080 - Rails of Lightning: Unlocking Self-Custodial Bitcoin Yield with Amboss CEO Jesse Shrader

In this episode, co-hosts Israel Muñoz and Lynne Bairstow welcome Jesse Shrader, co-founder and CEO of Amboss, to discuss the latest developments in Bitcoin payment infrastructure, particularly focusing on their new product, Rails, which offers self-custodial Bitcoin native yield through the Lightning Network.

The conversation explores the importance of the Lightning Network, the mechanics of yield generation, the role of AI in optimizing payment routes, and the potential integration of stablecoins into the ecosystem. Jesse shares insights on market demand, partnerships, and the future growth trajectory of Amboss, emphasizing the need for a decentralized and efficient payment system.

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Chapters
00:00 Introduction to Amboss and Jesse Shrader
04:28 Recent Developments at Amboss
06:41 Understanding Rails: The New Yield Product
09:28 The Importance of Lightning Network for Bitcoin
13:28 Mechanics of Bitcoin Native Yield
18:30 AI Integration in Lightning Network
27:55 Early Metrics and Future of Rails
32:17 Revolutionizing Payment Processing with Lightning Network
39:10 Attracting Diverse Interest: Who's Joining Rails?
42:42 Integrating Multiple Products for Enhanced Payment Solutions
45:49 The Role of Stablecoins in Bitcoin Payments
52:30 Future Metrics and the Evolution of Lightning Payments

References
https://amboss.tech/
https://x.com/ambosstech
https://x.com/Jestopher_BTC

https://www.buildwithbitcoin.xyz/
https://x.com/BuildwBitcoin
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❗ DISCLAIMER: This show is for entertainment purposes only. Before making any decisions consult a professional.

Transcript

Jesse: 0:00

So what we saw after the launch was absolute excitement about this. We set up a waitlist. We figured that this was going to be an issue, is like just the level of demand for Bitcoin yield, especially in this trustless setup that we've set up. So we created the waitlist, and since that time, we've got over 2500 Bitcoin that is now looking for a home on the Lightning Network, and we're not prepared to deliver all of that onto lightning we have to keep in mind that the Lightning Network currently is 4000 Bitcoin.

Israel: 0:42

10 today, we are joined by Jesse Schrader, co founder and CEO of ambos. We discuss with Jesse recent advancements in Bitcoin payment infrastructure, with a focus on rails, their new tool for self custodial Bitcoin native yield on the Lightning Network. Other topics include yield generation mechanics, AI driven payment routing and stablecoin integration possibilities. Jesse also covers the market demand that they are seeing key partnerships and amboss growth outlook, underscoring a push for decentralized payment systems. As a reminder, this podcast is for educational purposes only. If you enjoy the content we're producing, please remember to share with your friends, family, co workers, as This all helps us greatly. Drop us a comment or leave us a rating. Thank you. Welcome to build with Bitcoin. I'm co host Israel. Munoz joined with co host Lynne Bairstow Today we welcome back co founder and CEO of ambos technology. Jesse Schrader, Jesse, welcome. Thanks so much for having me. Good to be speaking with you guys again. We're excited to get into a little deeper topics than we covered in our first episode recording with you, Jesse, so we do have some general context in that initial episode on ambos technologies, which is a data analytics company that works on all sorts of tools and marketplaces for the Lightning Network. So you guys are heavy on the payment infrastructure of Bitcoin, and we'll cover we'll cover plenty of that in the episode today we hope to focus specifically on your most recent offering, Jesse rails, which is self custodial Bitcoin native yield through the Lightning Network. Before we get into that, let's start with an introduction on, maybe you as a co founder, Jesse, and just, you know, brief context on what ambos technologies works on. Yeah. So my background is environmental engineering, and, you know, I've worked in both, really, the transportation sector, as well as, you know, having some experience in, you know, class action lawsuits. So really, I got to see kind of the the darker side of banking, you know, where, where people actually come to the courtroom, or there's settlements involved. But also, as an engineer, very inclined to build things and improving Bitcoin payments was really core to what we were going after. So ambos started in combination with

Jesse: 3:10

Tony pot Devin, who is actually the creator of thunderhub, one of the earliest tools to actually use the Lightning Network to do it in self with self custody, and have have, like, the first user interface that wasn't just a command line interface, and that, that was one of the first tools. That's how we got together. So as co founders, we launched ambos to really support the Lightning Network and support Bitcoin payments, and overall, that just helps Bitcoin scale to be able to handle global payment flows. We will link to the first interview with you that talks about ambos a little bit more generally, but this is our second interview. It's been a little over a year since we talked first. But what's changed at amboss Since we last spoke, and what are you most proud of? And those changes because you've had a lot of growth. I mean, you've really made some milestones. Yeah, of course, we've been a product making machine. And I think over, over the life of amboss, we've really, we've built a team, and we've really refined kind of our process to create these very fundamental products for the lightning space. I mean, we've built the Lightning Network explorer, we've built a marketplace for liquidity, we've built a risk management platform, we've even built a self custody lightning wallet, a web wallet, and now we've built a yield service. So between all of those, you know now we're in the phase of really refining our focus and ensuring that we have both both sides of the market to really kick off the network effect.

