in some way, you know. So I guess, ⁓
Harsha Goli (20:54)
Right now, like Visa and MasterCard are being friendly toward the entire industry. like, yeah, the more tricks people find like this, the harder it’ll make for all of us.
Stephan Livera (21:03)
Yeah, it’s an interesting one there. Also, was curious, you mentioned the Clarity Act being good for Bitcoin. I thought that was mostly like a shitcoin thing. What are the actual benefits for Bitcoiners?
Harsha Goli (21:15)
So in the Bitcoin world, there’s two camps, right? There’s the retail folks, right? The everyday hodlers, that kind of thing. And then there’s the institutional folks. The institutional folks are really what have been driving the price of Bitcoin up for a very long time. honestly, think whenever crypto really does a lot of questionable things, people always rely on the institutional Bitcoin people to showcase like, hey, look, this is the good side of crypto. There’s a lot of long-term utility here. Look at this, right? So they have really very, very positive.
I guess, influence in the broader community. The Clarity Act has a lot of benefit for them because what it really, really does is it’s a really big green light for a lot of huge institutions that this is an okay bonafide area. And here’s how you should handle a lot of the smaller stuff that isn’t ⁓ addressed in any other legislation like the Genius Bill, right? The Genius Bill is a little bit more narrow. It really was only for stablecoins.
a very specific mechanism to project ⁓ American supremacy overseas, right? That’s what it was for. But there’s still lot of unanswered questions in terms of who runs what, essentially. That’s what the Clarity Bill is. And so it’s really, really relevant for the institutional folks.
Stephan Livera (22:30)
Gotcha. what’s in there that they need from a Bitcoin perspective? Like what are some of the things that is clearing up for them? Is it just like how, you know, the custodian for things or like certain regulations? Like what do you know?
Harsha Goli (22:45)
Yeah,
yeah, I think the biggest pieces are who are the regulatory bodies specifically for a lot of these like a lot of these like money transmitter like like audiences, these custodians, these like crypto banks, stuff like that kind of like specifically saying that, you know, I’m working off a little bit of data memory. So I might be wrong. But I believe it’s like the CFTC is, you know, supposed to actually take over this specific thing, not the SEC, you know, it’s like stuff like that. Right. And it really does provide a lot of
Stephan Livera (23:12)
Okay, and then based on that, institutional
person might be thinking, okay, I’d rather work with the CFTC on this issue, instead of the SEC on that other issue. Therefore, I’m more comfortable now to do some Bitcoin thing. Is that what you’re sort of getting at?
Harsha Goli (23:25)
Yeah, exactly.
If the SEC is known to have a big hammer and the SEC is known to do a lot more like, you know, gentle coaxing, right, as an institution, you’d rather go with the person who’s doing a lot more gentle coaxing than a big hammer, you know? And so it’s stuff like that. In the past, none of this was clear. It was just very much, you know, whoever decided to throw, you know, like throw a case at the wall, right? The DOJ comes up. Exactly. And ending that is a big deal. Yes.
Stephan Livera (23:48)
Right, this kind of regulation by enforcement concern that kind of came up during the Biden era.
Interesting, yeah, okay. And I guess the other one is that I know that there’s this Save Our Wallets campaign, like Matt Corallo and some other guys were onto that. So I think that, I believe they were trying to get that into the Clarity Act so that the Bitcoin developers don’t go to jail sort of thing. Obviously, yeah.
Harsha Goli (24:12)
Yeah, very unfortunate. None of that
has really gotten in. know, like it’s like super unfortunate actually, like damn, you’re tragic. ⁓ It seems like a lot of the stuff that I personally wanted to see in specifically anything regarding the the San My wallet folks, none of that is being addressed by the like by the Clarity Act. You know, you could argue that now the DOJ has less of a reason to go after crypto companies. Now it’s up to these agencies instead. But that’s that’s
not gonna matter, I guess, as far as the Samurai Wall folks go. Nothing about that seems to be rescinded or anything like that, which really sucks.
