The Big Whale: Hello everyone, today I have the pleasure of welcoming Paolo Ardoino, CEO of Tether, the issuer of the largest stablecoin in the market, USDT. This stablecoin inspires both admiration and mistrust. Today, we will discuss these topics as well as other themes related to the future of Tether. But first of all, Paolo, how are you?
Paolo Ardoino: I'm very well, thank you for having me. I always enjoy our discussions, the last time was during Paris Blockchain Week (read our previous interview).
Exactly, it was in April of this year. This podcast is the perfect opportunity to get updates on Tether, which, like the entire crypto ecosystem, continues to move forward. We have many topics to cover today: Tether's roadmap, upcoming regulations, and much more. I'd also like to remind our audience that this week, The Big Whale is dedicating a special series to stablecoins, which makes this interview even more relevant. To start, Paolo, let's talk about Tether's latest project: the launch of the stablecoin pegged to the United Arab Emirates dirham. Why did you choose this currency after the dollar and the euro?
The United Arab Emirates dirham (UAE Dirham) is a particularly interesting currency for several reasons. At Tether, we started with USDT, then we tried the euro, the Mexican peso, and the offshore Chinese yuan, as well as Tether Gold. In terms of success, USDT is clearly in the lead, followed by Tether Gold, and then euro Tether, which we launched in 2018.
One of the lessons we've learned over the years is that stablecoins are much more powerful when used outside the country whose national currency they replicate. For example, USDT is much more widely used outside the United States. I often make the analogy that it's like trying to sell a bucket of ice to an Eskimo! In countries with high inflation, or those where access to the banking system is limited, USDT meets a critical need.Now, regarding the United Arab Emirates dirham, we have observed an increasing use of this currency for remittances, particularly in the remittance corridors between India, Southeast Asia, and the Emirates. Abu Dhabi and Dubai have become global financial hubs, attracting commodity traders, hedge funds, and much more. The dirham is increasingly used for payments and fund transfers, making it a logical choice for launching a new stablecoin.
Moreover, the dirham is pegged to the US dollar, thus offering similar stability, while providing an interesting monetary alternative. I am convinced that this stablecoin could become one of Tether's most popular.
Do you think that one day, all currencies will have their own stablecoin? More and more banks, including some major institutions, believe that there will be a multitude of stablecoins in the coming years. Do you believe that each national currency will eventually have its stablecoin?
It's important to distinguish between stablecoins issued by private companies and those issued by governments, called central bank digital currencies (CBDCs). Many governments are considering launching their own CBDC, such as the European Union with the digital euro project. However, it's unlikely that a private company would issue stablecoins for all the world's currencies, as the operational and compliance costs would be too high.
At Tether, we already work with 140 regulatory agencies across 40 countries. Imagine having to manage these relationships for 100 different currencies! It would be almost impossible to manage operationally. It's more likely that certain specific national currencies, with stronger global demand, will see stablecoins issued by private companies, while other currencies will be covered by CBDCs.
Speaking of CBDCs, some European players in the sector don't believe in the future of CBDCs for the general public. They believe that private stablecoins, regulated by central banks, would be more competitive and efficient. What is your opinion on CBDCs, particularly in Europe and the United States?
I have to say that I'm quite skeptical about CBDCs. I understand that this may seem biased, as CBDCs could be seen as competitors to private stablecoins. But the real problem with CBDCs is that they represent an unprecedented form of centralized surveillance. With a CBDC, a government could potentially have access to all transactions made by its citizens, whereas today, a credit card transaction generally remains private, except in the case of a judicial investigation.Governments could justify this by saying there will be layers of privacy, but in reality, this privacy would be limited to what the government deems acceptable. This could very easily slide into total control of citizens' economic behaviors. That's why I think well-regulated private stablecoins represent a safer option for protecting individual freedoms.
In your opinion, are stablecoins therefore destined to become the main form of digital currency in the future?
Absolutely. I think stablecoins, like USDT, have already become a sort of digital dollar for many emerging countries. Their adoption has been massive, not only for cryptocurrency trading but also for everyday transactions, particularly in countries where local currencies are subject to high inflation. In the long term, I believe stablecoins will continue to play a key role in the global digital economy.
This brings us to another topic: the diversification of Tether's reserves. You hold a large portion of your reserves in US Treasury bonds. With the prospects of interest rate cuts, do you have a plan to further diversify these reserves?
