212 - Tether CEO on Their $100B Stablecoin ($USDT)

Paolo Ardoino is the CEO of Tether, the $100 Billion stablecoin company that owns more U. S. Treasuries than most countries. We explore why Tether is winning, how it’s helping people in emerging markets and what really backs a $USDT. We also cover the state of the stablecoin regulation and even market competitors. Tether has been and it’s still a target of Fud in the Crypto industry. Paolo is here to refute that Fud and much more. ------ 🏹 USE PODCAST24 FOR 10% OFF https://bankless.cc/Citizen2024 ------ 🎧 Listen On Your Favorite Podcast Player: https://bankless.cc/Podcast ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://k.xyz/bankless-pod-q2 ⁠ 🔗CELO | CEL2 COMING SOON https://bankless.cc/Celo 🗣️TOKU | CRYPTO EMPLOYMENT SOLUTION https://bankless.cc/toku 🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle ⚖️ARBITRUM | SCALING ETHEREUM ⁠https://bankless.cc/Arbitrum 🦄 UNISWAP | SWAP SMARTER https://bankless.cc/uniswap ------ TIMESTAMPS 00:00 Intro 6:52 Paolo Background 11:01 The History of Tether 15:40 USDT in Emerging Markets 25:30 Why not Bitcoin? 28:25 What’s Backing Tether? 42:25 Banking Risks 54:59 Tether Reserves Breakdown 59:39 Becoming Too Big 1:06:23 The Stablecoin Wars 1:11:18 Freezing Funds 1:13:45 USDT Competitors 1:16:59 Tokenized T-Bills 1:19:55 Tether on Tron 1:24:53 Regulation 1:26:14 The Value of Tether 1:29:10 Closing & Disclaimers ------ RESOURCES Paolo Ardoino https://twitter.com/paoloardoino Tether Transparency Reports https://tether.to/en/transparency/#reports Circle’s Caroline Hill on Congress https://twitter.com/Pledditor/status/1758243599446089799 JPMorgan negative on Tether https://www.theblock.co/post/275643/jpmorgan-tether-negative-crypto ------ Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://www.bankless.com/disclosures

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  Think about 2020. Imagine a room full of people and the people in this room are all the greatest names of our industry. And you can imagine in that room, all the people were looking at each other and then looking at us and whispering, "Oh, yeah, yeah, those guys are the black sheep. Those guys, they are going down." And then you fast forward four years, in that room, you don't hear whispering because basically there is only us.

• 0:31Ryan Sean Adams?

  Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, how to front run the opportunity. This is Ryan Sean Adams. This is a solo episode today. David's on a flight, so I guess I'm here to help you become more bankless. We have Paulo Ardoino, the CEO of Tether, the $100 billion stablecoin company on the podcast today. All right. So I think before we get in this episode, I want to give you a little bit of context. For as long as I've been in crypto, I've heard people say, and I'm sure many of you have heard people say, Tether, the stablecoin, is going to go bust. People have said it's a scam. People have said it's a fraud and that maybe someday it would go bust and take down all of crypto with it.

• 1:16Ryan Sean Adams?

  It's been about 10 years of people saying that, and I've seen a lot of crypto projects rise and fall during that time. And here's the thing, Tether is still here and it's still pretty much working as advertised. Of course, we can't take that to mean that we should trust it. If you choose to use a crypto dollar, something that is centralized in the way that Tether is, you're getting a product that does not have trustless guarantees. It is not crypto native to the nth degree. And so, like all centralized stablecoins, Tether is a dollar IOU. It's based on the full faith and credit of the Tether bank. You have to trust Tether's auditors. It's not bankless in the way that Bitcoin and Ethereum

• 2:00Ryan Sean Adams?

  are bankless. And it's certainly not censorship resistant. So Tether can freeze your account at any time. If an authority tells you to, they can freeze the Tether inside. Your ether address, for instance. And yet, despite these centralization vectors, it's been a better alternative for people in countries like Argentina, in Turkey, that are facing soaring inflation, and in places where the local banking system and fiat currency frankly sucks. So why are we talking about Tether on the podcast today? The reason is pretty simple. Tether is a force in crypto. It has been for a very long time. It continues to be. It is worth almost $100 billion at the time of recording.

• 2:44Ryan Sean Adams?

  Tether owns more US treasuries than most central banks, than entire countries. It's just like right next to Germany on that count. It's also become a flashpoint in US regulatory conversations. So David and I felt it was high time that we met the CEO of Tether, so you can hear what he has to say for yourself. I talk about a few things with Paulo. Number one, why Tether is winning and who's really using it. Number two, why Paulo says the FUD against Tether is all wrong. Number three, what really backs up the USDT token? What's on its balance sheet? Number four, Operation Choke Point? And finally, we talk about Tron and Circle. There's also a ton more. And just some housekeeping before we begin.

• 3:28Ryan Sean Adams?

  If you like this episode, if you like Bankless, now is the time to give us a five star review. If you're listening to this podcast, you can do that in Apple. You can do this on Spotify, wherever you subscribe to podcasts. If you're listening to this on YouTube, then make sure you subscribe. This is really how we get crypto to the masses this cycle. All right, guys, we're going to get right to the conversation with Paulo, the CEO of Tether. But before we do, we want to thank the sponsors that made this episode possible, including and especially our number one recommended crypto exchange. That's Kraken. If you don't have an account, go create one today.

• 4:01David Hoffman?

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• 4:46David Hoffman?

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• 5:28David Hoffman?

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• 6:13David Hoffman?

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• 6:34Ryan Sean Adams?

  Bankless Nation, I am very excited to introduce you to Paolo Ardoino. He's the CEO of Tether, which is the largest stablecoin in the world with about 100 billion in total supply at the time of recording. Paolo, welcome to Bankless.

• 6:48Speaker 00

  Thank you very much, Ryan. Excited to be here.

• 6:50Ryan Sean Adams?

  Paolo, this is the first time we've actually done an episode with you and on Tether, specifically USDT, as the symbol is called. So I think we should start really with getting to know you a little bit. So could you introduce yourself to the Bankless community? Who are you? CoinDesk called you the hardest working man in crypto. I believe you've held the title of CTO, so you're definitely technical, have your share of GitHub commitments and that sort of thing. You're also now the CEO of Tether, as I understand, on kind of the business side. So just give us a taste on who Paolo is.

• 7:22Speaker 00

  Well, yeah, I've been the developer for almost all my life. Started coding when I was eight, you know, with the first personal computers, then went to the computer science university in Genoa, I'm Italian, and graduated there, worked as a researcher for the university on a couple of really cool projects. One specifically related to peer-to-peer communications in extreme situations like battlefields. Then, as sometimes happens, and most of the times happens, especially in Italy, you don't get paid much. So I looked outside of Italy, decided to focus on finance. I started to get a job

• 8:04Speaker 00

  to build financial services in Switzerland, was 2009, around 2009. And then I started learning everything that I could around, you know, creating systems and portfolio management systems for hedge funds, for, you know, stocks, options, bonds, everything that you can think about, futures and so on. And then I decided that I was quite good at what I was doing. So moved to London to create my own startup. And in 2012, 13, I was reading about Bitcoin, and it's still I had my startup. In 2014, I had the chance to meet Giancarlo De Vazini, Bitfinex and Tether CFO. He asked my help to collaborate on Bitfinex.

• 8:48Speaker 00

  Bitfinex was one of the fastest growing crypto exchanges at the time. And as sometimes happens, these crazily fast growing industries require scalability on the infrastructure. So I was quite good at that side of things. So I was hired to start coding the machine engine of Bitfinex, improving it. And in 2015, I kept working on it. I was able to improve by 100x the throughput of that pension engine. 2016, a Bitfinex was hacked. I was asked to become the CTO of Bitfinex, which I gladly accepted. And in 2017, I also became the CTO at Tether.

