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

think about 2020 imagine a room full of people and the the people in in this room are all the greatest names of our industry and um you know you can imagine in that room all the people you know were looking at each other and then looking at us and you know Whispering oh yeah yeah that those guys are are the black sheep those guys are they they are going down and then you fast forward for years in that room you don't hear Whispering because basically there is only us welcome to bank list 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 ardonia the CEO of tether the hundred billion doll staple Coin Company on the podcast today and before we begin I think I should give you some 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 stable coin is going to go bust um 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 it's been about 10 years of people saying that and I've seen a lot of projects crypto projects rise and fall during that time and here's the thing uh 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 stable coins 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 are bankless and 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 uh 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 soring inflation and uh 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 uh tether is a force in

crypto it has been for a very long time it continues to be it is worth almost hundred billion dollar at the time of recording 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 flasho 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 paollo 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 chokepoint and finally we talk about Tron and circle there's also a ton more and just some housekeeping before we begin if you like this episode if you like Bank list now is the time to give us a five 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 Bank list Nation I am very excited to introduce you to Apollo Ardon he is the CEO of tether which is the largest stable coin in the world with about a 100 billion in total Supply at the time of recording Paulo welcome to bankless thank you very much Ryan

excited to be here oh Paulo this is the first time we've actually done an episode with you and on Tether uh specifically usdt as the the symbol is called so I think we should start really with um getting to know you a little bit so could you introduce yourself to the bankless community uh who are you um coind Des called you the hardest working man in crypto I believe you've held the title of of CTO so you're definitely technical have your share of GitHub commitments and that sort of thing uh you're also now the CEO of tether as I

understand on kind of the business side so just just give us a taste on who Paulo is well um yeah I've been the developer for almost all my life um started calling when I was eight you know with the first personal computers then went to the computer science uh University in Gena I'm Italian and graduated there worked as a researcher for University on a couple of really cool projects one specifically related to uh peer-to-peer

Communications um in um extreme situations like battlefields then um as sometimes happens and most of the times happens especially in Italy you don't get paid much um so I looked outside of Italy decided to focus on finance I started to get a job in uh to build Financial Services in in Switzerland was 2009 around 2009 and then um um I started learning everything that I could

around you know creating systems to um and and portfolio management system for hedge funds you know stocks options funds everything that you can think about Futures and so on and then uh tried I decided that I was quite good at what I was doing so moved to London to create my own startup up and in 2012 13 I was reading about Bitcoin um and still I had my startup in 2014 I had the chance to um to work to

meet um janalo deini uh bitex and T CFO he asked my help to collaborate on bitfix bitfix was one of the fastest growing crypto exchanges at the time uh and as U sometimes happens um these uh crazy fast growing Industries require scalability on the infrastructure so I I was quite good at the that that side of things so I started coding or I was

hired to start coding the machine engine of bitfinex improving it you know I spent in 2015 um I kept working on it I was able to to improve by one under back the the the throughput of that benion engine 2016 bitx was was haed I um I was asked to become the CTO of bit finix uh which I gladly accepted and in 2017 I also became the CTO teder and um

then after that um I started growing the team I kept working on the tax side of the two companies but also started to move on a more strategical side and more strateg strategy and business side especially on the T um in when it comes to T in the last four years also I co-founded uh a project called hole punch that is a peer-to-peer communication layer um resembles a little bit of the torrent uh but um is

made for Real Time dist streams and uh for uh chat video calls streaming and everything that you can think about and recently we launched a product called the first product for for for whole punch called keit that is a peer-to-peer video chat um fully you know without any centralized infrastructure and even more recently just few days ago we launched the first I would say PP operative system called um pair run time so you an engineer by

by training and and certainly that seems to be the route that uh you took to kind of get into into crypto and I'm Wonder for some of the bankless audience that don't know about the relationship between bitf X which uh is an exchange and at one time was one of the fastest growing uh crypto exchanges in the world and tether which is a stable coin uh which I'm sure many have um stumbled across many many know that you know the term usdt or or tether uh what is the relationship between these two entities so are they is is tether a product of

