Paolo Ardoino is the Chief Technology Officer of Tether. In this conversation, Paolo and host Pomp will discuss the rise of stablecoins, fund management, how to ensure that the peg is actually backed by the US dollar, regulation and auditing, banks, FDIC insurance, and more, taking us through all aspects of Tether's understanding of stablecoins.

Moderator: Pomp, Anthony Pompliano

Speaker: Paolo Ardoino, CTO of Tether

Podcast source: Anthony Pompliano

Original title: Tether Founder Reveals Truth About Reserves

Program: Link

Air date: September 19

The rise of stablecoins

Regarding the rise of stablecoins, Paolo mentioned that stablecoins were originally designed mainly for cryptocurrency traders to help them transfer fiat currencies between different exchanges. But with the outbreak of COVID-19 and the depreciation of national currencies, especially in emerging markets such as Turkey, Argentina and Venezuela, stablecoins are increasingly seen as a lifeline for communities in developing countries.

Pomp mentioned that Bitcoin has long been seen as a solution in the face of economic instability and currency devaluation, especially in countries in economic distress, where Bitcoin is seen as a safe haven. Paolo believes that although Bitcoin is a newer currency than other traditional currencies, it is being accepted by the general public. Bitcoin represents the ultimate financial freedom, and people need more time to understand and accept Bitcoin.

Pomp mentioned that there are many dollar-backed stablecoins in the market. Regarding the competition among stablecoins, Paolo believes that an industry cannot have only one player. Diversity is a key factor, which can not only provide users with more choices, but also increase the resilience of the industry and better resist various risks.

Paolo further pointed out that diversity provides a good case for regulators. If there was only one player in the stablecoin industry, then regulators might have a reason to shut it down. But diversity can show that this is a real, growing industry, not just the business of one company.

Tether’s Risk Management

Paolo explained that Tether takes risk management very seriously and has a dedicated team responsible for monitoring the market and understanding the micro-economy. The team's main task is to continuously track market dynamics, ensure that Tether's investment strategy matches the market environment, and remain alert to potential risk factors. He emphasized that their team is very focused on protecting the portfolio.

Paolo mentioned that in 2022 and 2023, Tether faced a series of attacks, but at the same time it also demonstrated its strong liquidity and cashing capabilities. It successfully cashed out US$7 billion in 48 hours and more than US$20 billion in the next 20 days.

Paolo pointed out that this cash-out ability is particularly prominent when considering that $7 billion represents 10% of its reserves and $20 billion represents 25% of its reserves, and Tether has successfully met a large number of cash-out requests in a short period of time without causing much impact on its reserves.

Paolo discussed the role of FDIC insurance in stablecoins. He noted that while FDIC insurance provides some peace of mind for regular consumers, it is not a reliable solution for large businesses like Tether. Tether prefers to use short-term U.S. Treasury bonds because these can be returned to holders in the event of a bank failure.

Shenchao Note: FDIC insurance is provided by the Federal Deposit Insurance Corporation (FDIC). It covers all kinds of deposits, but not other financial products. Its main purpose is to protect depositors' funds in the event of bank bankruptcy or other financial crises.

Tether Investment Diversification

Regarding the source of Tether’s profits, Tether’s current market capitalization is $83 billion, and the company has accumulated more than $3.3 billion in additional reserves in the past few quarters. Paolo pointed out that although it is a period of high interest rates, which is beneficial to Tether, this situation will not last forever.

Paolo mentioned that Tether holds about $1.5 billion in Bitcoin in its portfolio. Although Tether has more than $3.3 billion in additional capital, even if the value of Bitcoin goes to zero, Tether still has more than all its issued tokens. In addition, Tether also holds gold as part of its reserves.

Paolo stressed that the world is full of uncertainty and Tether wants to provide additional protection to users by diversifying its portfolio. Considering the large amount of US Treasury bonds held by Tether in its reserves, the company is considering a small-scale asset diversification.

Paolo mentioned that although Tether had publicly stated in the past that it was conducting an audit, the process took a long time for a number of reasons. Paolo emphasized that Tether has always been committed to improving its transparency and has made great progress in improving transparency.

Tether’s Diversification

Paolo pointed out that Tether's goal is to support blockchains with practical use value. Supporting too many blockchains will increase the complexity of management, especially when most of them have small transaction volumes. For example, Tether was originally issued on OmniLayer. Over time, Tether began to issue USDT on Ethereum and later chose to issue it on Tron.

In Africa and South America, people prefer Tron because Ethereum's transaction fees are too high. Although there are more second-layer solutions such as Arbitrum and Optimism, Tron is still the first choice for many users, providing users with simpler and low-cost transaction options.

Pomp mentioned that as stablecoins become popular, big banks and other financial institutions may enter this field. Paolo believes that big banks may work together to create a common stablecoin instead of each bank creating its own stablecoin. Central bank digital currencies (CBDCs) may face more challenges in Western countries, they may replace cash and may lead to negative interest rates.

Paolo mentioned that Tether is expanding its stablecoin business, and at the same time, Tether is also expanding in other areas such as energy production, Bitcoin mining and communications. Tether's ongoing educational projects are not only related to cryptocurrency, but also involve other fields. Paolo said that they firmly believe that the informatization of education is the key point for future human development, so Tether is also investing in this area.

Paolo mentioned that Tether is carrying out educational projects that are not only related to cryptocurrency. They firmly believe that the informatization of education is the key to future human development. They see the importance of digital technology, online education platforms and other educational technologies in future education, so they decided to invest in this area.