• 9:31Speaker 00

  And then after that, I started growing the team. I kept working on the tech side of the two companies, but also started to move on a more strategical side, more a strategy and business side, especially when it comes to Tether. In the last four years, also I co-founded a project called Hole Punch, that is a pure-to-peer communication layer, resembles a little bit BitTorrent, but is made for real-time list of streams and for chat video calls, streaming and everything that you can think about. And recently, we launched the first product for Hole Punch called Keet, that is a pure-to-peer video chat, you know, without any centralized infrastructure.

• 10:15Speaker 00

  And even more recently, just a few days ago, we launched the first, I would say PSP operative system called Pair Runtime.

• 10:22Ryan Sean Adams?

  So you're an engineer by training and certainly that seems to be the route that you took to kind of get into crypto. And I'm wondering for some of the Bankless audience that don't know about the relationship between Bitfinex, which is an exchange and at one time was one of the fastest growing crypto exchanges in the world, and Tether, which is a stablecoin, which I'm sure many have stumbled across. Many know the term USDT or Tether. What is the relationship between these two entities? So is Tether a product of Bitfinex? Is it a completely separate entity and company? How are these two organizations related?

• 10:57Speaker 00

  So the two companies are completely separated when it comes to the structure. The history is that Tether USDT as a product started from a necessity that was identified by Giancarlo De Vazini in the capacity of CFO of Bitfinex. In 2014, the environment of crypto exchanges was completely different than today. So in 2014, there was Bitstamp, Kraken, Coinbase, Bitfinex, BTC, and OKCOIN. I think that I name basically almost the most important ones.

• 11:32Ryan Sean Adams?

  No Binance at the time, no FTX. How about Coinbase? That was sort of around, not quite an exchange, though. Yeah, they were around, right?

• 11:39Speaker 00

  Coinbase was there. So there were five, six prominent exchanges, and that's it. And the issue is that for any maturing industry, financial industry, you need something that is or an activity that is extremely important, that is called arbitrage. So basically, you need traders that sell Bitcoin on the exchange where the price is higher for dollars, move the dollars on the exchange where the price is lower, use these dollars to buy Bitcoin, and so on and so forth. That activity is like pressuring the price and keeping the price online across all the different exchanges. This works only if you are able to move both the legs of a trade, so Bitcoin and dollars at the same speed.

• 12:22Speaker 00

  So we know that the Bitcoin block time is 10 minutes, and so you can send realistically Bitcoin from one exchange to another between 10 and 30 minutes. But it's much harder when it comes to moving fiat. You know, especially back in time, it was, if you were lucky, it could take one day, but most of the time was taking five to seven days if you could get the wire across.

• 12:43Ryan Sean Adams?

  I mean, the banks take holidays, too, don't they? I mean, whereas crypto is 24/7, right? There are some days where it's just like the banks aren't open, you can't get things through.

• 12:50Speaker 00

  Exactly. So especially, as you said, during the weekends was terrible because the spread across exchanges was ballooning a lot. So their really simple idea around USDT was let's reuse this brilliant technology called blockchain.

• 13:04Speaker 00

  And let's just put the most used currency in the world on top of it, so US dollar. And at the time, you know, was before Ethereum, so the only available transport layer was called OmniLayer. That was basically a colored coin solution on top of Bitcoin.

• 13:21Ryan Sean Adams?

  A colored coin, for people who don't remember, is sort of like a tokenization type of a solution just built on top of Bitcoin, right? So this is pre-Ethereum, as you said.

• 13:29Speaker 00

  Yeah, exactly. And so, you know, much more limited programmability compared to Ethereum, right? It was only a solution, OmniLayer was designed only to make tokens, right? Not anything else. And so, from there, basically, so Tether was funded. There was a team of developers that started working on the product. And the two entities are segregated and they have some overlapping of shareholders. But over time, one is an exchange, one is a stablecoin. They completed two different routes and strategies. And you can see how Bitfinex now is focusing on institutional traders outside of the US.

• 14:12Speaker 00

  Tether started as purely a stablecoin, now is becoming kind of a behemoth when it also comes to financial markets, investments and, you know, energy, production, communications and many other areas.

• 14:24Ryan Sean Adams?

  I'm certainly not as aware of those many other areas, actually, Paolo. So, you know, maybe through the course of this conversation, we can get to some of those areas. But I want to maybe start with the thing Tether is most known for, which is the stablecoin itself. Can you talk about the stablecoin? So we've come a long way from the omni-chain colored coin days where, you know, Tether was primarily kind of a token on Bitcoin. Now, of course, it's an ERC20. It's across many chains as well. It's on Tron, it's on Solana, it's kind of spread throughout the entire blockchain ecosystem. There's about $100 billion worth of Tether. And so, one Tether coin, one USDT equals kind of $1, right? So it's about $100 billion stablecoins.

• 15:08Ryan Sean Adams?

  Owns about 70% of the market, I would say, in terms of the total stablecoin market. I mean, you correct me if I Many of these numbers are inaccurate. So it's come a long way since those early days. Can you just describe like, I guess, what it is as a product today? Right? So you described sort of the early days of 2014, and it was very useful because, you know, the fiat banking wire system and ACH transfer system that was slow, that was not updated, that was not suited to the fast-paced nature of crypto. How is Tether being used primarily today? Is it still kind of that use case? Have there been other use cases added to it? Just take us forward to 2024 and where USDT, like what it's useful as?

• 15:53Speaker 00

  Yeah, I would say that in 2020, there has been a turning point, not just for USDT, but in general for the entire world. So we have seen the pandemic. And with the pandemic, I think there has been an acceleration in the financial instability, especially in emerging markets and developing countries. So we have seen how there was an acceleration of the devaluation of national currencies. Let's think about the Turkish lira or the Argentina pesos. So right at that time, we started seeing the shift of the usage of USDT from being a settlement currency for crypto trading transactions

• 16:37Speaker 00

  to a checking account, basically. So more and more, USDT has been growing as the alternative to fiat money for all emerging markets and developing countries. So today, you go in Argentina, you go in Brazil, you go in Turkey, Vietnam, Venezuela, and, you know, Middle East. The communities in these countries, there is a lot, especially in South America and in certain parts of Asia, you have more than 70% of the population that is unbanked. Not because there are bad people, just because they are not profitable enough for the banks and to bring the bank infrastructure. The bank infrastructure is outdated,

• 17:20Speaker 00

  relies on technology that was built 40 years ago, went through decades of rubber and band fetching. So it's extremely expensive to keep it running. And so finance and transactions is an activity that is fundamental in people's life, in day-to-day people's life. So You know, the usage of Tether grew so much there and I wish I could tell you because that happened because we were really good and we had an awesome, you know, strategy. Actually, it happened because USD as a product is useful. So Tether didn't have a marketing team and, you know, before 2022. And so, you know, with that, we didn't have a business management team. So people started to use it just because they need a solution, right?

• 18:04Speaker 00

  So this was a life-saving necessity for people in these countries. I have a friend that lives in Turkey and told me multiple times that with the Turkish lira, even, you know, your father, he worked the entire year. And at the end of the year, if you save only in Turkish liras, you are poorer compared to the beginning of the year, just because the Turkish lira evaluates 80% against the US dollar. That is the measure for all the imports of any goods in the country. And so, of course, people are looking around, they are trying to find solutions that not get strewed by their environment. And same thing happened to Argentina. Now, in Buenos Aires, you can see many places, many physical shops and online places are

• 18:49Speaker 00

  all accepting USD for the same, very same reason.

• 18:52Ryan Sean Adams?