Indeed, we currently hold about 100 billion dollars in US Treasury bonds, which puts us in 18th place worldwide among holders of US debt. Even with a potential rate cut, I think interest rates will remain in a range between 2% and 6% in the coming years, which will still ensure us considerable income. Even if rates drop to 2%, that would still represent 2 billion dollars in annual revenue for us.In parallel, we are diversifying our investments. For example, we are investing in Bitcoin mining, artificial intelligence, and telecommunications development. We believe it is crucial to diversify our revenue sources while remaining firmly anchored in our core stablecoin business.
Are you considering increasing your exposure to Bitcoin or even Ethereum in the future?
We have indeed announced that we are buying up to 15% of our quarterly net profits in Bitcoin, and we plan to continue this strategy. Regarding Ethereum, I have some reservations. Unlike Bitcoin, whose total supply is fixed at 21 million, Ethereum's supply seems to change regularly. This introduces a degree of uncertainty that I prefer to avoid as a company.
Let's move on to regulation. You recently recruited Jesse Spiro, a former Chainalysis and PayPal executive, to manage public affairs. What does this recruitment mean for Tether
Jesse's recruitment is very important for us. We are expanding into several sectors beyond stablecoins, such as artificial intelligence and telecommunications, and each sector is increasingly regulated. Jesse will therefore be essential in helping us navigate these complex regulatory waters. He will not focus solely on USDT, but on all of Tether's activities.
In a press release, you mentioned that this recruitment demonstrated your commitment to responsible innovation. Can you explain what you mean by that?
Responsible innovation means that we need to understand the impact our products will have on society. We want USDT, and all the products we develop, to be used in a positive and beneficial way for the greatest number of people. We work closely with Chainalysis and other partners to monitor the use of our stablecoins and ensure that we remain on the right side of regulations.
Speaking of regulation, what is the current nature of your relationships with US authorities
We have a voluntary collaborative relationship with US authorities, which is very important. We have, for example, integrated agencies such as the Secret Service and the FBI to facilitate the freezing of funds in cases of criminal activities. Tether is regularly recognized for its cooperation with authorities, which I am very proud of. However, we often remain misunderstood, which fuels certain controversies around our company.
You say that Tether is often misunderstood and that this fuels controversies. Yet, despite your efforts, Tether is regularly singled out. How do you feel about the fact that Tether and Binance are often considered the "bad students" of the crypto ecosystem?
It's true that Tether is often criticized, sometimes unfairly. But I don't think you can really get tired of this kind of thing. In fact, these controversies have allowed us to become better. It may seem paradoxical, but the constant criticism has pushed the team to redouble its efforts, to be even more transparent, to improve our processes, and to prove that Tether is up to the task.
We have been the subject of immense attention from regulators, the media, and even some competitors. But we have used these difficult moments to strengthen our market position and refine our compliance mechanisms. Without these criticisms and this obsession around Tether, we might not have become what we are today. So, in a way, all this heavy fire has allowed us to improve.
You mentioned that some companies have tried to discredit you, particularly with advertising campaigns in New York. Why, in your opinion, do some competitors resort to using these kinds of practices against Tether?
Yes, we have seen some smear campaigns, including in New York, that directly targeted Tether. These campaigns questioned our transparency and compliance, but they were clearly orchestrated by competitors trying to weaken us. It's quite sad, as it shows that some companies are willing to do anything to try to gain market share.
If you have to resort to defaming a competitor to succeed, it says a lot about your methods and your values. To me, it demonstrates a lack of confidence in their own product or service. We have preferred not to respond to these attacks aggressively, but instead to focus on our efforts to continue innovating and bringing value to our users. It's a long-term approach that, I think, is bearing fruit.
Tether is regularly described as one of the largest holders of US debt thanks to your treasury reserves in Treasury bonds. Does this make Tether crucial to the US economy, to the point that even regulators would hesitate to sanction you?
It's undeniable that Tether plays an important role in global finance, and particularly in the diffusion of the US dollar around the world. USDT is used by millions of people, especially in emerging countries where access to the traditional banking system is limited or where the local currency is very volatile. Through this, we contribute to extending the influence of the dollar in these regions.
Moreover, as you pointed out, we hold a significant share of US debt through our reserves in Treasury bonds. This strengthens our position and, in a way, shows that Tether indirectly participates in supporting the US economic system. However, I don't think this makes us untouchable. We must always respect laws and regulations, but I believe our role is understood and, in some respects, appreciated by US authorities.
Let's return to regulation. You recently hired Jesse Spiro, which shows that you are actively preparing Tether to meet new regulatory requirements. This brings us to discuss the situation in Europe and more particularly the MiCA (Market in Crypto-Assets) regulation. During our last conversation in April, you expressed reservations about Tether complying with MiCA. Since then, have you made progress in your discussions with European regulators? Will we see Tether comply with MiCA by January 2025?