bitfinex is a a completely separate entity and Company how are these two organizations related so the two companies are completely separated when it comes to the the structure the um history is that t usdt as a product started from a necessity that was identified by um Jan Caro deini in the capacity of CFO and bit phex in 2014 the uh environment of

crypto exchanges was completely different than today so in 2014 there was bitstamp Kraken coinbase phix btcc and um okay coin I think that I name basically almost the most important ones no binance at the time no FTX how about coinbase that was sort of around not quite an exchange though yeah they were around yeah okay was there so there were five six prominent exchanges and that's it and um the issue is that for

any maturing industry financial industry you need something that is or an activity that is is extremely important that is called Arbitrage so basically you need traders that um sell Bitcoin on the exchange where the price is higher uh for dollars move the dollars on the 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 align across the all the different exchanges this works only if you can a

you are able to move both the legs of a trade so Bitcoin and dollars the same speed so we know that the Bitcoin block time is 10 minutes um and so you can send realistically Bitcoin from One exchange to another between 10 and 30 minutes but um it's much harder when it comes to moving Fiat you know especially back in time it would was if you were lucky it could take one day but most of the time was taking five to seven days if you you know if you can could get to wire acoss I mean the bank the banks

take holidays too don't they I mean whereas whereas crypto is 24/7 right there're some days where it's just like the banks aren't open you can't get things through exactly so especially as you said during the weekend was terrible because the the spread across exchanges was was um was ballooning a lot so the really simple idea around usdt was let's reuse this brilliant technology called uh blockchain um and uh let's just uh put the most used Curren in the world on top of it so US dollar and um at that

time you know was before ium um so the only available transport layer was um called only layer that was basically a color coin Solution on top of on top of Bitcoin and color coin for people who don't uh remember is sort of like a tokenization type of a solution just built on top of um Bitcoin right so this is pre ethereum as you said yeah exactly and so you know much more limited um programmability compared to ethereum right was only a solution only ler was

designed only to make tokens right not not nothing anything else and so from there basically so Teter was founded uh there was a team of of developers that started working on the product and the two entities are are are segregated um and they have some overlapping of of shareholders but over time one in this exchange one is a stable coin they completely took different rout and

strategies and um you can see how bit phex now is focusing on institutional Traders uh outside of the US tar is purely stable coin but is or started as purely stable coin now is becoming kind of a Beemo in uh in when it also comes to financial markets Investments and uh you know energy production Communications and many other areas I I'm certainly not as aware of those many other areas uh actually Paulo so you

know maybe through the course of this conversation we can get into some of those areas but I want to maybe start with the the thing tether is most known for which is um the the stable coin itself can you talk about the stable coin so we've come a long way from the uh Omni colored coin uh days where you know tether was Prim primarily kind of a token on on Bitcoin now of course it's an erc20 it's across many chains as well it's uh on Tron it's on salana uh it's kind of spread throughout the entire blockchain ecosystem uh there's about a

hundred billion dollar worth of of tether and so one um tether coin one usdt equals kind of $1 right so it's about hundred billion dollars stable coins owns owns about 70% of the market I would say in terms of the total stable coin Market I mean you correct me if any of these numbers are inaccurate so it's come a long way since those uh early days can can you just describe like um I guess what it is as a product today right so you you describe sort of the

early days of 2014 and it was very useful because you know the Fiat banking wire system and a transfer system uh that was slow that was not updated that was not suited to the fast-paced nature of 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 sits what like what it's useful as yeah I I would say that in

