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Paolo Ardoino (Tether): "We are the most resilient company in the sector".

Paolo Ardoino (Tether): "We are the most resilient company in the sector".

‍Criticised for its lack of transparency, Tether seems stronger than ever with its stablecoin, USDT, worth over $70 billion. The Big Whale spoke to its chief technology officer (who is also CTO of Bitfinex) about this insolent and troubling financial health.

The Big Whale: Tether's crash has been announced 1,000 times, yet you're still here. What does this inspire in you?

Paolo Ardoino: For years, we've been attacked, criticised, some hoping that Tether would crash, but it hasn't. But it hasn't. Why? Because their attacks are unfounded.

We are in contact with the US regulators, many things have been audited. I think we are the most closely watched and also the most resilient company in the sector. 💪

There was some criticism of your reserve. You recently abandoned commercial paper, which are composite corporate bonds (several types of loans bundled together) in favour of US Treasuries, which are supposed to be much stronger. Isn't this a sign that there was a problem?

There have been some untruths about this. Many people said that we had commercial papers without specifying that they were of good quality. We had those with the best ratings.

We then moved into Treasuries because there was demand from our clients for them and it seemed to us to be the right strategy.

Silicon Valley Bank fell in 48 hours despite having its coffers full of US Treasuries...

Yes, but we're talking about 30-year bonds, that was nonsense! They put all their clients' money into bonds that were totally illiquid, and they did it because they wanted the highest possible yield (in principle, a long maturity yields more, ed. note), and it paid for itself in cash. 💥

For the USDT, that's not the case at all. We only have US Treasuries with short maturities. To give you an idea, today we are on maturities of less than one year.

The irony of the situation is that we have been able to swap our commercial paper for Treasuries without difficulty, whereas Silicon Valley Bank and the other banks have failed.

What financial position are you in?

We've never been better. In the fourth quarter of 2022, we made $720 million in profits. In the first quarter of 2023, which ends in a few days, we will probably do the same. At least $700 million in profits. 🤑

What do you intend to do with these substantial revenues?

The bulk of this money is going to be reinvested in the company to develop technology and new projects.

Alongside this, we are going to continue to diversify the reserve by investing in assets such as infrastructure, energy ⚡ ️ in particular.

Are reserve proofs an effective solution for demonstrating the creditworthiness of exchange platforms?

We have issued a reserve proofs for Bitfinex. I think it's a good solution, but only if you see it as a first step, because the problem with this system is that it doesn't take into account the indebtedness of companies, so it's something biased.

To succeed in making a more complete proof of reserves, you need to work with audit firms. After that, even with audit firms it's not easy, because auditing a platform with so many transactions still requires a certain amount of acculturation. Can you imagine me explaining to auditors how Monero or Solana work? 😅

Waiting for full audits, how can you reassure your customers?

You can see publicly on the blockchain that Bitfinex controls the second largest bitcoin wallet in the world (198.000 BTC or 5.7 billion dollars, editor's note) while we make "only" 10% of the volumes of our competitor Binance (which controls more than 530,000 BTC, or 15 billion dollars editor's note).

We don't need to make ourselves look better than we are. Bitfinex has a very solid customer base, that's the most important thing. We focus on them and they trust us because they see the technology and public wallets.

However, as I come from traditional finance, I understand that some people prefer to hold their funds themselves. Our institutional customers can leave them with a third party like Fireblocks or Copper, and do their transactions on Bitfinex.

Tether was not affected by the recent banking turmoil, but your competitor Circle (USDC) was heavily impacted, at least for 48 hours. What do you think?

Nobody can be happy about what has happened. If Circle is in trouble, that's not good news. Our aim is not to be the only ones on the markets, because when you're the only ones, there's no more market...

What's your main difference with Circle?

In terms of transparency and reserves, our certificate is three or four times longer than theirs. Otherwise, Circle's main market has always been the United States, which is probably the least interesting market for us. Trying to sell a dollar stablecoin to Wall Street is like selling a mass to the Pope, it's just a no-brainer!

For us, the goal is not to provide a new tool for banks, but to enable 2 billion people who don't have access to banks to access financial services.

We want our stablecoins (read our report 💡 ) to be available in other parts of the world where we think there are real needs, such as Turkey or Argentina (read our report) where the currency is collapsing.

Circle announced last week the creation of a headquarters in Europe. Their objective is clearly to accelerate and become compliant before the arrival of the MiCA regulation. What is your strategy in this regard?

We are obviously following the subject closely. I think it's great that MiCA is introducing rules and giving Europe the opportunity to protect its market by favouring euro stablecoins over dollar stablecoins.

But you also have to bear in mind that this will potentially have an impact on the whole market, because MiCA is quite restrictive with stablecoins, particularly on volumes. The risk is that there will be no stablecoin at all in Europe. 🇪🇺

How do we find the right balance?

I admit it's not easy. The only thing we know for sure is that dollar stablecoins are ultra-dominant.

As you know, we already have a euro stablecoin, Euro Tether, and it weighs just over $40 million. By contrast, our dollar stablecoin, USDT, weighs more than 1,000 times as much ($70 billion, editor's note)!

Will regulation allow euro stablecoins to emerge? That's the real question. In any case, no one can guarantee it. In addition to regulation like MiCA, we also need to create incentives to use euro stablecoins.

You have a presence just about everywhere on the planet. Which are the regions of the world where USDT is most widely used?

It's not in Europe or the United States, but in the regions where the financial system is least developed, i.e. South-East Asia, Africa and South America.

What do you think of the French crypto ecosystem?

It's pretty impressive. You have several very large companies like Ledger, which is a great standard-bearer for France.

There are also companies like LN Markets in which we invested (its sister company Bitfinex invested, ed. note). I think the Italians have the best food and France has the best crypto companies (laughs). 🍝

Do you have a specific plan for your euro stablecoin?