We continue to closely examine the MiCA regulatory framework and the implications it could have for Tether. To be completely transparent, we still have concerns about certain requirements of the regulation, particularly the obligation to maintain 60% of reserves in uninsured cash in European banks. This is a sensitive issue because it could create systemic risks not only for stablecoins but also for the banks themselves. Imagine a stablecoin with a market cap of 10 billion euros: it would be forced to maintain 6 billion euros in uninsured bank accounts. If these funds were to be withdrawn quickly, it could potentially jeopardize the stability of the banks concerned.
Since our last interview, some of our competitors have obtained licenses under MiCA, but even they have expressed concerns similar to ours once they became aware of the risks associated with this regulation. We want to continue discussions with regulators to find solutions that protect both stablecoin users and the European financial system.
Do you think European regulators are ready to review certain provisions of MiCA to avoid these systemic risks?
I hope so. We are still in discussion with them, and we know that other companies and industry players are also expressing their concerns. It's possible that adjustments will be made before MiCA comes fully into force in January 2025, but it's clear that these processes are long and complex.
I think it's in everyone's interest, including regulators, to ensure that the regulation doesn't create more risks than it solves. We want a framework that protects users, but is also viable for stablecoin issuers and financial institutions.
On the European market, euro stablecoins seem to finally be finding their rhythm, particularly with several banks and companies interested in this technology. What is Tether's strategy for your euro-pegged stablecoin, EURT?
EURT certainly has potential, but it's not the same market as USDT. USDT is primarily used in emerging countries as a tool against inflation and to compensate for the lack of reliable banking services. The euro, on the other hand, has a more limited reach outside of Europe. If you go to Argentina or Vietnam, for example, the demand for the euro is almost non-existent compared to that for the US dollar.
That said, in Europe, EURT could play a key role in the traditional financial sector, particularly for financial institutions looking for faster and more efficient settlement solutions. That's why we are currently discussing with several banks and financial players to explore use cases specific to Europe. We have also developed a tokenization platform that could be used by European institutions to issue tokenized versions of the euro, using our technology.
You recently issued one billion USDT on the blockchain, which attracted a lot of attention on social media. Can you explain how the minting process works at Tether and what types of clients buy these large amounts?
There's often a misunderstanding about the minting process. When we issue new USDT, like this billion dollars you're talking about, it doesn't necessarily mean that a client has bought a billion dollars in USDT at once. What we do is create these tokens and store them in an internal Tether treasury wallet, ready to be used.
These funds are not accounted for as liabilities until they are actually purchased by a client. This allows us to react quickly to client demands without having to issue new tokens for each transaction. When a client wants to buy USDT, we draw from this treasury stock and issue the tokens directly from this wallet. If redemption demand exceeds the tokens available in our treasury, we burn the remaining tokens to maintain balance.
You've been in this space for over 10 years now. In your opinion, what are the obstacles that still prevent mass adoption of stablecoins and cryptocurrencies more broadly?
I think stablecoins are already one of the best applications of blockchain in terms of mainstream adoption. They don't represent an entirely new concept, but rather an improvement of existing financial systems, allowing for faster, less expensive transactions accessible on a larger scale. It's a bit like PayPal or Venmo, but on the blockchain.
However, there are still barriers, particularly in terms of regulation and education. People need to understand that stablecoins are not just tools for cryptocurrency traders, but that they can also transform the way money circulates on a global scale, particularly in regions where access to banks is limited.
Can you tell us more about what could hinder this adoption more generally?
On the education side, it's a real challenge. We're in a field where many people, especially in developed countries, are used to using established financial systems like banks, credit cards, or services like PayPal. For them, these services are sufficient, so they don't see the immediate benefit of turning to stablecoins or other cryptocurrencies. This requires a significant educational effort to explain not only what a stablecoin is, but also why it could be beneficial to them. This is one of the crucial points we need to work on, because many people don't yet realize that cryptocurrencies, and particularly stablecoins, can offer more security, speed, and freedom in managing their finances, especially in international contexts or in emerging economies.
Next, regulation remains a significant obstacle. Even though regulators are making progress in many countries, there are still many uncertainties around stablecoins and cryptocurrencies in general. Take the example of Europe with the MiCA regulation. As I mentioned, there are still many gray areas in the regulation that could create risks for banks and stablecoin issuers, instead of protecting them. This is a problem not only for companies like ours but also for the crypto ecosystem as a whole, as poorly designed regulations can hinder innovation and discourage new entrants.