Israel: 5:00

That is involved in Bitcoin payments adoption. So it's been, it's been a long journey we've done, you know, two rounds of financing, you know, over, over our, you know, five year lifespan, but it's becoming more and more mature as we grow. And so it's, it's been an ongoing inspiration to, like, figure out all these different pieces and build the machine that is an boss. Yeah. I mean, since we first met Jesse, you guys haven't stopped coming out with new products and and new tools for interacting and with really, in a really advanced, you know, with really advanced technology on how to look, examine and interact with the Lightning Network, which can be a bit of a black box. So you guys are doing some some excellent work over at Ambus, and your most recent product, rails. Jesse, can you explain to us what what was the problem that you identified in this, most you know, recent iteration of of building out products and specifically with Rails. What was it that made you guys, you know, put your attention towards this yield side of things well, as we were trying to build out the payments ecosystem that's using Bitcoin and scaling it with the Lightning Network, we built this marketplace called magma. And really it's about getting Bitcoin in the right place in the Lightning Network to make payments be able be possible. And what we noticed is that we didn't actually have enough supply side on our marketplace to fulfill the demands that we were forecasting. So we had to think very strategically about how do we completely automate the Lightning Network experience so that you don't have to understand everything, and you can simply take your capital and deploy it, which there's been, you know, a long standing demand for that. Because, like ever since, you know, 2021

Jesse: 6:59

when, like, El Salvador's legal tender, like announcement came out that was kind of this, like wellspring of interest in actually supporting the Lightning Network and being sure that Bitcoin could be used as a means of payment or as a currency in El Salvador. And you know, at that point in time, I think the lighting network was really at a hobbyist stage, and we had to,

Lynne Bairstow: 7:29

like, make it much, much simpler to be able to address a broader market. So what rails does is it allows anybody that can take self custody of their Bitcoin and be able to without having to understand everything about the Lightning Network, just understand that they don't have to give up custody, and they can deploy their Bitcoin on the Lightning Network and get access to the yield market that that is possible when you have a whole bunch of payment activity and a Whole bunch of demand for Bitcoin liquidity to make larger payments happen. Jesse, can I? Can I kind of stop you right there and ask you if you could just explain for our audience that's a little bit less familiar with the technology, difference between Bitcoin and lightning. And I know there are a lot of defi products out there that talk about yield and so why is lightning important to Bitcoin. Why is it different than other defi products, and why is this the technology that you've selected to focus on? So the core problem is that Bitcoin payments don't really scale. There's not enough block space. So Bitcoin, early on, made decisions about making it so that anybody could participate. And so that means small blocks, and you know, 10 minutes for each block, so that that allows the entire globe to coordinate, but that that means that you can only get seven transactions per second on this so it's not really at the same level of traditional payment processors you know that are that can do? You know, potentially millions of transactions per second.

Jesse: 9:08

So how do we scale Bitcoin? And you could look at lightning as really the first layer two. But at its core, at its core, Lightning Network is a is a smart contract for Bitcoin. You put Bitcoin into essentially a two of two multi SIG. So for less complicated, you create a joint account, and you do it in a way that you don't have to trust the other parties. And it kind of like creates a pathway that's on like in a payment system, and any payments along that pathway happen basically without cost. You don't have to do this entire proof of work exercise. You don't have to mine each transaction in order to make things happen. It's really. Just both people signing off on the transaction, so two people in a joint account. Well, we can have a side ledger to bitcoins blockchain, but then use Bitcoin to actually be our court and decide when we have disputes, if we ever have disputes. And really that's, how the how the system functions, and what makes, what sets lightning apart is there's no additional trust assumptions that you have to introduce. It's a fully trustless way to communicate value anywhere in the world. It happens very quickly, like you don't have to broadcast your transaction to the rest of the world. It's really between two parties. The only only the ones that are party to the transaction get to know that the transaction even happened, and the Bitcoin blockchain can figure that out later when it comes to net settlement, which is the only thing that the Bitcoin Blockchain actually sees. So that's been our core focus on lightning, because it's trustless. You don't have you know one person that controls it, but overall, it allows Bitcoin to be fully decentralized and scale to the level of payments that we actually need Bitcoin to reach build

Israel: 11:19

with. Bitcoin is a proud affiliate partner of river. River is a financial services company that allows you to purchase, sell and transfer your Bitcoin, all through a great suite of products, high security standards, and as of recent, even allowing you to earn a Bitcoin yield on your US dollar cash deposits for a personalized onboarding experience. Go to partner.river.com/build with Bitcoin. Yeah. So, so it's providing, I love that explanation, by the way. Jesse, you make it more digestible, because sometimes it can get pretty tech heavy, but, but, yeah, I mean, it provides some very important scalability and privacy, basically, right? And you only have to communicate with layer one when absolutely necessary, through through the Lightning Network. I don't want to put words in your mouth, but as a founder, if you're thinking long term about company building, I'll just add on to your comments, like, if you're looking at a stable foundation and Stable Tech, this is the technology you want to be building on, as opposed to the other blockchains that are out there, but on on the lights, okay, so with that framework of the Lightning Network, Jesse on these payment transactions that are going through the second layer of Bitcoin, how does, how does your yield product actually work? I mean, what? What are the mechanics that are there that are allowing you, why does there exist a market for for Bitcoin native yield?