Euro Tether has been launched on several platforms such as Huobi or OKX. This strategy shows that we want to develop this product, also because there is demand.

Have you published an audit about Euro Tether?

We've done it with dollar stablecoin and we're going to do it with euro stablecoin, but at the moment it's not easy to convince the big audit firms to do it.

There are still no clear rules on these subjects, so we're asking audit firms like KPMG or EY to apply rules that they have to invent at the same time.

They don't want to take the risk of certifying the stablecoin pool that could be affected by regulation.

What do you think of the regulatory pressures on the crypto industry in the US?

I think it's a huge opportunity for Europe to become a home for the crypto universe.

After that I don't buy the story that the US doesn't want crypto anymore. There's still a lot going on there, there are some very large projects. Their problem is that in the absence of clear regulation, it's the regulator who's cleaning house and that's doing damage. 😬

What do you think are the most welcoming countries for crypto?

I'd say Switzerland and France for Europe, even if MiCA will smooth that out.

Singapore is very attractive in Asia, Dubai in the Middle East and clearly El Salvador in South America.

Beyond the Bitcoin announcements, what makes you say that about El Salvador?

They're doing a lot of things: There's obviously the legislation on cryptos and especially Bitcoin, but there's also their mining project using volcano energy, and then their ambitions in Tech.

They're very attractive. Bitfinex is working with them locally. El Salvador doesn't have a national stock exchange, so we're going to help them with our infrastructure to distribute their digital assets.

Many say that El Salvador's crypto turn is primarily marketing. What do you think?

I had the same impression 18 months ago, before they made bitcoin their legal tender. I thought it was mostly buzz, then I met the chairman Nayib Bukele...

I had dinner with him a few months ago, and honestly, I was bluffed. I'm Italian, so I know what politicians are like and I know they can tell stories, but here they're really doing things. 🇸🇻

Isn't there a discrepancy in the subject when the country is still affected by violence and poverty?

We're talking about the monetary dimension. Bukele has a choice between the dollar, which is not his currency, and bitcoin, which could enable him to regain sovereignty, so he has chosen his party, and I think he has made the right choice.

He will certainly not be the only one to make this choice, you will see. I wouldn't be surprised if it happens even in some European countries.

What do you think of bitcoin?

I think things are clear: Bitcoin has proved that it is an asset in its own right, both anti-inflation and capable of serving as a financial structure.

In our "Manifesto for Freedom" (published in November 2022, editor's note) we pledged to promote the development of the Lightning Network, which makes it possible to make bitcoin an efficient everyday means of payment in terms of cost and speed.

What do you think of central bank digital currencies? Do you agree with some that they are "pure evil"?

Most central bankers like to say that they are working on NBM projects to give the impression that they are at the cutting edge of innovation. But you have to bear in mind that they, too, are frightened by these kinds of projects.

They're not crazy and they know they'd be putting their finger in something potentially uncontrollable. MNBC are a one way ticket. 😓

That is?

When you launch a project like this, you have to bear in mind that it could have an impact on consumers, businesses, banks, in short on society as a whole. With MNBCs, it's possible to set negative or positive interest rates, to control the supply of money, quite simply.

Take your cash, no one can take it from you when it's in your pocket. Imagine tomorrow that you have MNBCs. The state will tell you that everything is fine and then if, all of a sudden, it needs money, it can help itself to your pocket by setting negative interest rates.

In the hands of an authoritarian power, as in China, this could go even further.

How do you see Tether in the coming years?

Today, Tether manages USDT, which is the biggest stablecoin on the planet. USDT is great, but it's just a digital asset based on the dollar.

I think our best product today is Tether Gold, which is a stablecoin based on gold. I don't think gold is a competitor to bitcoin because Bitcoin has already won the battle, but it's an excellent alternative.

We've talked a lot about the banks' problems in recent weeks. Who are your US banking partners?

We work with Cantor Fitzgerald in particular, but generally speaking we tend not to rely too much on the US banking system.

We've been criticised a lot for this choice, but for us, it's not possible to work with such a fragile banking system, and what happened recently with Silicon Valley Bank and the other institutions is the best proof of that.

Who else do you work with then?

We have banking partners in the Bahamas, Asia, and other regions, but not all of them are public.

You are also criticised because the same team runs two very important companies in the ecosystem, the Bitfinex exchange platform and Tether. How do you respond to those who criticise you for mixing things up?

Why should that be a problem? We created these two companies, why should we give our golden goose to someone else? 🤑

But you can see there's a conflict of interest issue...

You know, the USDC stablecoin was co-founded by Coinbase which is also a must-have exchange platform. They're in the same position as us, yet there's less debate about it.

I'm the CTO of Tether and Bitfinex, but things are quite separate. We are very careful not to mix our two activities.

Not everyone has to like us; we feel that Tether and Bitfinex should be run by the same people, as these companies are at the heart of the development of the ecosystem.

Why hasn't the CEO of Bitfinex and Tether, Ludovicus Jan van der Velde, appeared publicly for several years?

I can introduce him to you if you like. To tell you the truth, he's not a public figure.

When the project started in 2014, Ludovicus couldn't have imagined that Tether would become what it has become today. Not everyone is prepared for the public exposure that entails... And it has to be said that I'm much better at making memes on Twitter (laughs).

Did you see the FTX collapse coming?

I always thought that it was too good to be true. They raised a huge amount of money, but were spending all that money on marketing.

You know, I run a trading platform. I know how much fee you can recoup based on your volumes.

Given their numbers, there was no way they were going to be profitable. You can't spend billions of dollars on stadium naming and at the same time offer fees 10 times lower than the competition without there being a problem. When I said this until recently, I was told that I was biased because I was a competitor...

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