  How does this work practically, Paolo? For people who can't imagine somebody using, I think many people in the West who have access to like a decent banking system, I mean, we complain about it, there are a lot of problems, but they still generally are banked, the banked population in the world. I think they have a hard time putting themselves in the shoes of somebody who's using Tether as their checking account, as you said. How does this work in practice? Are they using something like, let's say Ethereum, or maybe Ethereum gas fees are too expensive, something like a Tron, let's say, which has, I believe, over $50 billion worth of Tether right now on the Tron chain? Are they using something like that? And when you say they have a checking account, they're basically using their Tron private

• 19:36Ryan Sean Adams?

  key, public key as their bank account, essentially? And rather than use their local currency with a Cepeso or the Turkish lira, they're just using Tether as kind of their unit of account? And store value and medium of exchange directly on a blockchain. Is that practically how it works?

• 19:53Speaker 00

  So I think there are two types of users. There is the user that is a bit more experienced and so has downloaded wallet on his phone. Could be Metamask, could be Trust Wallet or many other wallets that are fairly popular nowadays, Ledger, so on. And so those are the bit more experienced users that know how maybe to back up their private keys. And then there is, I would say, still the majority of the users that are using as proxy centralized custodians. So they keep the USDT on these custodians and they are just using the custodian services to do payments. And there is a drawing distinction also across people that use centralized custodians.

• 20:38Speaker 00

  We started seeing a growth of a user base that doesn't have an account with crypto exchanges for trading. They don't care about trading. They just get paid USDT and they would use that account on the exchange to pay in USDT, you know, all the services and their bills. For example, in Brazil, now there is, in Brazil, there is something called PICS. That is a standard payment system that is spread in all shops, online and offline, and all the banks. Right? So you can pay, it's basically a QR code that every single banking app in Brazil supports. And you can see that people have built bridges between the PICS system and USDT.

• 21:18Speaker 00

  So now there are apps that allows you to scan the PICS QR code and pay any invoice that in Brazilian real is through USDT. So they do the conversion, they do everything. And so now we have 60,000 ATMs in Brazil that allows to cash in and cash out USDT throughout Brazil.

• 21:36Ryan Sean Adams?

  Wow.

• 21:37Speaker 00

  And it's all happening independently, just because really people need this type of solutions.

• 21:43Ryan Sean Adams?

  So there's the two sets you said are kind of the crypto natives, which many bankless listeners will probably be with their own, you know, kind of like crypto wallets, Metamask account. But there's probably an even larger audience that is essentially using some sort of local custodial type service. And it sounds like there's some Innovation going on where you almost start getting like fintech type of companies, like custodial type of companies, building solutions rather than on kind of their the traditional banking layer in their jurisdiction. They're just doing this based on kind of like Tether and a blockchain. But, you know, because they're a custodial service, it's easier UX. They can kind of integrate into other areas of an individual's life. And you're starting to see some uptick on that sort of usage. And that's been unexpected, you said, Paulo.

• 22:27Speaker 00

  Well, not that it's unexpected, right? So, but when I think how we started with USDT, thinking that fast forward a few years, the market cap of USDT is approaching is 97.8 billion is mind blowing, right? So we have our team extremely committed to the values of Bitcoin, of decentralization. And so we are just doing our best to keep bringing these values and philosophy with us throughout our journey and even at a much bigger size that like we are today.

• 23:03Ryan Sean Adams?

  It's interesting because I think in the early days of maybe 2014, a lot of people in crypto thought that Bitcoin would be the currency that would sort of bank the unbanked. Why has it not been? Why are stable coins like Tether a bit more popular in some of these emerging areas like Brazil, let's say?

• 23:18Speaker 00

  I'm a Bitcoiner, but nevertheless, I'm also quite pragmatic. So I wish we will see in the future a hyper Bitcoinization and, you know, the overcoming of fiat currencies. Because, you know, the limited supply tokens are the only ones that I think can provide certain type of guarantees to their users. Of course, now it's we don't have a crystal ball, but maybe in 50 years, we will look at it differently. And, you know, someone on Twitter will say, well, zoom out and look at the big picture, right? Yes, in the first period of time, you had the usage of fiat proxies like USDT.

• 24:00Speaker 00

  And eventually, you know, few cryptocurrencies will become the ultimate currency and resource for humanity. But for the time being, right, you cannot pretend that things happen from one day to another. And the reality is that communities have problems, right? People have problems, the people that don't have. Our time, my time, your time to dig into technology, they have real life problems, like they have to pay the bills, they have to protect their family's money. And so how they do it is they need to do it quickly, they need to do it securely. And that's why the thing that they know the best throughout the last 200 years is the US dollar. That and gold.

• 24:43Speaker 00

  So we cannot pretend that Bitcoin replace especially, well, both the US dollar and gold with a snap of a finger. It requires education. I think the beauty of it is that when people are going and start using USDT through a wallet, then they might be more prone to explore also other digital assets. So I think this is onboarding basically humanity on digital currencies is the first step to get also wider adoption for Bitcoin. So I think everything has a time and we shouldn't be stressed because, you know, we are annoyed by the fact that it's not happening at the pace we as, you know, lucky guys working this beautiful industry want.

• 25:28Ryan Sean Adams?

  I do think you're right there, Paulo. Like stable coins are kind of the gateway drug to all of the rest of crypto and certainly to some of the more crypto native assets, that's for sure. Can we talk about Tether itself and the backing of Tether? So ever since I have been in crypto, Paulo, there has been some question as to like, what are the assets that back a USDT? And are they really there? We can address maybe kind of the FUD and why Tether seems to be a lightning rod for that a little bit later in the episode, but I want to hear from you directly. So when someone were to split apart a dollar of USDT, what do they find inside of it? Like what is backing it? I think you have this page on the Tether website.

• 26:10Ryan Sean Adams?

  It's a transparency page and it shows both the current balance of how much USDT is issued right now on top of, you know, blockchains. And right now, yeah, you were right. You mentioned the number 97 billion or so, almost 98 billion. And you've got this other tab called reports and reserves. Which are independent auditor reports from an auditor called BDO. Okay, I don't know all of the auditors in this type of a field, maybe you can kind of explore it, but it has a reserves breakdown. And there are a few different categories of assets that are the reserves, the backing for USDT. Eighty-four percent, according to this, cash and cash equivalents.

• 26:53Ryan Sean Adams?

  A tiny amount, 0.05, corporate bonds. Then you've got some precious metals, 3.6% precious metals. 2.9% Bitcoins. Other investments, 3.8%. And then secured loans, 4.9%. That, according to this report, is what backs a USDT and all of the $98 billion worth of USDT. First of all, can you just broad strokes, tell us about kind of the backing of Tether? How do we know that these assets are actually backing Tether? What is the auditing process? And then maybe we'll go through this in a couple of the main categories here. But first, the backing itself.

• 27:32Speaker 00

  Sure, so stablecoins historically never had too much luck in having a full audit. So the industry standard at the moment is called attestation. So that is what we have with Tether done by BDO. Although, if you look at our attestation, you can see that the auditor, so BDO, went through enormous efforts, not just to take our word on the existence of the numbers, of the assets that are backing Tether, but also they went through independent contacts to the different custodians in order to confirm these numbers. So that is, I think, one of the most important points, right?

• 28:17Speaker 00

  So yes, you're right. Tether throughout the history had been considered the black sheep in the industry. But you know, think about 2020. Imagine a room full of people, okay? And the people in this room are all the greatest names of our industry. Then fast forward those for a year. Well, and you know, and go back to that room. And you know, you can imagine in that room, all the people. You know, we're looking at each other and then looking at us and whispering, "Oh, yeah, yeah, those guys are the black sheep. Those guys, they are going down." And then you fast forward four years, in that room, you don't hear whispering because basically there is only us.

• 29:02Speaker 00

  You know, all the greatest of the industry apart, maybe a couple, went past in 2022 and 2023. All those people were the ones that accused Tether to do the exact things that they were doing. And those things destroyed them, right? They were landing, you know, based on pinky promises and so on. So, yes, sure, I mean, I agree with you. You know, our biggest mistake, I think, was being naive. And we thought that keeping your head down without caring too much about the noise around yourself, you know, would be enough to succeed, right? So you think, okay, I'm doing everything right and, you know, I keep my head down at work.