Jesse: 12:40

Yeah. So the problem that it solves is actually getting an entire network to coordinate. So, you know, while we don't have the Bitcoin Blockchain for for lightning, what we do have is a market for liquidity. And lightning is a completely credit and debt free system. And by kind of removing credit and debt, you lower the risk exposure for a payment system, whereas, like you know, typical payments, they have this chargeback risk, where kind of money can be yanked back from any merchant that receives a payment but Lightning doesn't have that you have final settlement and what you need to actually coordinate to get the Bitcoin in the right place and get you that liquidity is you have a marketplace, and that's how this whole system coordinates. What rails does is it sets it up so that we can create a lightning node for someone, and they they generate the customer of rails, generates the wallet, and so they're the only ones that know the 24 word seed phrase that is actually behind this server, which is a node. And once they've generated that wallet, then they can deposit their Bitcoin and they give us, they give am boss, limited permissions to do specific actions, and only those actions. That means, open a lightning channel, close a lightning channel, set routing fees and receive lightning payments. We can't do anything other than those things, and with those limited permissions, then you don't have to trust ambos to, you know, not, not spend your money elsewhere, and it, it means that you don't have to rely on ambos or kind of you're not giving up the permission to, like, rehypothecate your Bitcoin, which was the major downfall of FTX block, Fi, Celsius. I mean, there's many failed yield products that happened before. But by doing this very specific, limited permission set, what ambos is able to do is strategically. We allocate Bitcoin on the Lightning Network and create a very reliable payment system that works at scale. So now we can have large holders of Bitcoin deploy their capital. Ambos will figure out where to allocate it on the Lightning Network. And then I mentioned one of our permissions is setting routing fees, so we're actually monitoring the market for processing payments. And you know, each person that's making a lightning payment is trying to find the cheapest route in order to go from point A to point B. And so ambos, in that respect, is looking at kind of the traffic situation on this financial transportation network, and we're designing new routes and also setting the tolls for each of the payment hops so each each path that a payment takes will will pay the really The infrastructure owner a little bit of Bitcoin with every payment that goes through. But really, where the money is coming from is crazy new connections and getting more people plugged into the Lightning Network.

Israel: 16:12

And, you know, one, one underappreciated aspect of what you just mentioned is, is the fact that it's you, you cannot rehypothecate, right? So I think maybe many people might try to associate the old system with the new system. And, you know, in the old, old, I mean, you know traditional banking, Fiat, and there you're just trusting that you know the bank, let's say will not, will or will not rehypothecate your funds in Bitcoin. And what I think is fascinating about this aspect of the technology is that you're from the start through the smart contract that you're mentioning and permissioning you're mentioning so ambos just absolutely cannot, right? There's no way to be rehypotting, rehypothecating the funds. There's just from a base technology level, correct? No, no way of doing that is, that's correct? Yeah.

Jesse: 17:07

So the user, at the end of the day, they control the seed phrase, and they control the admin level permissions, and what they're able to do because of the credit to roast beef at lightning labs for actually coming up with this idea of macaroons, but those are just limited permission sets, and that was really created by Google back in the day, so it's just like a limited permission set, so we can only do those actions, and that's what allows us to be able to deliver a very trustless product.

Israel: 17:42

And Jesse, you guys lean heavily and do a lot of work with AI. Can you? Can you speak a little too? And by the time that we release this recording, you will have some recent research on this topic. What can you tell us about how ambos is viewing the lightning network as a whole, with the use of AI and you know, maybe that gives us a deeper understanding and appreciation for this, for this yields product.

Jesse: 18:12

Yeah, well, I can tell you, one of the reasons we're having success with Rails is because it's very simple, simple for the user, but the back end is extremely complex. We've known for a long time that Lightning Network Operations is just not a problem for humans. There's too many decisions, there's too many knobs to turn, and what we have is we've got 14,000 nodes on the Lightning Network, and users can quickly get overwhelmed. Where do they allocate their Bitcoin? You only have so much. What are the strategic connections that they could form? And a lot of our work that we've been doing at ambos is trying to figure out, okay, if you've got this allocation problem, what are, what are the routes that you can make with your limited Bitcoin that can make payments be very reliable and serve larger and larger payments. Because really, you know, I see Lynne network as very disruptive for payments as a whole. So how do we make it so it works in as many cases as possible? And coming from that, that problem, that allocation problem, where do I put my bitcoin in this complicated network? Well, we've been working with stillmark very closely on the AI research to actually figure out what is the right answer to this problem. And it's a problem. That's where solutions have been attempted before, I think, from the early days of lightning, lightning labs introduced this autopilot feature, and soon as a user turned it on, well, it would start allocating Bitcoin on the Lightning Network. And it was using very simple. Whole betweenness algorithm. So it's just like, can I get I want to connect to these big nodes, but as soon as you connect to a big node, that node gets bigger, and so it was self reinforcing, and it caused a problem. So most people, you know, after turning on autopilot, they were like, This is a disaster. We have to turn this off. And you know, that's, it's not to shame lightning labs at all for, you know, putting that out there, because it was a noble attempt. They were going in the right direction with that. But we've really taken a step back to look deeply at the research and figure out what is the core problem. And the core problem is, how do I maximize payment throughput in the Lynne network with as little Bitcoin as possible? So how do I how do I make my bitcoin go further to answer the payments problem, and that AI that we've worked on, that is now going to be, you know, published, is identifying bottlenecks and using a message passing neural network to actually bypass those bottlenecks within the network, and the result is that you have much higher payment throughput. It's