Stephan Livera (24:45)
Yeah,
that’s shame. last I saw, think Trump mentioned he would consider the, know, freeing the samurai guys. So hopefully, you know, free them. But yeah, it’s awkward. Any other thoughts on kind of the tension between, let’s say, some of the banks and the quote unquote, you know, the crypto ⁓ and Bitcoin industry?
Harsha Goli (25:07)
Yeah, so this like a-
Stephan Livera (25:08)
Is it mainly
just the stablecoin point of like basically what I’ve heard is like the banks want the yield, right? They see it as like, hey, we’re getting whatever 4 % or whatever it is on the, you know, on their treasury bills and they’re only paying out some, you know, pittance like 0.2 % or 0.1 % to the actual end customer. Whereas the stablecoins are sort of like, hey, we can pay out all this yield. And now they’re fighting over that. And that’s apparently one of the big points of contention, right? On this clarity act. And that’s apparently, you know, one of the things that’s really been,
gumming up the works there, right?
Harsha Goli (25:40)
Yeah, and that is a huge deal. right now, think about it like this. It’s the same underlying asset for the banks and for a lot of these stablecoin companies. So the only difference is, you know, one pays significantly more. But the difference here is the stablecoin companies also have an entire payment, like infrastructure and, you know, like plate that the banks don’t have. Right. And so for the end user, why not just go for, you know, the one that gives me like, you know, six, seven percent APY.
versus the pennies on the dollar. And that’s a really big deal for these banks, especially these smaller community banks, where they’ve already been in a little bit of a precarious situation for years now. think during the last conference I was at, Plan B, I saw that there was another banking conference around the same time with a headline talk that was like, adapt or die. And so it’s not looking good for the small community banks.
you know, from Magnolia, like going through and trying to find banking partners that were willing to work with us. I thought it would be a lot harder than what it ended up actually being because a lot of these smaller banks are, you know, fully on board with adapt or die, you know, and that means embracing crypto and finding other, ⁓ other like, you know, revenue streams.
Stephan Livera (26:57)
Yeah, interesting, because I guess for so long, they kind of had this cozy regulatory moat built around them. And now it’s almost like Bitcoin and crypto and stable coins are sort of coming for them and trying to compete with them outside. And I guess for a while, they probably thought, ⁓ Mr. Government and Mr. Regulator will protect me. But now it’s almost like they’re sort of saying, no, we’re to take away some of that protect that governmental protection. So it’s just interesting to see the dynamic.
play out there and then maybe that is going to force more of them to actually have to you know compete in in the ⁓ technological realm of bitcoin and ⁓ you know using the chain per se
Harsha Goli (27:39)
Yeah, I mean, think like ⁓ over like not this past weekend, but the one before or maybe it was this past weekend, another community bank failed, right? Like outright failed, not bought out. It’s listed on the FDIC’s website. Like it is a very real problem for them right now. And so anything that gets their deposits up, they’re going for hard.
Stephan Livera (27:59)
Do you have any thoughts on where that plays out? Like, do you just think it’s just gonna have to be like, like literally just adapt or die? Like some of these banks will partner with, you know, Bitcoin and crypto companies and the others die out or where do see it going?
Harsha Goli (28:12)
I think there’s always going to be a place for the small state-run community bank. when we think of community banks, think of what we actually tend to think of are what are federally chartered community banks. But there are also state charters that exist for a much, much smaller depository amount. I think we might see a return to those. Because you also have to remember, we are currently in an era where we are accepting more
crypto bank applications. The OCC just did new bank, right? A couple like a week or two ago. And that is huge, right? So it wasn’t just the five that have been an application for forever. We’re continually adding more. And as we add more, that’s going to be a lot of stiff competition toward these community banks. And then on top of it, they are still in the process of getting bought out actively by consolidation forces. So I think there might be a couple of holdouts over the next 10, 20 years.
But I do think the small mom and pop credit union is probably going to have a tough time competing.
Stephan Livera (29:18)
Yeah, we’ll see what happens there. Kind focusing back to Bitcoin technology stuff, I know obviously you’ve been in Bitcoin development for a while yourself. What do you see as most exciting there? I know, I mean, you were touching on earlier ARK and Spark and things like this. So there’s been a bit of excitement around other L2s. What are you looking at? What’s interesting to you there?