2020 there has been a turning point not just for usdt but uh 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 in the financial instability especially in emerging markets in developing countries so uh we have seen how the there was an acceleration of the devaluation on National currencies let's think about the Turkish l or the Argentina pesos so

um right at that time we started seeing the shift of the usage of usdt from being a settlement currency for crypto trading transactions to um a checking account basically so more and more usdt has been growing as the alternative to um to Fiat money for all emerging markets and developing countries so today you go in Argentina you're going

in Brazil you're going in Turkey Vietnam Venezuela and you know Middle East all these countries the communities in these countries there is a lot especially in South America and uh and certain parts of Asia you have more than 70% of the population that is unbanned not because there are bad people just because they are not profitable enough enough for for the banks and to bring the bank infrastructure the bank infrastructure is um outdated relies on technology that

has was built 40 years ago um was uh went through Decades of rubber and bands patching so it's extremely expensive to to to keep it running and so the finan is and and transactions is is is an activity that um is fundamental in people's life today people's Liv so the usage of tedar 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 happened because USD as a product is useful so T never had didn't have a marketing team you know before 2022 and so you know with that we didn't we didn't have um you know we we didn't have a business development team so people starting to use it just because they need a solution right so this was a life saving necessity for for people in in this in these countries I have a friend that lives in um in turkey and

told me multiple times that with a Turkish Le even you know you are you are father you worked the entire month or the entire year and at the end of the year if you save only in Turkish leas you are poorer compared to the beginning of the year just because the Turkish devaluates 80% against the US dollar that is the me the 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 strued by their government

and same thing happened to Argentina now in Bueno Iris um you can see many places many physical shops and online places are all accept in USD for the same very same reason how does this work practically APO for for people who can't imagine uh somebody using I I think many people are in the west who have access to a 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 don't think I I think they have a hard time putting themselves in the

shoes of somebody who's using tether uh as their checking account uh as you said how does this work in practice are they using something like let's say um ethereum or maybe ethereum gas fees are too expensive something like a Tron let's say which has I believe over 50 billion dollars worth of uh tether right now on the Tron chain are they using something like that and when you say they they have a checking account they're basically uh using their you know Tron private key public key as

their bank account essentially and rather than use their local currency whether it's the peso or or the um the Turkish uh Lyra that they're just using tether as kind of their unit of uh account and store of value and medium of Exchange directly on a blockchain is that practically how it works so I think there there are two types of users there is the user that is um a bit more experienced and so he is using u u he has downloaded a wallet on his phone um

could be metamask could be you know trust wallet or many other wallets that are that are fairly popular nowadays ledger so on and so those are the bit more you experienced users that know how maybe to back up their private keys and and then there is um I would say still the majority of the users that are using uh 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 so many of of um we 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 get paid usdt and they would use that account on the exchange to pay in usdt you know all the services and and and their bills for

example in in Brazil now there is in Brazil there is something called PX yes um that is a a standard payment system that is uh spread all in all shops online and offline and all the banks right so you can pay it's basically a qu code that every single banking Gap in Brazil supports and you can see that people have built Bridges between the P system and USD so now you you there are apps that allows you to scan the the P Square code and pay any um any invoice

that in Brazilian real through usdt so they they do the conversion they do everything and so now we have 60,000 ATMs in Brazil that that allows to cash in and cash out USD throughout Brazil so and is all happening independently just because really people need these type of solutions so there's um the the two sets you said are kind of the crypto natives um which many Bank list um listeners will probably be with their own 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 you almost start getting like fintech type of uh 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 custodial service it's easier ux uh they can kind of integrate into other

um areas of uh of an individual's life and um you're starting to see some uptick on that sort of usage and that that's been unexpected you you said Paulo well it's uh it's not not that it's unexpected right so but I when I think how we started with usdt thinking that fast forward few years the market cap of usdt is approaching is 97.8 billion is uh is mind-blowing right so

we are we we have our team extremely committed to the values of of um you know Bitcoin of of the centralization and so we we just uh we are just doing our best to keep uh bringing these values and philosophy with us throughout our journey and even at a much bigger size that like we are today it's interesting because I I think in the early days of maybe 2014 um a lot of people in crypto thought that Bitcoin