Lynne Bairstow: 21:12

really interesting, because I think, you know, I mean, AI has just developed so rapidly in the last year, even your couple years, you know, the integration between Bitcoin, broadly lightning, use of payments. I envision we talk about this often, that AI agents will be conducting the payment process themselves. AI agents, you can see, getting a lightning wallet and being able to execute on tasks using Bitcoin that have to the point that we were talking about earlier, the final settlement, the non recourse. So which is important, I think, if you're the finality of that, but then even if you're looking at a larger payment, which I think is one of the problems that you're solving, you know, by creating greater liquidity inside of the lightning channels. It's like it can, it can search for the most efficient and most effective payment without the bottlenecks. So I do see that the you know, the AI, you know what I mean, maybe you can explain a little bit more about what research you were requesting, what, what we what were you looking for, and, and, and, how, what results you came up with? I mean, did they surprise you or or were they what you expected? Or did you find out anything that you weren't thinking about in terms of AI efficiency use on the Lightning Network?

Jesse: 22:32

Yeah, there, there were some surprising pieces. We've tried so many different algorithms, and you know, as we were attempting those algorithms, we found some surprising pieces that the betweenness algorithm, in some cases, is worse than randomly selecting peers. So you know, you know, while that was like the gold standard for actually making that allocation, some of our results were showing that it was not actually very good for the Lynne network. Also, we were looking at, how do I keep this network decentralized? And so part of us doing that is actually removing the top nodes, saying, I don't want to connect just to the biggest nodes of the network. If I remove these nodes. How will the intelligence continue to operate? And what we found was that our message passing neural network performed much better when you were removing these top nodes. So what really excited us about this is it has a lot more potential to keep the Lightning Network decentralized, even if you're not going to be connecting to those, you know, huge top nodes, because a lot of people talk about the Lightning Network as this hub and spoke model that, you know, there's only going to be a few centralized hubs and and then they conclude Lightning Network is centralized. Well, okay, well if you're only using these algorithms that kind of force you to use these hubs? Well, then you won't get a decentralized network. And so this is where we put a lot of effort into finding a different algorithm that actually supports decentralization and gets you that capital efficiency and that throughput, because we want the entire globe to be using Lightning and keep it decentralized. We don't just want one or two nodes to be absolutely crushing in on terms of routing to activity

Lynne Bairstow: 24:28

that's really, really important and really interesting. And I think, you know, when you think about the evolution of lightning now, I mean, think it was a Nashville that block reported the sorts of yields that they were getting. And it's natural that when you hold, you know, a larger quantity of Bitcoin, you know as an exchange, that you can put that up for yield, but you know as more opportunities for earning yield present themselves through products such as rail, more entities will be. Be interested in earning that yield, so it will naturally distribute that network where, up until now, there really have only been a few players that have had that quantity, that could, that could stake it, and, and, and, and receive, I don't know if stakes the right word, but and receive the the yield, but you're actually encouraging decentralization by providing these opportunities. And ease of use to ease of management, to to to add your Bitcoin to the Lightning Network for liquidity,

Jesse: 25:31

yeah, it's, it's been a big priority for us, because we know that block has a, you know, has a machine learning team that was, you know, dedicated to working on this problem. And we also know that LG, WD, or, you know, liquid, has also been, you know, developing machine learning for for their algorithms to actually deploy Bitcoin on the Lightning Network and take these automated actions. But we saw that there was massive gap in the market for the rest of the world to participate in this. And so this is where we build the software so that that is trustless, so that basically anybody can get access to these machine learning tools that do outperform the

Israel: 26:14

work you're doing. And the launch of Rails is going to be a massively important development in Bitcoin payments. So, I mean, this is all really, really interesting to to get a deeper take on and to hear Jesse and what, what yields, so maybe actually, before we get into average yields and all that Rails has been around since May. Is that? Right?

Jesse: 26:39

How Bitcoin Vegas, yeah.

Israel: 26:41

Okay, so what, how much volume are we talking about so far? I'm assuming it's been a slow rollout of a waitlist you guys have had. What early metrics can you share with us, as well as the average yields you're seeing

Jesse: 26:55

so far? Sure. So what we saw after the launch was absolute excitement about this. We set up a waitlist. We figured that this was going to be an issue, is like just the level of demand for Bitcoin yield, especially in this trustless setup that we've that we've set up. So we created the waitlist, and since that time, you know, we've got over 2500 Bitcoin that is now looking for a home on the lighting network. And you know, we're not prepared to deliver all of that onto lightning I mean, you have to keep in mind that the Lightning Network, you know, currently is 4000 Bitcoin. So if we were to deploy that we would, we would be, yeah,

Israel: 27:43

sorry to interrupt you there Jesse, 4000 Bitcoin at any given moment. Or what's the