Harsha Goli (29:39)
A lot them are really interesting to me ⁓ for a lot of reasons, but I think the fascinating thing to us and what we’re actually like, you know, putting a couple of bets on ourselves is like for the longest time for a custodian supporting many different projects was a very risky endeavor because it involves, you know, building a lot of support internally and going through a lot of stuff. And it’s kind of a lot, right. ⁓ But we found that just by supporting lightning, there are ways for us to support a lot of these other projects, which are all very, you know, Bitcoin native.
in a way where we don’t have to run a lot of the infrastructure and we don’t have to run a lot of the liquidity. We can ask them to run the liquidity, have it all still be trustless with HTLCs and be able to support a lot of these smaller projects very rapidly. So that does mean support for Arc, that does mean support for Spark, but it also means support for things like Citria and things like Alpen, right? Now, of course, these aren’t partnership announcements or anything. These are just things that I’d be excited to support, but…
That is a really interesting use case for Lightning. I think the biggest problem with Lightning or a large problem with Lightning has always been routing. But when you’re doing things like this at a more institutional level, you can just have direct channels with everyone and it’s not complicated at all. You’re just managing relationships at that point. that is, ⁓ our compliance policies are written in such a way that moving funds through these kind of bridges is very easy to do. And it’s, you know.
Yeah, once we wrote the policies once, we can do it as many times as we’d like. So it’s very low-hanging food for us.
Stephan Livera (31:12)
Yeah.
So for you, is it a matter of trying to partner with some of the bridging things like like Boltz.exchange or others like that so that you can mainly focus lightning but through them also have support for these other things?
Harsha Goli (31:28)
Exactly, the end user, the institutions that are using us, they don’t see the lightning part. To them, money goes in this fiat, it comes out on liquid. And that’s exactly the flow that I want this to be. I don’t want to show them the plumbing. ⁓ But we’re able to do it in a way that makes everyone happy.
Stephan Livera (31:44)
Got it. Okay, yeah. And then I guess coming back to like Magnolia’s product and if let’s say the listener now is a developer or a builder who wants to build something, what are some of the uses that they could do? Like obviously DCA, talk to us about what do you see the potential uses being?
Harsha Goli (32:03)
Yeah, totally. So it’s you basically get to treat a bank account like it’s a wallet, right? That is a really powerful thing. So things like being able to push money into it with ACH, wirefet now, whatever, being able to pull money from other bank accounts, you can do that on a recurring basis for something like a subscription. You can do it on a like programmatic pull if some conditions occur.
you know, recollateralize this loan with, you know, by pulling money over here, whatever, right? ⁓ If Bitcoin goes below a certain price, you know, I’d like to buy more Bitcoin. you know, automatically buy ⁓ whatever. ⁓ We do conversions between stable coins and on all the major networks and Bitcoin and Lightning. So if you need to like convert stable coins from one place to Bitcoin over there, we do that. ⁓ It’s basically like, it’s a relatively simple idea, right? Being able to treat bank accounts as wallets, but
it ends up being really, really ⁓ powerful because it’s just a money movement tool that integrates at the foundational layer of the US banking system.
Stephan Livera (33:10)
Got it. And so you mentioned their stablecoins as well. So tell us a little bit about that. what are you doing on the stablecoin support side? Are you helping just bridge across again different ⁓ types of stablecoins and chains?
Harsha Goli (33:23)
Yep, exactly. USTC, USCT, and the networks that I think most people use on those, we support all of those. basically, whatever whatever system it is you need to move the money from, we probably support it. We’ve we’ve ended up supporting a lot of things. And that works out really well for us. So the goal here for us is to get the money wherever it is, into Bitcoin or vice versa.
Stephan Livera (33:46)
Got it, okay, yeah. And so, how does that, I’m not sure what the latest on, what’s it, USAT, the new US, the US form of Tether. Do you know a lot about that or not yet?
Harsha Goli (33:54)
Yeah.