• 29:45Speaker 00

  And, you know, if people criticize me, eventually they will see that I'm good. And that was, you know, definitely naive. And as I told you, we didn't have a communication team before, like, 2022. So we learned from that specific mistake and we learned that transparency is really important. And today, as Mather, you have read some of the percentages on the transparency page. There is one important factor that I think has to be underlined. So the numbers that you described are based on the 31st of December 2023. That is the latest statistic. At the 31st of December 2023, we had $5.2 billion more than our total outstanding tokens.

• 30:31Speaker 00

  So it means that, well, it's now publicly reported that Tether made basically $6 billion in profits last year. And we kept the vast majority of these profits within the stablecoin reserves so that we could over-collateralize the stablecoin to make it much more resilient than anything ever seen in the financial industry. And banks go leveraged on their balance sheet. You look at what happened with Silicon Valley Bank that almost killed our main competitor, you know, Silvergate, Cigna. You know, these banks were investing in 10-year, 20-year municipality bonds,

• 31:12Speaker 00

  right? So right now, if you look at our reserves, 90% of the issued tokens are covered by cash and cash equivalent. Yes, we have gold and we have Bitcoin and we have other assets and all together are making 105% of the total issued tokens. And secure loans are well over collateralized by 200% on average. And gold has a price, an average buying price that is fairly low compared to the current market. Same goes with Bitcoin. And Tether is on track of making around with this size of T-bills is making around $1 billion per quarter.

• 31:52Speaker 00

  So you can imagine that by the end of the year, if nothing changed much, we could be around, you know, other 5 to 6 billions in excess equity if we want to keep everything in the excess equity. And our objective is to go to 100% in T-bills anyway. But now we are 105, almost 105% over collateralized. So that's the story that I want to tell today is it's a story of a company that grew from nothing and made, you know, an epochal change to the financial industry.

• 32:26Ryan Sean Adams?

  All right. So what you're saying, Paolo, is, you know, like number one, you've made it through kind of like the worst of the crypto bear market when, you know, FTX fell, SBF fell, Celsius, Block 5, Voyager, all these things. Alex Mashinsky, like they're all gone and Tether is still here. So that's the first argument you're making. And then you're also saying that, hey, it's actually over collateralized. So we actually have like more money than the outstanding amount of USDT issued. And you're also saying, look, we're a profitable company and it sounds like the company is just absolutely, um, yeah, incredibly profitable. I'm not sure how many employees you guys have over there, but I've heard like 40 employees and you're throwing off cash of a billion.

• 33:06Speaker 00

  More 80.

• 33:07Ryan Sean Adams?

  80? Okay, 80. So a small number of employees for the amount of cash you're throwing off. So you're saying all of that. And yet, Paolo, I will tell you, like, you know, in crypto, We've been burned so many times. We've been burned so many times, haven't we? And so no wonder the crypto community has kind of like trust issues in general is because I remember a time when Sam Bankman-Fried said all of the money is there and it turns out it wasn't. I mean, how many other like companies and entities can we point to and say, they told us similar things about kind of trust and isn't the entire ethos of this space to not have to trust any centralized intermediaries? Now, understand that Tether is kind of a different product. It's not Bitcoin. You can't audit it. It's not Ethereum. You can't kind of audit the supply and that sort of thing. So there does need to be some element of trust. I'm wondering if you could shed

• 33:51Ryan Sean Adams?

  some light on this. What is the difference between an audit and attestation? So you mentioned that you said what we have here on the transparency page is an attestation. And you said it's actually difficult to do an audit of a chain, but I'm not actually privy to the technicalities here. What is the auditors do an attestation, but an attestation is different than an audit? What are the differences here? What are the subtleties we need to understand about this report and kind of the transparency that we're seeing from Tether?

• 34:18Speaker 00

  So I didn't say that it was difficult. I said that the industry standard of stable coins is attestations. So so far there are, to my knowledge, you know, all our competitors have attestations. Well, there are different reasons for that, right? So audits are a bit more in-depth in general. Again, if you look at our attestation that BDO is doing compared to the attestation that our competitors are providing, there is a difference in the disclosures. So you can see that our auditors, BDO, you know, Tether has a name, right? And as you said, could be a risk

• 34:59Speaker 00

  for any auditor to audit Tether because with all the fud that was around Tether, why an auditor should do that, right? Should take the risk of doing that. And so for that reason, BDO wanted to go through Not only the minimum requirements for an attestation. Usually, an attestation requires just that you present as a company your numbers to an auditor and the auditor signs them all, right? And that is usually what our competitors are doing. But BDO decided to go a few steps farther and actually get the independent confirmations from our custodians in order to ensure that they would not associate their name with something that was risky. And that's what I like, right?

• 35:44Speaker 00

  Sure, it's still an attestation. So attestations are, for their various same reason that I said, publicly attestations are usually not as thorough as audits. The work that BDO does to get the attestation is insanely in-depth because of the fact they rightfully so cryptocurrencies and the cryptocurrency world, also thanks to FBX, made it really, really hard to top-tier auditors to trust cryptocurrency companies. Now, and also I think that you have the Senator Warren suggesting publicly or writing a

• 36:25Speaker 00

  letter to the top auditors suggesting that they should not onboard new crypto customers, right? So you have, you know, some political issues and some other reasons. And I think, you know, as I said a few times in the past, the top four auditing firms are not jumping at the idea of auditing a stablecoin, at least for the moment. But this doesn't mean that we are not keep trying and working that direction. I think that if means something, recently I didn't see much about how Tether doesn't have the money. Well, I mean, I think that at this point, you know, few people have now in 2024 the doubt that we have the money.

• 37:10Speaker 00

  Even our biggest detractors, I'm pretty sure you're familiar with the names, right? Like Bitfinex and so on, they are keeping moving the goalposts. If you remember, at first they said, wow, Tether cannot have money. And they kept saying for many, many years. And now they're saying, of course, Tether has the money, but they are bad guys. Like, so they keep moving the goalposts and so, you know, that is pure noise. But then you have people like Awar Lakhmi, that is the CEO of Hunter Fitzgerald, that is, that goes on, I think CNBC, on Bloomberg TV.

• 37:41Speaker 00

  And says four words and in Davos was World Economic Forum this year and says four words, they have the money. So we have also our custodians that went through enormous amount of due diligence and reviewed everything that we are doing and they have been comfortable in saying publicly that we have the money.

• 38:06Ryan Sean Adams?

  Yeah. Paulo, I think what you're referencing, I saw this story back in, maybe it was December, Fitzgerald, this among the best known bond trading. January. January. Okay. Bond trading houses on Wall Street and one of 25 primary dealers for US treasuries said those words, they have it in reference to Tether and USDC with respect to the collateral. And so tell me about this. So I imagine it's difficult to get auditors to attest to things, right? And so like the big four are maybe ignoring you. And we've seen a full blown, we've called in the US kind of operation choke point, sort of, you know, Elizabeth Warren and others inspired anti crypto army, trying to like sort of choke crypto off even like onshore US based companies off of the US banking system.

• 38:48Ryan Sean Adams?

  So I'm sure you've seen your share of that in trying to get sort of some of these assets banked, which I believe they have to be. And it was just a little bit less than a year ago that we saw sort of the stablecoin world, at least USDC, which is Circle, kind of rocked by something that wasn't on my bingo card. And, you know, you get worried about a stablecoin issuer maybe not having the funds that they say they have. It was not on my list of concerns to be worried about the underlying banking system, the US banking system that they banked at Silicon Valley Bank going under and potentially bank runs with Silvergate, all of this, it caused absolute chaos with USDC. And I remember

• 39:30Ryan Sean Adams?

  a few days, it was over the weekend sometime, I believe in March, Paula, when USDC was like trading off of a dollar, it was down to like 90 cents, something like this, right? And you just don't really expect that the thing that can cause a stablecoin to falter and de-peg is the underlying banking system. I'm wondering how that works with Tethers. What had to happen with USDC is sort of they sort of upgraded their banking relationships. I think they're with one of like the big 10 type banks, like the too big to fail type banks in the US now, and that's how they restored some comfort back to the market. Jeremy Alera was talking about this. We had him on the podcast at the time of this entire crisis. I don't know that Tether has faced anything that significant, but I've got

• 40:13Ryan Sean Adams?

  to imagine it's tough to get a bank for Tether to custody all of these assets. Can you talk about that? Is that a risk to the business at all? And how do you manage that?