Jesse: 27:49

that's the total capacity of the Lynne network that's in public capacity. So that means all of activity from Coinbase, from binance, from BitFenix, from block it's all happening on this network of 4000 Bitcoin. The lighting network is incredibly capital efficient. So with that capital efficiency, you know, we've got an opportunity to make the pipes bigger and actually kind of evolve the lighting network as a payment system that works even at enterprise level payments, but so this is why we're still thinking about capital efficiency. But we have to manage this demand for Bitcoin yield, and the Bitcoin yield at the end of the day, comes from payments. So if we're thinking just about getting some access to yields. We have to, we have to balance that with what is the demand for Bitcoin payments, and we know that we're very early in that journey, because while so many people are looking for Bitcoin yield, who is looking for Bitcoin payments, to implement that right today, and we have to balance those two things. So now we've taken the step to say, you know, Rails is set up and available for use if you are doing lightning payments and you are actually converting some of your existing business lines into, you know, lightning payments revenue drivers. So and I would say on that front, think about it this way, is that it may be cheaper for you to start earning Bitcoin and converting your existing business lines then it would be to buy bitcoin from an exchange. So if you're already thinking about accumulating Bitcoin for your business. Start thinking about converting that revenue into lightning payments and Jesse not I

Lynne Bairstow: 29:47

mean, it's almost like a chicken and the egg sort of a thing. I think Lightning has been efficient for small payments up to this point because the capacity is long. I mean, you're basically doing like a 30% increase in the amount of capacity that it. Has. But you could envision enterprise transactions where, if you're sending inventory, you know, large amounts, shipments and things like this, cross across the globe, that you could settle it on the Lightning Network. But there really hasn't been the capacity to do those large transactions in the past, on a, on a on a assured basis that you didn't I mean, you might be able to do it one off, but you may not always have that liquidity available. So by increasing the liquidity inside of the Lightning Network and opening it up to these enterprise payments, this just increases the usability and the use cases of lightning, and it's a natural because the settlement can be immediate, assured and non recourse, so that the shipper, the supplier is it feels more confident and in that transaction. I mean, it just feels exciting about the potential of where this can go.

Jesse: 30:56

What we've done since launching Rails is actually simplified our liquidity marketplace so that if anybody wants to receive very large payments, you make one lightning payment. I mean, just the other day, we had someone buy $500 worth of liquidity, and they were able to get liquidity that was $160,000 so essentially that means that your payment processing costs, because we brought all this capital to our liquidity market, that means that payment processing costs are dropping down to point two 9% so this is more than 10 times cheaper than any of the available settlement methods or the payment processors. So is very inexpensive to not only make your payment processing cheaper, but have it be faster without that chargeback risk. Yeah.

Israel: 31:49

Point two 9% compared to, I forget what the average for Visa, MasterCard and the rest are, what three, 4% right?

Jesse: 31:58

Yeah, 3% plus a 30 cent fee per payment. So the Lightning Network already wins on that front with really a design that works for micro payments.

Lynne Bairstow: 32:09

Yeah, well, that's the other part is, I mean, that I get excited about are micro payments. I think Rails is a little bit more for the larger ones. But let's get back to some of the metrics. I mean, what are the types of entities, institutions, companies, individuals, that are on your wait list, that have expressed an interest. And you know, where are you seeing? Where do you where do you feel the demand will come from, for, for the rails product, and how fast do you think you'll grow? Or what? What else can you share with us about what you're seeing? How are you seeing? This shapes up?

Jesse: 32:41

So we've got a lot of work to do on the balancing front. But as far as who we've attracted, of course, we got a lot of high net worth Bitcoiners, individuals, and we've really attracted some missionaries here that want to see Bitcoin payments be ubiquitous, additionally, and this was surprising to us, is that we attracted a lot of capital that is from the Islamic finance community and is looking for ways to, like, earn, earn Bitcoin that is not derived from interest or, you know, interest payments, so no Riba is kind of the way that folks are are looking at this, and that was very surprising to us. And so we've since done a lot of learnings about Islamic finance and how rails could actually fit very well into that framework, because it's not, it's not taking advantage of people. It's not doing predatory loans. It really is using your assets for a specific purpose. So that was surprising to us, that is like on our waitlist. And additionally, you know, outside of that 2500 we've also got a lot of interest from the Bitcoin Treasury companies that are very focused on accumulating Bitcoin. And now, what are they going to do with it? With it? They're going to try to find different ways to get more Bitcoin with their Bitcoin, and at that level, one thing that sets them apart is, how does their balance sheet look? How much of their company balance sheet is focused towards investment assets versus working capital. And what really excites them about Rails is this idea of Bitcoin as working capital that may you know, it's for a defined purpose, for a defined duration. And so really, if you're thinking about infrastructure, if, like a power company were to make gold wires. This is kind of the analogy to that. You know, you're using what some would consider an investment asset, but you're using it for a specific purpose, to deliver really high frequency, high volume, cheap payments. Yeah. I

Israel: 34:57

mean, my head is kind of going off here with what you mentioned. Mentioning Jesse because, and you know what I also love, which you mentioned earlier, this incentivizes. I mean this, this incentivizes just more participation in accepting bitcoin payments and just using Bitcoin for the for the payment side of things, as you're mentioning. Because if I'm a small business, let's say, in the near future, I will have more options on and incentives to accept Bitcoin payments. I mean the efficiency on the process, on the processing fees we just mentioned. I mean absolutely no comparison. And then on top of that, whatever Bitcoin I have on my balance sheet, I can to your point, that can become working capital through providing liquidity on lightning. I mean, it just becomes more participation and more energy, to call it that, into the Bitcoin ecosystems, which is fascinating, and the yields, what I don't know if we've touched on that, what are you seeing as far as average yields so far. Jesse and do you? Do you envision those yields going down as this all matures? Yeah.