My understanding of it is it is a ⁓ it is a like form of USDT that is set up with the genius bill like to comply with the genius bill So the so USDT by itself does not comply with the genius bill, right? And so technically if we’re forcing the genius bill, it’s not gonna be like, you know usable in the US but US a DT or I always forget what it’s called That does comply with the genius bill. So that is run by ⁓ like there are reserves in a like US bank
like authority, probably a trust, it operates on all the major exchanges. I think that’s really exciting and interesting, but I also think it’s kind of… I’m curious to see where that shows up in the US, personally.
Stephan Livera (34:43)
Yeah. Any thoughts on like things like stable channels and some of these other approaches to sort of do a similar thing but not through technically a stable coin?
Harsha Goli (34:55)
⁓ Stable channels, I’m actually not super familiar with stable channels. ⁓ I am really excited about Taproot Assets. think forever ago there was the announcement that USET was going to come to it. I think things have gotten really big and complicated on tether side. So I’m curious to if that’s still going to be the case. But even if USET doesn’t occur, I’d be really excited to see USTC show up with Taproot channels ⁓ or Taproot Assets.
Stephan Livera (35:01)
Yeah.
Harsha Goli (35:24)
Again, if that isn’t the case, I’d also be interested to see what the next big thing is there.
Stephan Livera (35:29)
Yeah, and I presume, I mean, you used to be at Lightning Labs, so I presume you’ll be looking to support Taproot Assets also?
Harsha Goli (35:34)
Yeah, honestly, I think we’re really well situated to support it right now. We just need someone to ask for it, right? That’s really huge for us too. For us, something I’ve learned personally as an operator here is you really have to go where business is. If people are not asking for something, it doesn’t mean they’re magically somewhere hidden. It means that no one’s asking for it. And so you really gotta talk to your customers, understand what they need, and work for solutions for them.
Stephan Livera (36:02)
Yeah, interesting. I guess ultimately, I think that’s probably right in the position you’re in. Maybe the Steve Jobsian kind of idea, if I asked them, they would want a faster horse kind of thing, that’s more like at the app level of like, there needs to be entrepreneurs out there who are thinking about maybe there are some uses that we haven’t really thought about, or maybe they’re just not popular. And someone could build that into an app using Bitcoin and partner with
these different institutions, whether that’s yours or someone else, to kind of get the fiat ⁓ bank aspect of it covered.
Harsha Goli (36:38)
Yeah, totally. And I really do love Steve Jobs and his design philosophy. But I also think it’s one that’s very much set up for more of a retail audience. I know better than most people what they actually want because their use is something that’s so outdated and miserable. I ⁓ don’t think we’re quite there yet with a lot of the technologies that we have. I think the ideal thing that everyone wants is completely seamless money transfers where it doesn’t even matter.
what the vehicles are underneath, right? That’s certainly my end goal. But doing that is not as well, it’s was about to say something crazy. It’s not as simple as building the iPhone the first time, which is kind of a crazy thing to say. But it’s really not, you know, like my ideal end goal here of money transmittance in every jurisdiction in the world, making it as simple so you don’t need to understand what kind of value you’re moving. That is something no one else has done. you know, I guess that is harder to do.
than building the iPhone the first time.
Stephan Livera (37:41)
Yeah, well, mean, that’s the big irony, right? I mean, it’s a common example many of us in Bitcoin use. It’s like, you can text anyone internationally with whatever, WhatsApp and Signal and whatever. Why can’t you send money just like that, right? Now, of course, Bitcoin is meant to be that. And yes, if you use a lightning wallet, you can do that. ⁓ we’re still… It takes time for people to actually get comfortable with that. So I’m curious where you’re at on adoption and what should…
people be doing to increase adoption.
Harsha Goli (38:12)
You know, I’ve been thinking about this like exact thing for a long time. I think in the Bitcoin space, there really are two large groups of people and they’re not like bridge and they’re not the same. Not really. One is like the retail. I’m going to call them tech enthusiasts like myself, right? People who like using Bitcoin, who like using all the cool little like, you know, features and technologies and, you know, bits of it.