I also believe there's a need for consistency on a global scale. Today, each country or region establishes its own rules regarding cryptocurrencies, and this creates a lot of confusion for companies operating internationally. If we could have a global framework or at least more aligned standards between major jurisdictions, it would make the management of stablecoins and crypto in general much more fluid. This lack of standardization greatly hinders adoption because companies have to navigate through a maze of sometimes contradictory regulations from one country to another.
You talk about global regulation and the need for more consistent standards between countries. Do you think we could reach a global consensus on cryptocurrency regulation in the near future?
Honestly, I think we're still far from a true global consensus, but I believe it's a direction we need to move towards. Today, it's obvious that each region is moving at its own pace in terms of regulation. In the United States, for example, there's a lot of uncertainty about what regulators will do. We have the SEC (Securities and Exchange Commission) on one side, which opposes certain initiatives, and on the other side, discussions in Congress about the need to create specific legal frameworks for cryptocurrencies. In Europe, we have MiCA, which, even if it presents certain challenges, is one of the most advanced and structured regulations to date. In Asia, it's yet another world, with some countries adopting a very favorable approach like Singapore, while others, like China, ban certain activities related to cryptocurrencies while experimenting with CBDCs.
I think a global framework would be ideal for companies to operate safely and to protect users, but this would require intense cooperation between major economic powers and compromises. What we see today is patchwork regulation, where each country applies its own rules. This complicates life for stablecoin issuers like us, as we constantly have to adjust our practices to comply with different national or regional legislations.
However, in the longer term, I believe that the pressure exerted by the growing adoption of stablecoins and cryptocurrencies, combined with the need to encourage innovation while ensuring consumer protection, will push regulators to work together in a more concerted manner. A harmonized global framework could take years to materialize, but I believe it's the only sustainable path if we really want to see cryptocurrencies become mainstream.
You mentioned earlier in our conversation that Tether was working with 140 regulatory agencies across more than 40 countries. Can you tell us more about this work with authorities and what it entails on a daily basis for a company like Tether?
Absolutely, and it's one of the things we're most proud of at Tether. From the very beginning, we made the decision to collaborate proactively with authorities, and this was well before the majority of cryptocurrency regulations existed. Today, we have active collaboration with regulatory agencies and law enforcement across the world, which is essential to ensure the compliance and security of our product.
On a daily basis, this means we have a dedicated team that works constantly with these agencies. We regularly receive requests from law enforcement to freeze accounts, help recover stolen funds, or conduct investigations into suspicious activities. This can range from cryptocurrency-related fraud to investigations into money laundering or terrorist financing. We've developed sophisticated tools, some internally, others in partnership with companies like Chainalysis, to monitor transactions on the blockchain and identify suspicious behaviors.
This work allows us to respond quickly to authorities' requests and freeze funds when illicit activity is detected. In fact, Tether is one of the few stablecoin issuers to have put in place such robust procedures for working with law enforcement. This allows us to show that stablecoins can be used responsibly and that, contrary to some preconceptions, crypto is not an anarchic Wild West where anything goes.
Does this mean that Tether adopts a much more proactive approach than other industry players in addressing the concerns of regulators and law enforcement?
Yes, that's exactly it. We've chosen to adopt a very proactive approach because we believe it's the best way to ensure the longevity and viability of our business. We can't simply wait for a court order to be issued to act, as some other companies do. We believe that by collaborating closely with regulators and law enforcement, we can not only protect our users but also help legitimize the use of cryptocurrencies worldwide.
This may seem counterintuitive to some in the crypto ecosystem who are attached to the idea of total decentralization and resistance to regulations. But we firmly believe that for stablecoins like USDT to reach their full potential and be adopted on a large scale, it's crucial to have a cooperative approach with authorities. This doesn't mean we're compromising our values or betraying the spirit of crypto, but rather that we're doing what's necessary to ensure stability and confidence in our product.
Do you have a final message, particularly for those considering entering the stablecoin or blockchain sector in general?
I would say it's an exciting time to get into this sector. Blockchain and stablecoins are transforming the way we conceive money and financial exchanges. If you're an entrepreneur or a developer, there are countless opportunities in this space. But what I would say is that it's essential to always keep in mind the importance of transparency, compliance, and responsibility. The companies that will thrive in this field will be those that know how to balance innovation with regulatory requirements and user security.
At Tether, we firmly believe that stablecoins will change the way people interact with money. If your company isn't yet considering using stablecoins, it's probably the right time to start thinking about it. The potential is immense, and the impact it can have on the global economy is revolutionary.
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