Jesse: 36:09

So one thing to know is, every single rails customer that we have, their performance is different because they're serving different parts of the lighting network. You know, if you have everybody that is doing the exact same strategy. Well, you will deplete the opportunity. So we've we've distributed out the capital to serve different parts of the Lightning Network. So on that front, you know each of these is is performing differently, and we do have to manage how much capital is coming in, because we need it to be supported by the Bitcoin payment activity and the liquidity demand that actually supports that, those those yields. So we do have to, you know, it'll be ongoing management on that front. So we're applying all the, all the intelligence that we can to get as much yield as possible. But at the same time, we have to, we have to put most of our effort into getting people equipped with with payments. And I think one thing you've highlighted is, you know, you might look at payment adoption as a chicken and egg problem, but if you set up the incentives in the right way, you're creating a virtuous cycle that is building a network effect of who is accepting lightning payments. And now we've kind of set up the rails for them to have a very successful implementation of Lightning Network payments. And

Lynne Bairstow: 37:33

can you you've also through rails partnered with some entities such as liquid, which you mentioned before, lqwd and coincorner. Can you talk to me about what the strategy is for partnership development with Rails and how that's impacted it? Has that really been a factor, and the types of clients that you've attracted, or the waitlist participants that you've attracted? Yeah, I think it's

Jesse: 37:59

really important to have people that are on the Payment Activity side. Because I think what's gotten a lot of attention recently in the Bitcoin space is the people that are looking at Bitcoin as a store of value. So all the names that we know are the big buyers of Bitcoin. I mean, it's been like the theme of the year, everybody's starting a Bitcoin Treasury company. And so we all know, you know, the Michael sailors of the world. And, you know, Dylan LeClair, all of these, you know, movements that they're, they're making to accumulate Bitcoin. But what is really important to highlight is the people that are actually doing lightning payments. And so that's why coin corner was so important for us on on, actually, this, this release, because they were one of the first people, or first businesses that was actually doing lightning payments, and, you know, putting, putting actual work into the bolt card. And you know, payment systems, point of sale systems in the Isle of Man and where they operate. So it's a hugely important piece to have that as far as far as LG WD, you know, they've been long term partners for us. We've had announcements before where they were actually just providing liquidity directly to our magma marketplace and kind of giving us that offer book depth that we have on on that liquidity marketplace. And now with Rails, we've kind of kind of in house that ability to bring that liquidity to market in a completely automated way, so whoever needs liquidity can that can be quickly fulfilled for additional partnerships. I think what, what we'll be looking at more in the future is, how can we bring additional payments? What are the tools that we need to actually start, start giving people a turnkey solution to start accepting lightning payments in self custody

Lynne Bairstow: 39:54

and even on an institutional level too. I think we all have, you know, we have the wallets you can buy the coffee. In El Salvador and things like this. But I mean, yeah, I'm trying to think, if there's really, you know, what institutional level tools there are to integrate with a supply chain dashboard for processing payments, and that's a opportunity.

Jesse: 40:14

One thing that I'll highlight here is certain types of industries may disproportionately benefit. For example, payroll companies, if you're going to be processing payments, well, now you've got a lot of volume that you're moving, you want to save costs on that, and it actually provides a direction of payments that would allow you to duplicate the strategy that block shared, where they were getting 9.7% APY. And it really has to do with the direction of payments, which is all the withdrawals from Cash App, yeah,

Lynne Bairstow: 40:48

which are limited in size, I believe, so they they have a better sense of what their maximum flows out would be the same with the payroll company.

Israel: 40:59

That's super interesting. And let's move away from Rails for a second. Jesse, you guys also have a few other products, space, magma, reflex and rails, among maybe a couple others I'm missing. Can you give us a quick overview or an idea of how these different tools kind of blend together and how they complement each other. Because, I mean, the overarching theme here is better insights and analytics and efficiencies when interacting with lightning, right? So how do you at amboss Look at the different offerings you guys have?

Jesse: 41:33

Yeah, so I'll kind of go into in order of the problems that we ran into. So one if you're operating on a decentralized network, one of the major issues that you'll run into is discoverability. And so that's where space came about. I need to create a Lightning Network Explorer, and you can think of this as really a phone book of who else is using the Lightning Network and how to connect with them. So that's where we started. Magma is a liquidity marketplace, and really, that is the key driver of yields on on rails. And so this is now, you know, one of our, one of our oldest products, right after, you know, amboss space, and it's been working really well. We put a lot of work into simplifying that so people could easily get liquidity at the enterprise scales. From there, we wanted to have Enterprise readiness, so we built a risk management program. So really, this is a rules based way to kind of map your enterprise policies into how you operate in a decentralized payment system. And that's what reflex is. It's a rules engine to help you implement policies on who you're going to connect to, who you're going to pay, what additional checks are you going to run. And so between that, it kind of set the foundation for us to be able to deliver rails which which allows that enterprise level deployment of capital and that they can do so, have discoverability, have a deep marketplace that is ready to buy that liquidity and the risk management controls to help them, you know, keep to their compliance schemes, whatever those may be in whichever country. Okay.