would be a primary the currency that would would sort of Bank the unbanked why has it not been why why are stable coins like tether a bit more popular in some of these emerging areas like like Brazil let's say I'm a bitcoiner but nevertheless I'm also quite pragmatic I think first of all there is still so I I wish we will see in the future and hyperbitcoinization and you know the overcoming of Fiat currencies because

you know they you know limited Supply tokens are the only ones that um I think can provide certain type of guarantees to their users the issue with um and you you should look and maybe of course now it's we don't have a crystal ball but U maybe in 50 years we will look it at differently and um you know someone on Twitter will say well um zoom out and look at the big picture right yes you for a period of time you had uh the

usage of U Fiat uh proxies like usdt and eventually you know um few cryptocurrencies uh will become the the the actual ultimate currency or resource for 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 my time your time to dig into um into

technology they 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 uh is um they they need to do it quickly they need to do it securely and that's why they they know the the thing that they know the best throughout the last 200 years is the US dollar that and gold so we cannot pretend that Bitcoin replace especially well both the US dollar and gold with a snap of a finger it requires

education but also so um 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 on boarding um basically Humanity on on digital currencies is is the first step to get also wired wider adoption for Bitcoin so I think everything has a time um and uh we

shouldn't be stressed because you know we are we are like uh 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 won't I do think you're right there Apollo like stable coins are kind of the gateway drug to uh all of the rest of of crypto and certainly to uh to some of the more crypto native assets um that's for sure can we talk about tether itself and the backing of tether so ever since I have been in crypto Pao there has been some question as to like what

are the assets that back a usdt and are they really there uh we can address maybe kind of the the the fud and why tether seems to be a lightning rod for for that um a little bit later in the episode but I I want to hear from you directly so when someone uh would were to split apart a a dollar of usdt what do they find inside of it like what is backing it I think you have this this page on the their website uh it's a transparency page and it shows both the

current balance of how much usdt is issued right now on top of um you know blockchains and right now uh 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'm not I don't know all of the Auditors in this type of 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 uh 84% according to this uh cash and cash equivalents a tiny amount 0.05 uh corporate bonds then you 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 uh usdt and all of the the $98 billion worth of usdt first of all can you just broad Strokes uh tell us about kind of the backing of of tether um how do we know that these assets are actually backing tether what is the auditing process and then maybe we'll we'll go through this in in a couple of the the main categories here but first the backing itself sure so stable coins historically um never had too much luck in in having a full audit

so the industry standard at the moment is called attestation so that is what we have uh with tedar done by B so if you look though although if you look at our attestation you can see that the Auditors so B went through enormous efforts not just to take our word on the existence of this of the numbers that uh that are of of the assets that are back

in tar 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 so yes you're right um ter throughout the history had been considered the black sheep of uh of um you know in in the industry but you know it's imagine think about 2020 imagine a room full of people okay

and in and the the people in in this room are all the greatest names of our industry and um you know you can imagine in that room all the people you know were looking at each other and then looking at us and you know Whispering oh yeah yeah that those guys are are the black sheep those guys are they 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 you know all the the the greatest of the industry part maybe a

couple went past in 2022 and 2023 all those people were the ones that accused peder to do the thing the exact things that they were doing and those things destroyed them right they were Landing uh you know based on pink he promises and and so on so yes sure I mean I agree with you you know our biggest mistake I think was uh being naive and uh 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 and you know if people criticize me eventually they will see that I'm I'm good but and that was you know definitely naive and as I told you we never we didn't have communication team before like 2022 so um we learned from from that specific mistake and we learned that

transparency is really important and um today as matter you have read some of the percentages on the transparency page there is one important factor that I think is um you know is has to be underlined so the the the numbers that you described are based on the 31st December 2023 that is the latest attestation at the 31st December 2023 we had $5.2 billion more than our total outstanding