Nik Bhatia has an interesting concept of Lightning Reference Rate, the return required to deploy BTC into the Lightning Network
Finally, an interesting Bitcoin podcast!
It’s been a while since I’ve seen people argue in Bitcoin but nostr:npub1gdu7w6l6w65qhrdeaf6eyywepwe7v7ezqtugsrxy7hl7ypjsvxksd76nak managed to pull Saylor into an interesting conversation about credit and lending in Bitcoin.
Saylor apparently hasn’t fully thought through the implications of 21M and remains wedded to his fiat ideas.
He expects there to be yield on Bitcoin in future, but never says where it will come from in a completely fixed supply money.. “They’ll have to sell their assets to finance themselves!” - yeah no shit Michael!
The only way to generate yield in Bitcoin terms is to mismatch duration - literally run a Ponzi scheme. But Saylor expects that because the US Government will back the banks that this can’t go wrong 🤣🤣
Saif takes nostr:npub1sfhflz2msx45rfzjyf5tyj0x35pv4qtq3hh4v2jf8nhrtl79cavsl2ymqt line that capital will flow but HODLers will take equity rather than yield. This is the correct logical conclusion.
I’m not saying Saylor is completely wrong - I do see a future where banks will get into this space and lend and pay yield on Bitcoin.
But they WILL blow up. I don’t give a fuck if they’ve got their own nuclear arsenal let alone the full faith and credit of the US Government behind them, they WILL get out over their skis and they WILL be unable to fulfill their obligations at some point because they WILL greedily try to rehypothecate it in the meantime and no Government will be able to save them.
Saif and Allen both know the economy doesn’t require interest to function, that the world won’t grind to a halt without it - people will still spend money. Saylor just isn’t ready to let go of his statism (as evidenced earlier in the conversation) because he’s become accustomed to Billionaire privileges.
This is why I love #Bitcoin. You can be the CEO of the most successful public company of the past 4 years, all thanks to Bitcoin, and you will still be totally humbled by it unless you fully embrace the system as it is because it won’t be changing for your fiat games!
Discussion
True. I shouldn’t have said duration mismatch is the *only* way because Nik is right, collecting Sats fees for lightning liquidity is a yield and operates within the system without violating 21M.
Saylor’s discussing it from a capital perspective though. Borrowing money for a car or a house.
So say Bitcoin hits $13M per Saylor’s projection and a teenager wants to borrow $100k for a used car (inflation is a bitch) - that’s 769,231 Sats for a car.
In this world tx fees are going to be WAY higher. Realistically we’re heading to 500-1000 Sats per vbyte - that’s another 6.5%-13% cost on capital in tx fees.
People aren’t going to pay that kind of fee + interest to do this on the base layer to buy a used car..
Lightning or future L2s are the only feasible way to transact $100k at $13M Bitcoin. We could tack on additional lightning fees to represent the yield but then its not contained within Bitcoin any more, the car and the loan are outside of Bitcoin’s property rights enforcement which is not a knock on Nik’s idea, merely pointing out this doesn’t solve the yield either.
So if we can’t get around the 21M - where does the yield come from?..
WHERE DOES THE YIELD COME FROM IN A FIXED SUPPLY ASSET THAT IS CONSTANTLY APPRECIATING IN VALUE MICHAEL!
LN (routing) fees aren’t yield, they’re payment for a service.
It’s a yield, because I decided to move some of my UTXOs from cold storage to a hot wallet because it can provide a yield (earnings generated from someone willing to pay for the service it enables).
Then we have different definitions for yield. I see yield as return for lending. Self custodial LN routing channels generate fees or revenue.
Those fees are generated because you’ve locked up your liquidity in a lightning channel for a time and taken on some risk and cost to do so - thats the typical Austrian justification for interest too.
So it depends on how pedantic with semantics you want to be. You’re probably technically correct, but in practice it amounts to the same thing.
To be more clear, yield comes from counterparty risk. If it’s just *risk*, then everything has risk. Generating and storing private keys to UTXOs in cold storage has risk (and liquidity and other costs), but we wouldn’t say Bitcoin’s appreciation in cold storage is yield.
Yes, we could then debate the semantics of counterparty risk with the other side of your channel, but if the technical risk of mismanaging your channel and losing funds to a force close counts as risk to justify the classification of any return as yield, then the technical risk of managing cold storage private keys or even setting up your own self custodial time lock contract could also be seen as risk that offers yield.
It's always about risk and opportunity cost.
It's always about ROI > Cost of Capital. If I can generate a yield that justifies me taking UTXOs out of a cold wallet, then I'll do it. Bitcoin is capital.
Yield doesn’t exclusively come from the fact there is counterparty risk though. There is cost to deferring consumption, and providing the security and matchmaking so whilst banks needed vaults and guards for security (you could do this yourself - private credit has always been a thing), Bitcoin relies on channels which also need security and the matchmaking is routing. That’s why the Austrian definition is broader than purely having counterparty risk and considers duration and other costs for why interest is not inherently bad.
Price appreciation isn’t yield because 1 BTC = 1 BTC, but 1 BTC in a Lightning channel should over time = >1 BTC with a risk that it = <1 BTC. I agree it’s fees in the purest sense rather than “yield” but I feel like this is semantics and not really productive.
Bitcoin doesn’t map one-to-one with legacy concepts so when we apply them they don’t always fit neatly and that’s a big part of where people go wrong. It’s why Saylor is getting it wrong. We have to work within the rules of Bitcoin, imposing outside ideas on it only helps us in the abstract but if our ideas don’t exist within those rules then they’re rough proxies at best and this is an example of that.