Israel: 43:25

And with regards to lightning, and as we look ahead on scaling Bitcoin payments, Jesse, one of the main things that are, let's say, questioned or critiqued about Bitcoin, as far as its use as a medium of exchange is its volatility, and I think lots of these issues will improve greatly as then, as the activity matures, there's there's also been a boom of stable coin activity around the globe, and currently this, this activity mostly happens on other blockchains. What are your views on stable coins and their what seems some early signs of their move over to the

Jesse: 44:10

lightning rails. Yeah, stable coins have been huge. Just looking at last year, there were over $20 trillion worth of stable coins exchanged. So that's a massive, massive unlock, looking at tether, specifically, $10 trillion worth of payments last year, and so that's outpacing Visa and MasterCard. So something to keep in mind is the world is ready for stablecoin payments now, looking forward, we've we've seen announcements from Paolo of tether that he'll be issuing usdt natively on on Bitcoin via the Lightning Network. And that's a very important unlock, because what I think Paolo and the folks at tether have experienced is they've gone to different blockchains trying to look for. Cheap payments. And what they've, you know, kind of arrived at is very centralized blockchains that still aren't able to scale. What we've seen with Tron is that transactions are actually costing three to $6 per transaction, and I'm seeing that rise exponentially. It's, kind of is doing this, you know, parabolic curve upwards, and that's not a great situation when you're using something that is as centralized as possible for efficiency. But Lightning Network is actually very important to keep it decentralized and be able to deliver the scale of payments that you actually want to deliver. So that's going to be a huge unlock. And you know, additionally, when I'm talking to people about accepting bitcoin payments, the number one objection is bitcoins volatility, because it may introduce cash flow problems for businesses that are dealing with tighter and tighter, tighter margins. You know, as they've been taking as income, this inflationary currency, and it doesn't, doesn't mesh well with that transition. But one of those transitional tools that we're looking at is stable coins, and being able to deploy those strategically on the Lightning Network. It's going to be very important so that that allows not only businesses to save on payment processing fees, but at the technology level, it actually allows for in flight currency exchange. So within the span of a lightning payment, you're actually starting as one currency and ending as another. And so what that means is that, you know, it doesn't matter what currency you're using, you know, you have your favorite currency, I have mine, and you can choose what you're sending and what you're receiving. And that's a huge, huge unlock for the entire, you know, payment space as well as you know, bitcoins adoption has really that neutral base of this entire network. You have that trustless token that is Bitcoin, that can interface between all of these currencies on the edges. And

Lynne Bairstow: 47:08

how would that can you dive a little deeper into how usdt Coming to lightning? How would you envision that integrated into what you're offering?

Jesse: 47:19

Jesse, we're going to make a couple of moves like very soon, which is really introducing these idea of tapper assets to the entire Lightning Network, and making it very easy to actually get your hands on liquidity in these other tokens. So whether that be USCT or some other stablecoin, and I think that's really where things will evolve, is all around stable coins. If we are able to introduce stable coins into magma, and you'd be able to purchase liquidity in these other assets. Well, now you've set up the infrastructure so that you can receive in whichever currency you want. And I think that's going to be foundational for much more widespread adoption of Bitcoin as a payment protocol, even though the currency that merchants may be receiving will be stable coins.

Israel: 48:13

That's absolutely massive. I mean, you're talking about, you know, maybe global forex markets and correspondent banking, being able to move maybe in a stepped approach, because those are obviously trillions and trillions of dollars of value. But I mean, you're talking about the capabilities of being able to do that on the Bitcoin protocol and lightning.

Jesse: 48:39

It's very exciting. You know, before I got into Bitcoin and before I started really diving into payments and what this actually means, I didn't realize how large that market truly is to look at, you know, global foreign exchange that is processing $5 trillion per day, doing 24 hour a day, five day a week settlement. It still doesn't work. 24/7 but what we're actually setting up is a completely trustless way to actually have anyone use any currency. And so setting up that foundation is massively important, because those are the types of volumes that really excite, I think, the entire industry. If we want to see trustless payments and a lower risk financial system, we have, we have the technology now to start meaningfully disrupting that space and giving it more efficiency lower spreads. I think that's going to be hugely important the

Israel: 49:45

power of the protocol itself, right? Not only all of the innovation that can happen with Bitcoin, the asset and it's, you know, hard or scarce attributes, but also the the protocol behind it has. Such powerful network effects. And I mean, we're touching on precisely those, right? So maybe looking a little more short term, looking ahead Jesse, what you know, maybe in a year to 24 months, what would be some of the metrics that matter most, as far as both the rails product and maybe Lightning as a whole. What would you like to see? I

Jesse: 50:26

think what we would like to see, we developed our own metric called max flow, and that is an indicator of, really the payment throughput that can be achieved. So we're look, we're running max flow simulations to say, well, how, how far can you reach with $100 payment? You know, what's my probability of success for $1,000 payment? And you know, how do I need to adjust things? And so we've been measuring this for a while, and looking very much forward to improvements network wide for this, because that would tell us about true decentralization, which is one of the things that Lynne network really excels at, and we'd love to see continue. So getting the right metrics to support decentralization, support payment throughput overall, I think, is where we'll be focused. And once we're there and we're getting more people accepting bitcoin compatible payments that's going to be, I think, really where things start to change much more in our favor, to to actually have really meaningful yields come out of this system. And so that's what we're that's what we're really excited for.