And we’re firmly tech enthusiasts, right? It’s okay if things are a little bit tough if I have to read the logs or stuff, whatever. If most people don’t support it, that’s totally cool. And then the other side is like the the large scale institutions, right? Where they see all this all the mania in Bitcoin and crypto and they want exposure to it. But because of compliance reasons, because of their own risk appetite, they’re certainly not ready to go to anything like crypto. But Bitcoin is a really good brand name that they’re happy to go with. These are two very different people. The like
Adoption to me is bridging that gap. How do we bridge that gap? Payments is the answer, right? It’s making it so there’s actually utility to it. And the only utility of Bitcoin that I think is useful is payments. ⁓ so, okay, well, payments and also I have to backspat a little bit. ⁓ I have to acknowledge that the only utility that Bitcoin has ever truly had and without any question is it’s had utility as a store of value.
And there’s a lot of things you can do with the store of value, right? You can take loans out against it. You can use this collateral. That is the foundation of our like modern financial empire. Right. ⁓ So the more utility that we have with Bitcoin, the more we bridge that gap. ⁓ How we do that is through like honestly just building more and seeing what the appetite of these individuals are of real people are. But also, yeah, like I guess what I’m trying to say is
Like what I don’t want to see is I don’t want to see stable coins rule the world, right? But they are currently ruling the world, you know, like they really much are. And so I’m a little bit at odds with that personally. ⁓ But at you know, because also as an operator, I have to I have to listen to what people want. And if they want stable coins, and you know, I’ll give them stable coins, but I’m not gonna be happy about it.
Stephan Livera (40:13)
Ha ha.
Right fair enough. Yeah, I mean of course I wish we could all just go straight to Bitcoin, but ⁓ I Guess that’s that’s where people are at like most people are at who are like you as you said not in the You know tech enthusiasts Bitcoin maxi category a lot of those people ⁓ Yeah, I kind of are still at that point ⁓ on the I guess on the privacy side of things like do you have any updated thoughts there on like where things are going things like you know silent payments pay join
Etc
Harsha Goli (40:58)
I think Bitcoin privacy is good, it’s not great. ⁓ There are ways to get privacy, like hire things like using Lightning, but it’s still not great at the end of the day. ⁓ Lightning is pretty good though. Lately actually, as someone who’s been working in privacy tech for a long time, it’s kind of fascinating. I’ve very much seen the other side of privacy, very much recently, in last year or two, ⁓ where I’m seeing the horrible things people can do with privacy. I’m still…
very much a privacy maxi, but now I understand why KYC exists to the degree it does, ⁓ which is super unfortunate, right? Because it’s not really about complying with like something as sinister as the Bank Secrecy Act. It’s about dealing with these crazy frauds that we see and these crazy, and I mean wild, like scams, you know?
Stephan Livera (41:47)
Right, was
like that big pig butchering thing in, was it Cambodia or something? I think like a US government went and got them, I can’t remember the details exactly.
Harsha Goli (41:55)
Thank God
like yeah, like pig but like pig butchering is a crazy scam if Your audience is not familiar with it And it’s not the last or the first kind either like a really common one that we see our mules as well That’s that’s you know normal That’s when people get paid to move the money in their accounts and they don’t really get they don’t realize they’re doing something That’s like highly legal and they can get ⁓ caught with with money laundering charges ⁓ But yeah, those kind of scams like you know having tools in place to deal with them is why
a lot of the KYC stuff exists. But the reason why like KYC has been getting worse and worse, in my opinion, is because like the enforcement agencies involved here to actually try and stop the scams. They’re not doing their job, right? The thing you brought up, that was awesome and incredible. And I think the only example I can refer to as where, you know, agencies did their job and stopped these horrible scam centers and these scam centers, they’re so much worse than they sound like, which is crazy.
They’re typically operated almost entirely by an army of slaves, like real world modern day slaves, people who’ve been kidnapped or lured by a fake job offering. And they’re told, if you don’t meet your quota of this much money per week, we’re going to take you in this back room and we’re going to beat you. And if you get beat three times, then you’re not going to see the sunlight anymore. Like terrible, terrible things that happen. But the…
like double-edged sword of privacy and free money is that we make our borders open to these kind of attackers, right? So it’s very much like, I’m seeing that other side a lot these days, and it’s not like changing my heart on privacy in the slightest, but it’s making me a lot less ignorant ⁓ to, I guess, my ideals, right? And I really do appreciate that.