• 40:23Speaker 00

  Right. There's a lot to unpack there. First of all, in 2022, Tether was subject to the biggest trial by fire that any financial institution could have been subject to. In 48 hours, Tether managed to redeem $7 billion and in 25 days, around $20 billion. So $7 billion at that time, we're 10% of our reserves and $20 billion were around a bit more than that was like around 20 and something percent of our reserves.

• 40:57Ryan Sean Adams?

  When was this, Paulo, in 2022?

• 40:58Speaker 00

  Around the 19th of May.

• 41:00Ryan Sean Adams?

  And what was the catalyst?

• 41:01Speaker 00

  Well, Terra Luna.

• 41:02Ryan Sean Adams?

  Okay.

• 41:03Speaker 00

  You know, Terra Luna, the high, you know, the everything was blowing up, right?

• 41:06Ryan Sean Adams?

  I had to ask because it could have been so many different things in 2022.

• 41:10Speaker 00

  But think about this, right? So it was not a casualty. So what happened is that a group of hedge funds publicly said throughout the beginning of 2022 that we're accumulating USDT so that they could short it to the ground. They wanted to cause a bank run and Fear3 was that name, something like that was one of them. And, and they, they tried. $7 billion of USDT were dumped on secondary markets. In 48 hours, we redeemed all of them.

• 41:43Speaker 00

  And what these groups, these hedge funds were doing was try to sell USDT below par, right? So when that happens, it triggers a specific activity. It means that market makers can buy cheap USDT from the secondary markets. They come to Tether, they ask us, okay, here's the USDT. Give me $1 for each one of them.

• 42:04Ryan Sean Adams?

  How does that work, by the way? How does that redemption process work? Cause I've never been totally clear on that.

• 42:09Speaker 00

  Well, it goes through our platform that is tether.co. You register, you get the KVC, you go through email and then you are eligible to participate.

• 42:16Ryan Sean Adams?

  And then $1 of USDT, they get their fiat directly? That's the redemption window?

• 42:19Speaker 00

  Minus 10 business points in fees.

• 42:21Ryan Sean Adams?

  I got it.

• 42:21Speaker 00

  So basically, you know, these enormous amounts of USDT were pushed on the market to try to cause a bank run, right? So it's what happened to Silicon Valley. But historically, there is this bank called Washington Mutual in 2008. They didn't survive a 10% of redemption. Basically Silicon Valley didn't survive a bank run, right? Tether survived a 10% bank run in 14 hours and a 20% bank run in 20 days. So we could have kept going, right? So that's the thing that no one in this industry can ever take from us is the fact that there is no wonder anymore. Like, okay, can they pay out, right?

• 43:02Speaker 00

  So it was not only a stress test on our reserves, it was a stress test also on our banking and banking channels. So that is the first point. The second point is 2023, in March, when the period that you referenced through, when Silicon Valley Bank went down, the issue our competitor was that they had more than $3 billion in cash, a citizen bank. When you have cash in a bank, that is usually a bad idea because that goes in their balance sheet. So it means that you need to be FDIC insured to be able to survive if something bad happens to the bank. But the issue is that the FDIC only usually cover up to $250,000.

• 43:45Ryan Sean Adams?

  So like cash in a bank is worse than what? Like treasuries or something in a bank for that reason?

• 43:50Speaker 00

  Treasuries are securities. So the treasuries are securities. So if the bank goes bankrupt, you get the securities back. But the cash that you have at a bank, that's why exists the FDIC, right? The FDIC would not exist if you could get the cash out. But the issue is that if you leave cash in a bank, that cash gets into... The bank can use it for loans and many other things. They cannot lend out your T-bills, right? They cannot lend out your Apple stocks unless you really want to and you sign a ton of papers saying that your specific Apple shares can be lent out or the T-bills can be lent out. So that's the entire point of securities. Securities are yours, are nominal, and so you own them in that specific bank.

• 44:35Speaker 00

  So if the bank goes belly up, okay, you'll pay for one, two days, but eventually you'll get them back. You don't have to go in the bankruptcy process to get back them, while you have to go in bankruptcy course to get, you know, what is remaining of your cash.

• 44:52Ryan Sean Adams?

  I mean, cash in a bank above 250K in the US is a really bad product from a legal perspective. Like, it's just kind of an IOU, isn't it?

• 45:00Speaker 00

  Yeah, and, you know, this time the FDIC decided to step in, probably otherwise all the Silicon Valley companies would have been belly up, right? So probably the FDIC and the Treasury feared a contagion in many, many other banks, so they decided to save it. But the bottom line is that if you look at our latest attestation, we keep a minimal cash, you know, much lower than our excess reserves within the banks. And also, we use a facility called overnight reverse repos. So basically, you are able, in that case, you know, you have tens of billions of dollars in liquidity that you can use to pay immediately redemptions for tens of billions of dollars in a day, even if you hold T-bills, right?

• 45:44Speaker 00

  So these are all facilities that we have put in place, also thanks to Cantor Fitzgerald, in order to operate in the safest way possible. And also, the last point you made was, how are these for Tether to have banks that want to custody our assets? Well, the person or the bank that is well, the bank. The primary dealer that is custody on our T-bills went on TV saying, I have their T-bills.

• 46:09Ryan Sean Adams?

  And who is that? Who's the primary dealer?

• 46:11Speaker 00

  Hunter and Gerald.

• 46:12Ryan Sean Adams?

  Ah, they are the primary. So that would be the bulk of your assets are sort of, you know, held with those primary brokers then?

• 46:19Speaker 00

  Yeah.

• 46:20Ryan Sean Adams?

  And you do have some banking relationships, of course. Do you disclose who your banking relationships are and your banking partners are?

• 46:26Speaker 00

  Well, I think that they've been public for many years. And, you know, one of the other funny aspects was that, you know, people were saying, ah, the pattern never disclosed which banks they use. Well, if you could, I mean, unless you're American, well, living in the United States, but you can register to our platform and trying to send the money and you, we will disclose you with the banking details. So I can tell you that it has been so much unnecessarily fun.

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• 49:48Ryan Sean Adams?

  Let's talk about then the reserve breakdown a little bit. So I think we've talked pretty much about cash and cash equivalents. And you know, that's basically overnight reserve repos, treasury bills. 76% treasury bills of that 84%, it looks like. Or no, not of the 84, 76% of the entire USDT treasury is T-bills there. So I think we've kind of covered the cash.

• 50:10Speaker 00

  A bit more, just to say.

• 50:12Ryan Sean Adams?

  Okay.

• 50:13Speaker 00

  Because you have to count the overnight reverse repos that are secured by T-bills. And then you have to count the money market funds that are invested in T-bills. So the total amount of T-bills that we have now is, I could get the decimals wrong, but it's around $80.4 billion. That would put a tatter just after Germany in how many T-bills we hold.

• 50:38Ryan Sean Adams?

  I want people to hear that, just after Germany, the country. And we're not talking about a bank in Germany. We're talking about the amount that the Central Bank of Germany actually owns. And you have more T-bills than the Central Bank of Germany? Is that what you're saying, Paula?

• 50:53Speaker 00

  Just after.

• 50:54Ryan Sean Adams?

  Just after.