Lynne Bairstow: 51:40

Jesse, can you give a little history on that? I know one of the criticisms that you hear, and this, this pertains to early lightning protocol, the successful payment, the percentage was low. But I think for smaller payments now it must. And micro payments, it must be at like 99% or, I don't know, it's a high level of success. Do you see a differential? Or how is that differential measured between small payments, 99% larger payments over I don't know. 1020, $100,000 is the success ratio of those payments lower, and by how much and how quickly do you think that can change, especially with products or offerings like such as rails, which really encourage adding more liquidity into the Lightning Network.

Jesse: 52:30

Yeah, I think as far as you know, lightning networks readiness for processing payments, it's perfectly suited to do micro payments. So if, really, if you're thinking about the machine economy, AI is paying each other. It's already set up to do that. It's got the L 402 protocol, which essentially allows machine to machine payments as we look larger and larger payments, maybe more for the everyday payments. A couple of years ago, you would struggle to, you know, pay for a hotel over the Lightning Network or pay for your airline tickets and finding the right route. I think we're getting past that stage, and bitcoins price appreciation has actually helped on that respect. There's fewer tokens that need to be moved around in order to be able to process those types of payments. But now that we've got the AI to help us allocate Bitcoin, that's when we start looking at, well, can I pay my New York rent over the Lightning Network? Can I purchase a car? Can I buy a house over the Lightning Network? And I have heard a couple instances of people being successful, buying cars and buying houses over the Lightning Network, which gives me a lot of excitement. And it wasn't something that I was very familiar with. I didn't know that that was possible already. Based on our simulations, we see that the probability of being successful, and making those payments anywhere in the Lightning Network is vanishingly small, but you know, with our work to help allocate, I think we'll see more of those payments into the future where, you know, people may not want any price exposure, or, you know, any exposure to bitcoins price volatility, and that's really behind their motivation to do a lightning payment for a house.

Israel: 54:27

Well, the the entire payment side of the infrastructure, it's, it's really exciting to see how, how it's being, just it, you know, upgraded constantly. You guys are working more on the back end, you know, plumbing, let's say, but there's also so much being done on the front end. We recently spoke to Keith over at branta, who's, you know, anyways, that comes to mind, because that's that's more on the front end side of things, and I just see all of the kind of the bottlenecks. And friction points being resolved, really. So, you know, I have a feeling that payments activity will just kind of sneak up on us and and have a bit of a of a boom in, you know, maybe a near future than, than we expect, even all that say, really exciting to hear about everything you guys are working on, Jesse, and I know we're getting close to wrapping up here. I don't know if we have anything else that on our end, Lynne, that we wanted to make sure we get to. Well, we could probably go on for another while.

Lynne Bairstow: 55:30

But Lynne, comment or question if Jesse wants to address it, but you'd mentioned that you raised two fundraising, two rounds of financing for the company in the last since we've talked, or since you started, any plans for a future? I mean, I think what you're building is really exciting, and, you know, understanding limitations of that, but you know what? How do you How are you looking in terms of Ambus as a company and your growth trajectory?

Jesse: 55:53

Yeah, I think where we're at right now is we've built an incredible team that has shown that they can execute across products, and we've got a couple more that we're building on the back end to really help, you know, kickstart this adoption of Bitcoin as payment infrastructure. And very excited about those pieces, and I think we will need another round of financing to actually support us as we build, because we're looking very long term, and we see this technology is extremely disruptive, very powerful, especially as it becomes multi currency. I mean, right now, we've maintained a very dominant position inside the Bitcoin payment space, but we know that the Bitcoin payments phase is vanishingly small compared to the stable coin space, and so that is going to be explosive. And you know, as a company, we do have to be well capitalized to support that growth and be able to handle the interest that we're going to get. You know, both on the yield seeking side and on the Bitcoin very efficient payment infrastructure side,

Israel: 57:05

well, where can people learn more or any final comments on your end as well, as far as just the work you're doing and the Bitcoin industry, yeah, I

Jesse: 57:16

think Stay tuned for our announcements. You can always follow along on x at ambos tech, or, you know, go to our website and reach out directly. If you want to get some more information about about amboss and, like, potential investment opportunities for accredited investors, or, you know, venture capital side, then we've got a contact form. So like, please reach out to us. We're actually not hard to get a hold of, maybe too easy as we get, you know, busier and busier on that front, but we would really welcome any any interest in what we're building, because I think you're right. That is incredibly disruptive. And you know, we'll need those, those allies to actually help us build this and build strategically.

Lynne Bairstow: 58:05

My mind is just going in a million directions with the possibilities of what this can all mean, especially as it crosses over from individuals into institutions and enterprise, transferring value across borders and across the globe on a very fast, efficient and final settlement basis. So I'm so excited about what you we've been it's been fun to it's, it's fun to have talked over, you know, over a year ago and seen kind of the vision, and then see you execute on it, and then create an even bigger vision and of what amboss is doing. So thank you so much for rejoining us, Jesse, it's a pleasure and excited to keep continue to follow the journey.

Jesse: 58:49

Thanks guys so much for the time, the great questions, and I can't wait for the next

Israel: 59:01

time Lynne Lynne and I are partners at bayslayer advisors, where we use our network of Venture Capital Partners and startup founders to connect investors with unique opportunities within the Bitcoin innovation space. Alongside this, we help startup founders with their growth and fundraising. Visit our website's advisory section to learn more.