Stephan Livera (43:47)
Yeah, it’s a tough one because I think it’s, you know, I guess on one hand, when you’re coming up and you’re, let’s say, out of power, it’s easy to sort of challenge the power and say, well, this is the way it should be. But then if you put the shoe on the other foot, like even another example, if let’s say you are now a Citadel manager, how do you keep the people safe? And so on one side, yes, you can say, okay, like, what level of, ⁓ you know, security are you going to have? But then
Like, put the shoe on the other foot. If you were the Citadel owner or manager, how do you keep the people in the Citadel from being murdered and mugged and raped and whatever? It’s gonna force all of us to have uncomfortable conversations about what are we exactly gonna do about identity and KYC without going the CBDC route? Like, how are we actually gonna do this? Is it gonna be some kind of Nostra, Pubkey kind of thing, especially in the age of like deep fake AI?
video, know, scamming, like there’s so many scams online, ⁓ so it’s kind of, it’s going to be a very uncomfortable ⁓ sort of, what’s the word, tightrope to walk.
Harsha Goli (45:00)
Yeah, very much so. you know, I think while we go through this tightrope, there’s gonna be a lot of people checking us from the sidelines. And I think there’s a very big instinct to fight back. Like, hey, you’re not in the trenches. You don’t see the shit I see. It’s easy for you to say that. But I think personally, I’m gonna really appreciate them. Because as we go through here and we have to make trade-offs, we try and figure out ways to stick to our ideals, but also be pragmatic about it.
It’s really important to still listen to the crazy people yelling the ideology-based stuff that’s really difficult to adhere to because that’s where we’re coming from. I think the other day, I was really lamenting, it would be really cool if there was some sort of crypto-based way for us to authenticate who we were without submitting passports and driver’s licenses and stuff like that.
Stephan Livera (45:55)
Right. Some ZK
thing, I don’t know. Yeah.
Harsha Goli (45:58)
And the person was talking to, they pointed out that it sounds like what you’re describing is world coin. And I’m like, okay, well, hold on, hold on now. ⁓ And so like,
Stephan Livera (46:04)
⁓ Yeah, so
I mean it is a genuine challenge and I don’t know exactly where things go that I Yeah Sorry going. Yeah
Harsha Goli (46:16)
Yeah, no,
is. ⁓ And I think I’m really excited to figure out how to get there because it is possible to get there. It is possible to have a world where we can defend ourselves from scammers and fraudsters without having to give up my passport or my social security or whatever to some random corporation. There is a world where that happens. And there is a world where we get on a Bitcoin standard. And there is a world where we’re able to use whatever currency we want as our store of value. ⁓
it just takes a little bit more work and it takes a lot of focuses on the friction points but we can get there.
Stephan Livera (46:52)
Yeah, all right. So look, let’s finish up. ⁓ Give us the closing thoughts on what people can build with Magnolia and what are the things that can be enabled here.
Harsha Goli (47:04)
Yeah. So ⁓ basically if you’ve been working in Bitcoin for any amount of time, you’ll know that you’re going to run out of the tech enthusiasts pretty quick. ⁓ Any longstanding Bitcoin company knows this. What I want for all Bitcoin companies is I want to turn all of you into ⁓ places where we can convert pre-coiners. And that means integration with the banking system in a way that takes money from fiat and converts it to Bitcoin.
However, mechanism whatever mechanism you have in your mind to actually do that whether it’s you know, like letting someone just buy Bitcoin letting someone Like take loans against you know, like an assets or in order to buy Bitcoin or you know to sell some equity to you buy Bitcoin whatever a crazy like You know like money flow you have in your mind I want to hear it because that’s what I want to see I want to see all of these apps Become financial apps because that’s what we are. We are fight like Bitcoin apps are financial apps
And that means we need to integrate and we need to like move money from one system to another.
Stephan Livera (48:08)
Fantastic. Well, yeah, I want to see more people building Bitcoin apps and hopefully listeners out there are getting some ideas on what they can build and what they can do. ⁓ So as always, links will be in the show notes and Harsha, thank you for joining me today.
Harsha Goli (48:20)
Thanks so much for having me. Until next time, Stephan. Peace.