• 50:55Speaker 00

  But we have more T-bills than UAE and many other countries like Australia and so on.

• 51:00Ryan Sean Adams?

  Are you top 10, top 15, something like this?

• 51:03Speaker 00

  We are 20th.

• 51:03Ryan Sean Adams?

  20th?

• 51:04Speaker 00

  Yes.

• 51:04Ryan Sean Adams?

  The 20th largest holder of T-bills then?

• 51:07Speaker 00

  Yes.

• 51:07Ryan Sean Adams?

  And, you know, among central banks, I guess, you're like as well, those would be the top, the other 19.

• 51:12Speaker 00

  Yeah, look, there is an interesting innovation that, you know, people think about USD as the, you know, the innovation around, you know, the digital dollar, sure. But also the other important innovation, the other two innovations that we made were, one, the over-collateralization. As I said, banks are used to lend out and they have only to keep 10% of their assets liquid. Right? So that's the big difference. So we have 105% of assets in the company. And the third big innovation is actually how much United States really cares about the dollar, right?

• 51:47Ryan Sean Adams?

  Yeah.

• 51:48Speaker 00

  And the hegemony, the distribution of the dollar and the dollar as their silver currency of the world has always been one of the fundamental pushes that the United States made in the last 100 years to make sure to remain dominant in many different markets. But that happened in many different ways before. Through cash, you know, sending cash abroad and so on. Through, you know, the Euro dollar, called the Euro dollar and the Petro dollar before and so on. But all those had a missing piece. If you have cash running around in Argentina, that cash is pure cash.

• 52:29Speaker 00

  The difference with USDT is that if you have for any Argentinean or Turkish person that holds USDT, Tether is buying a portion of the US debt. So that is the crazy new innovation that happened. Before, you had only the cash out, but that cash was just circulating. That was not going back to benefit necessarily and directly the US economy. And in a year, like 2023, when the US government printed $2 trillion, then you have China that

• 53:06Speaker 00

  in the last four years, China reduced their USDT bills by a big percentage, where I think four years ago, they had $2 trillion in USDT bills, and now China has $800 billion. So it means that Tether holds 10% of the T bills that China holds. So you see that we are actually, if you think about it, USDT is a good ally for the United States for the very same reason that it's actually helping to repurchase and spread, you know, this process throughout hundreds of millions of people. And that is something that I think not many people are thinking about.

• 53:50Speaker 00

  And when we think about, you know, modern monetary policies and things, stable coins like USDT are actually a key part when you think about your internal country debt.

• 54:00Ryan Sean Adams?

  Yeah, I kind of wonder how that argument is landing, basically. You're saying when other countries use a sort of cash, right? When I'm talking like physical, you know, $100 bills or something like that, that is not the same as actually buying treasuries. And that's really what Tether is doing. So Tether has been a net purchaser of $80 billion of US treasuries at a time when the US kind of needs to sell its treasuries worldwide in order to kind of like fund all of its debts. And so you're saying, basically, you're not saying this to the US government necessarily, but you're saying this to, I guess, generally the American people, I would say, is this is a good thing. For US dollar hegemony, right?

• 54:41Ryan Sean Adams?

  US dollar power worldwide because now you have a decrease in demand in countries like China and certainly other countries worldwide. And now here's this new way to export your debt to the world. And don't you need that? Don't you need net new buyers of debt? And yet I wonder, Paulo, as well, on the flip side of this, right? Are you worried about becoming too big? And what I mean is, right? At 100 billion in US Treasury, let's call it, you are like bigger than Germany, right? I mean, these are major geopolitical entities, let's say. And people start to take notice. I mean, there was talk even this week in Congress about Tether. We could talk maybe a little bit about some of the conversation that happened about Tether.

• 55:24Ryan Sean Adams?

  But like, Tether is definitely under the microscope, I would say, at least in some quarters in the US. And if you got as large as $1 trillion, wow. I mean, I don't know how large you would be in kind of the scheme of things if you think Tether can even grow that large, possibly. But you're sort of a geopolitical entity at that time. And you're like, you have other problems, let's say, or regulators and officials in the US government kind of takes notice. How do you think about that? Do you worry about getting too big? Or is that a sign of your success? And you just think you'll be kind of ushered into the traditional financial system, maybe through a kind of like a backdoor and maybe the hard way, not through the existing institutions, but they'll have to kind of accept Tether. What are your thoughts on this?

• 56:06Speaker 00

  Well, this is a really good point. Again, although many years passed from the creation of Tether, USDT, I think we can argue that the growth has been extremely rapid. So it's hard to judge what is going to be the next, you know, two, three years growth of USDT. First of all, we are not selling. We are not allowing US people on the platform. So first of all, you know, the market cap, if you think about it, is coming from non-US countries, right? So the rest of the world. And so this is one of the things that should make it more exciting for the US, right?

• 56:47Speaker 00

  So it's not like we are getting or incorporating US money to buy the US debt. It's actually outside of other countries' money.

• 56:57Speaker 00

  So the growth, in a way, and it's kind of, in a way sad, is that the success of Tether is the in-success of global finance and the in-success of financial policies in many emerging markets. The more a country has problems from the financial point of view, the more its people are going to use USDT. And that is kind of the sad part, if I admit, right? Because no one wants to try when things are not going well. But, I mean, I doubted that many people are thinking today that the world is going in a greater direction, right? So you can see more wars, more issues. And so, in a way, the growth of USDT is a symptom of something really big

• 57:41Speaker 00

  that is not working, that is falling apart. So how big can it become? I think USDT can become really big. I think that it's really important for Tether to realize that, as we did realize that, and partner with the biggest institutions in the market to make sure that the product remains safe. We have been working and collaborating with law enforcement agencies around the world. We have onboarded the United States Secret Service, the FBI. We are collaborating with the DOJ. We are collaborating with the International Borough of Counterterrorism in Israel. We are... So we realize the importance and the fact that Tether is kind of the backbone

• 58:24Speaker 00

  of the last mile of international finance, right? So I think that as many new industries, the growth can be incredible. You know, when throughout humanity innovation, you have many times this type of companies that grow really rapidly. And I think our role is just to work with regulators, work with policymakers, work with central banks to showcase what we are doing and to make them comfortable with what we are doing. And there is always time to learn. And we believe that although with the recent events and, you know, again, what we achieved with our investment in TBS, the fact that we are keeping the vast majority of the profits within the company

• 59:05Speaker 00

  is also another important attestation from our side in how much we want this product to be as safe as possible. So... Any other company, right, you have 5.2 billion dollars of profits or excess equity, that these are undistributed profits, right? I could bet that almost any Silicon Valley VC would have gratefully split those dividends and start enjoying them. But we are keeping the majority of them within the company because we want to show, we want to advertise to the world how strong and how solid we want to be and we are, and how much we believe in the safety of our product.

• 59:48Ryan Sean Adams?

  So it sounds like the strategy is basically to continue to work with US government and regulators as they're open to working with you and basically get their blessing. You say you are already working with them. I saw this earlier this week, I believe it was VP of Policy from Circle, which is the creators of USDC, which I think Paulo, you mentioned is one of the Tether competitors. They of course have a different stablecoin. Said something in Congress earlier this week that caught my attention. "I personally believe no company should be allowed to reference the US dollar without having democratic values inside their USD-backed stablecoin," was the statement. I think cash agating Tether a little bit here. And I'm wondering what you make of this sort of thing. I know you've mentioned earlier in our conversation, you feel like the goalposts have moved and

• 1:00:31Ryan Sean Adams?

  it used to be people saying Tether is not fully collateralized. Now there seem to be saying that Tether is not compliant with kind of like financial surveillance types of apparatus. I'm actually not sure what the specific concern or charge is here. Although JP Morgan, a bank in the US, I know recently said something, one of their analysts said, "We view the increasing concentration in Tether over the past year as a negative for the stablecoin universe and the crypto ecosystem more broadly." I believe Paulo, you fired back at them. And you said it's a bit hypocritical to talk about concentration coming from JP Morgan, the biggest bank in the world. What do you make of all of this kind of conversation? Is it sort of Tether against the establishment bankers?

