Tether CTO reveals the truth about stablecoin reserves

Arrangement & Compilation: Shenchao TechFlow

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 supported by the US dollar, supervision and auditing, banking, FDIC insurance, etc., giving us a comprehensive understanding of Tether Everything about stablecoins.

Host: Pomp, Anthony Pompliano

Speaker: Paolo Ardoino, Chief Technology Officer 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 initially designed mainly for cryptocurrency traders to help them transfer fiat currencies between different exchanges. But with the outbreak of COVID-19 and the devaluation 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 compared to other traditional currencies, it is being accepted by the broad population. Bitcoin represents the ultimate financial freedom, and people need more time to understand and accept Bitcoin. .

Pomp mentioned that there are multiple US dollar-backed stablecoins on the market. Regarding the competition between stablecoins, Paolo believes that an industry cannot have only one player. Diversity is the key factor. This can not only provide users with more choices, It can also increase the resilience of the industry and make it more resistant to various risks.

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

Risk Management of Tether

Paolo explained that Tether takes risk management very seriously and has a dedicated team responsible for monitoring the market and understanding the microeconomics. The main task of this team 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 redemption capabilities. It successfully cashed out 7 billion US dollars in 48 hours, and in the next More than 20 billion US dollars were cashed out in 20 days.

Paolo pointed out that this redemption ability is particularly prominent when considering that $7 billion accounts for 10% of its reserves, and $20 billion accounts for 25% of its reserves, and Tether successfully fulfilled a large number of redemption requests in a short period of time, without having much impact on its reserves.

Paolo discussed the role of FDIC insurance in stablecoins. He pointed out that while FDIC insurance provides some peace of mind to the average consumer, it is not a reliable solution for large enterprises like Tether. Tether prefers short-term U.S. Treasuries because these can be returned to holders in the event of a bank failure.

Shenchao Note: FDIC insurance is insurance provided by the Federal Deposit Insurance Corporation (FDIC) in the United States. Covers various deposits but not other financial products, and its main purpose is to protect depositors' funds in the event of bank failure or other financial crises.

Tether Investment Diversification

Regarding Tether’s profit sources, Tether’s current market capitalization is $83 billion, while the company has accumulated more than $3.3 billion in additional reserves over the past few quarters. Paolo pointed out that although we are currently in a period of high interest rates, which is beneficial for Tether, this situation will not last forever.

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

Paolo emphasized that the world is full of uncertainty and Tether hopes to provide users with additional protection by diversifying its investment portfolio. Given the large amount of U.S. dollar Treasuries Tether holds in its reserves, the company is considering a small diversification of assets.

Paolo mentioned that although Tether has publicly stated in the past that it is conducting an audit, the process has taken 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 diversified development

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 the transaction volume of most of these blockchains is small. For example, Tether was initially 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 are more inclined to use Tron due to the high transaction fees of Ethereum. Although there are now more second-layer solutions such as Arbitrum and Optimism, Tron is still the first choice for many users, providing users with simpler, lower-cost trading options.

Pomp mentioned that as stablecoins gain popularity, big banks and other financial institutions may enter the space. Paolo believes that the big banks may work together to create a common stablecoin, rather than each bank creating its own stablecoin. Central bank digital currencies (CBDC) may face additional challenges in Western countries, where they could replace cash and potentially 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 a key point for future human development, so Tether is also investing in this area.

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