• 1:01:15Ryan Sean Adams?

  And are you seeing Circle kind of like team up with the regulators and try to push you out? What's your take on this market and what's going on right now?

• 1:01:22Speaker 00

  Well, first of all, I'm I think that was evident to everyone if you read Twitter comments on that event in Congress. You know, people were really sad to see a company in our industry spreading lies about another company in the same industry, right? So the reality is that, as Seder announced, we respect the OFAC SDN list. We onboarded the FBI, we onboarded the US Secret Service, we work with the DOJ. So we work with 31 different law enforcement agencies around the world. I mean, the market has spoken, right? So I understand that our competitors might be upset because, you know, they are probably scratching their head

• 1:02:07Speaker 00

  and don't understand why people prefer us, right? So they consider themselves more beautiful than us. But the problem, I think you touched base at the beginning of this call, is that, you know, I'm paraphrasing, but when you build a business, you have to think about who your users are. Building a business where your target is the institutions. The institutions have already the best banking rails, the best cash rails and everything. They don't need a stable coin. People in emerging markets, developing countries need a stable coin. So, you know, I feel like, I'm sorry, because I feel that this is an act of desperation and, you know, it's lying in front of the Congress saying, "Well, we are not complying with the regulations."

• 1:02:52Speaker 00

  So on, it's lie. I mean, we collaborated more than 300 cases with the DOJ in last years. I mean, I think that's the number, give or take. And we are faster than anyone else in replying to law enforcement requests. I mean, it's, we froze much more than our competitors due to working with law enforcement. So I don't know, I feel, I feel just sorry. I mean, sometimes if you are the biggest, it's normal that your competitors are stabbing you, right? So everyone wants to be in front.

• 1:03:23Speaker 00

  I don't know what to tell you. And JP Morgan, for sure, you know, they're probably upset. They missed on Bitcoin and stablecoin train and now they are trying to, you know, make up to their losses. Or maybe it's just a random financial analyst. I really, in mind of my own business, I think that we proved that we made the right decisions in growing the company, growing the customer base. It's not us that left $3 billion in the bank uninsured. I mean, you know, if sure, if you want to cry about it, I mean, it's, but it's not our fault. People should look at their own losses.

• 1:03:55Ryan Sean Adams?

  I think this is a good time to remind folks too, Paulo, that Tether does, as well as USDC, have the ability and other stablecoins that are centrally issued, have the ability to actually freeze accounts. Like, so how does that work? So you said you're compliant with OFAC, SDN list, that kind of thing. If a name or an address, let's say, an Ethereum address gets published to this list, then what powers does Tether actually have? Can you just stop the transfer of funds? And how does that work kind of mechanically? So government agency publishes a list and then basically by law, you have to just freeze the account. And so whomever like has that account can no longer move their USDT. Is that how it works?

• 1:04:35Speaker 00

  In short, yes. And because I also am a big fan of clarity and education. Stablecoins are centralized. You know, 99% of the market is made by centralized stablecoins. This means that sure, stablecoins are using blockchains, but blockchains are purely transport layers for stablecoins. The entire power remains in the hands of the issuer. So the issuer is the one that has the access to the multi-sig controls. That allows the issuer to issue, redeem, burn, and also freeze and unfreeze

• 1:05:13Speaker 00

  specific wallet addresses. So if law enforcement contact Tether, we do our due diligence. We review the claim of the law enforcement agency. We validate the chain of events. And if that is confirmed, that we proceed to freeze the funds. The vast majority of the funds we froze was, you know, maybe you remember some of the cases, but they were due to exchanges getting hacked, DeFi getting hacked, you know, people losing money. And I'm proud to say that we returned really more, I think, hundreds of millions of dollars to legitimate owners.

• 1:05:50Ryan Sean Adams?

  Because you can freeze it, like, and then what, do you just reissue to the rightful owner in that type of a case? A case of a hack, let's say?

• 1:05:57Speaker 00

  So we freeze, then we burn the assets on the frozen address and we reissue them to the legitimate owner. So we have done this multiple times also for notable exchanges that were hacked or notable DeFi protocols that were hacked.

• 1:06:10Ryan Sean Adams?

  I'm curious why you think Tether has been so successful. So we mentioned earlier that Tether has about 70%, maybe more than that of the stablecoin market. What does it take to win stablecoins? I mean, there's been many, many competitors over the years. I remember Gemini's GUSD, when I thought that could kind of like take off, it just really has gone nowhere. Like PayPal has a new stablecoin. It's still pretty early, I would say, but just hasn't received like nearly the traction that Tether has. Pax, like, there's been so many different attempts at stablecoins. What do you make of why Tether has been so successful where others haven't? What's kind of the secret here?

• 1:06:49Speaker 00

  Again, I think the main issue is that like, you have to understand who needs your product. That is true for any product. If you build an app for a smartphone app, you need to understand who is your, who needs your product, right? You shouldn't force the product down the throat of people. You have to find the sector that is in need of your product. And so our competitors, everyone of our competitors focused on, they had basically two different strategies. One strategy is, oh, let's work with banks and hedge funds and have them using your stablecoin.

• 1:07:24Speaker 00

  So our competitors basically wanted to be the replacement of the settlement layer across financial institutions. But again, these financial institutions have already the best banking, right? They work on credit, there, whilst the ability of transact among each other is so fast. They is like trying to sell ice cream to an Eskimos. It doesn't make any sense. So that are always focused on emerging markets in developing countries. So the people that cannot have a bank account. And you find them outside of Europe and outside the US. And there are countless people that are still today are talked to. They don't understand this simple concept.

• 1:08:08Speaker 00

  They are living nicely in Europe or they are living nicely in US. And they think the entire world is exactly as their home. But if you try to go to Salvador, if you go to the, you know, poor countries, the situation is completely different. Right? The people are actually, they need to be smarter in order to find solutions to be able to survive. And that's how it is. And so that's our realization that the world is in need, the last mile is the most important part, is good part of our, the fact that we have the biggest market cap. And second is also now I'm seeing many stable coins that are interested, they think that

• 1:08:50Speaker 00

  they can grow really fast, promising sharing the interest from the investment, right? So the T bills and whatever they have as collateral.

• 1:08:59Ryan Sean Adams?

  Yeah, let's talk about that. That's been a big theme, like the idea of tokenizing T bills and that would, you know, some of the profits, the billions in profits, maybe those could be passed on to the USDT holders in some way. I don't know if that's a concept, but yeah, talk about that, Paula.

• 1:09:11Speaker 00

  Yeah, look, the issue there is that, first of all, if you start sharing an interest, you will likely make it the financial instruments or security in many, many jurisdictions. So first of all, I think it's, we don't want to take that risk. And I know that some of our biggest competitors behind the scenes are doing that, but you know, it's not for us. We were happy when the interest rates on T bills were like 20 basis points. You know, we are happy today. So there is no need to take on such a big risk, I think is a double edged sword that could kill our competition. Second, think about this, right? Again, going back to the first point I made, do you think that for a person that lives in Argentina

• 1:09:55Speaker 00

  or a person that lives in Turkey, where the intraday volatility of their national currency compared to the dollar is more than 4% on average, they do care to have 4% more at the end of the year? So in business, you have to understand who you're talking to. And the most important thing for these communities in Turkey and Argentina is that they are using a safe product. That is the most important fact, right? They are not complaining for a few percentage of yield because the savings that are making not keeping their money in international currency is quite high. So it feels to me that the people designing these stable coins that are providing a yield are again designing a product

• 1:10:39Speaker 00

  for people that have already the ability of using other products like banking system.

• 1:10:45Ryan Sean Adams?

  Yeah, I get that. And by the way, I don't think we maybe clarified how Tether makes its money, right? And you know, you mentioned 6 billion last year at a billion per quarter. It's on that delta, right? Is it mainly on treasuries? For instance, so you have treasuries in your reserves and those are yielding 5%. Maybe I'm oversimplifying things, Paulo, but they're yielding 5%. And then you're just able to kind of keep that 5% and that's how the business model works. Now, if the Fed funds rate decreased to like 1%, then it kind of cuts into your profit, obviously. But is that the primary source of revenue for Tether itself?

• 1:11:17Speaker 00

  Yes, so that is, I would say, the vast majority of the profits. And then there is a bit of appreciation on the Bitcoin holdings and the gold holdings that we had. But the vast majority is US TBS that are now yielding around 5.5%. And we use short maturity TBS that are around 90 days now.

• 1:11:36Ryan Sean Adams?

  Well, you're talking about your competitors not really understanding sort of the merging markets and that kind of thing. One thing that's been pretty astounding to me and I think to a lot of people in crypto is the success Tether has had on Tron. So there's actually more Tether on Tron right now than there is Ethereum, according to kind of at least the December transparency reports. I mean, it's pretty close. It's neck and neck anyway, about, you know, 50. One billion or so on Tron. What's your take on why? Why has that been so successful? And this is kind of like painted by, as of this morning, the time of recording. USDC is actually decided, Circle has decided to discontinue their stablecoin on Tron. Effective immediately, the tweet says, we'll no longer mint USDC on Tron. What do you make of that?

• 1:12:19Ryan Sean Adams?

  And what do you make of the success Heather has had on Tron so far? Why is that happening?

• 1:12:24Speaker 00

  Well, first of all, I think our competitor has only 300 million in their stablecoin on Tron. So probably it's not a thing for them, right? It's not, there is not much sense. Also, Tether discontinued different chains in the past that didn't yield much volume. But let me tell you, so Tron, or Ethereum, or Solana, or stablecoin issuer, are just transport layers. The power, so we have the ability to monitor through chain analysis and other tools. Tron as Ethereum as and others. So we have the ability of freezing wallets on Tron, Ethereum and others, and so on.

• 1:13:06Speaker 00

  So all the controls are equal to the different chains. So if someone is using a chain or the other, doesn't matter too much. The importance is exactly that we have the ability of being compliant and ensuring our compliance requirements across the different transport layers. Now, there is an interesting part. People think, oh, well, you know, Tether issues on Tron. Well, and because, you know, sometimes people prefer Ethereum, right? There is, you know, in the blockchain industry, there are religion wars. And when you support multiple chains, you have to be careful with religion wars, right? Because it's not, you know, everyone can decide which chain they prefer.

• 1:13:47Speaker 00

  The reality, the reason why Tron became so popular is that for so many years, sending transactions on Ethereum was expensive. So if I'm not wrong, the first meaningful rollout on Ethereum was born in 2022. And also 2022 was the year of, you know, everything blowing up in the crypto industry. So, you know, not many people had the time of transitioning from Tron to. For something else. And so 2023 is now the first year when things started to be quieter and things started to get better. So it's basically like Tron had five years before Ethereum realized the importance of releasing something that would make transaction fees bearable.

• 1:14:31Speaker 00

  So it costs five cents of a dollar to send a transaction on Tron and costs $5 to send a transaction on Ethereum. And so if you give, you know, thinking about putting myself in the shoes of Ethereum, if you give your five years first mover advantage to your competition, then you are talking about hundreds of thousands of people and well, actually millions and millions of people, but hundreds of thousands of service providers, they built their rails around Tron because it's cheaper. Again, we shouldn't be obnoxious people thinking, oh, well, but you know, because if you live again in Europe and US, again, I'm European,

• 1:15:13Speaker 00

  so I'm allowed to say that, you think that, you know, ah, yeah, why people should use Ethereum is more decentralized. Well, you never put yourself in the shoes of a person that where $1 in transaction fees are a lot, even 50 cents are a lot. So if you have to choose between paying five cents, $5 for a transaction fee, that makes the entire difference if that the USDT is your checking account. And look, in the end, the reality is that the only thing that matters is the issuer, because the issuer has the control. We could freeze, we could

• 1:15:55Speaker 00

  freeze or post a smart contract on each chain. So we have these abilities. So one transporter or another, as I said, we have all the compliance tools to remain compliant as an issuer. So it's just a matter of transaction fees and speed of transaction.

• 1:16:11Ryan Sean Adams?

  Paulos, we wrap this out. I've just got a few quick questions for you. One is regulation. So what's your feeling? Should stablecoins be regulated? What are some ways you think that would make sense?

• 1:16:21Speaker 00

  Well, I think it's important to define exactly the word stablecoin because we don't want to have another Terra Luna, right? So we want, and I was one of the first people when, of course, you know, before Terra Luna blew up, I publicly said, it's a bad idea. And I was, you know, the entire, well, many in the community pointed the finger at me saying, "Of course you're saying that because it's your competitor, they are going to destroy you." Well, you know, we have seen what's happened. And so I think that it is important for regulators to give a definition and to define thresholds for stable coins.

• 1:17:02Speaker 00

  Like, can you have 90% of your assets in cryptocurrencies? Probably not, right? So what are the different thresholds and parameters and assurances that you have to have as a stablecoin insurer? Those are really important. So I think it's important for regulators to look at it and at least give a guidance in order to provide an official guidance, yeah.

• 1:17:24Ryan Sean Adams?

  Paulo, it's been great chatting with you. I've learned a lot about Tether and about just, you know, in general, your approach. And yeah, a lot of details I just have never filled in. So thank you for all this. Maybe my last question is kind of for your closing arguments. I think it sounds like you're in crypto because you believe it is a net positive and you're working on Tether because you believe that's a net positive. Give me your closing arguments for why. Why is Tether's existence in the world good, maybe? Why is it good for crypto? Why is it good for the US? Why is it good for the entire world? What would you say?

• 1:17:52Speaker 00

  Tether has been, and I think we didn't have the time, but we kind of said that we would follow up during this interview. Tether is known for USDT, but now created, so he is investing in many countries in renewable energy production and Bitcoin mining, to decentralize Bitcoin mining and to improve the energy availability and source in emerging markets. Tether is investing in education. We launched Tether Education, not for the classic, you know, "Please use my product" type of education like basically everyone else in this industry. But actually, we believe that edotech and education, you know,

• 1:18:33Speaker 00

  you can learn marketing, communication online, you can learn development, you can learn about AI, you can learn about plumbing, you can learn about being an electrician online and so on, is going to be a game changer. And I believe that with our expertise from, you know, the last many years, we can invest in edotech and we can invest in a better educational system that is global and give the same access. As we are trying our best to solve the bankless problem, we want to also use our expertise in reaching the last mile to also help with educational problems.

• 1:19:07Speaker 00

  On top of that, we spent the last five years to build this protocol called Hole Punch, alongside with the great talent in the industry of peer-to-peer communications, and which showed how this riverside call could have been done on peer-to-peer without any central servers and central intermediary on key. And so, we are actually dedicating a lot of our resources to bring the same mission, that is the Bitcoin mission or the crypto mission, from the stablecoin side to expanding it, and with the same philosophy, with the same ethos, to many other areas of innovation. So that's why I'm doing time, I'm working with Tether,

• 1:19:50Speaker 00

  because it's probably the only company where I would ever feel at home. And if anyone wants to join, they are welcome.

• 1:19:58Ryan Sean Adams?

  It's great. Paolo, thank you so much for joining us today. This has been absolutely fantastic. I appreciate it.

• 1:20:03Speaker 00

  Thank you very much, Ryan, for your time. It was fun.

• 1:20:05Ryan Sean Adams?

  Risk and disclaimers. Bankless Nation got to let you know, of course, crypto is risky. You could lose what you put in. But we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.