Dialogue Tether CTO: Unveiling the Truth Behind Stablecoin Reserves

Video Source: Tether Founder Reveals Truth About Reserves

Author: Anthony Pompliano

Compilation: Deep Tide TechFlow

Paolo Ardoino is the Chief Technology Officer of Tether. In this conversation, Paolo will discuss the rise of stablecoins, fund management, how to ensure that the peg is actually backed by dollars, regulation and auditing, banks, FDIC insurance, and more, providing us with a comprehensive understanding of Tether and 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

Broadcast Date: September 19

The Rise of Stablecoins

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

Pomp noted that Bitcoin has long been viewed as a solution in the face of economic instability and currency devaluation, especially in countries facing economic hardship, where Bitcoin is seen as a safe haven. Paolo believes that although Bitcoin is a relatively new currency compared to other traditional currencies, it is being accepted by a large number of people, representing ultimate financial freedom, and that people need more time to understand and accept Bitcoin.

Pomp mentioned the existence of various dollar-backed stablecoins in the market, and regarding the competition among stablecoins, Paolo believes that an industry cannot have only one player; diversity is a key factor. This not only provides users with more choices but also increases the resilience of the industry, making it better able to withstand various risks.

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

Tether's Risk Management

Paolo explained that Tether places a high emphasis on risk management and has a dedicated team responsible for monitoring the market and understanding microeconomics. The team's main task is to continuously track market dynamics, ensure that Tether's investment strategy aligns with the market environment, and remain vigilant about potential risk factors. He emphasized that their team is very focused on protecting the portfolio.

Paolo mentioned that Tether faced a series of attacks in 2022 and 2023, but at the same time demonstrated its strong liquidity and redemption capability, successfully redeeming $7 billion within 48 hours and over $20 billion in the following 20 days.

Paolo pointed out that when considering that $7 billion accounts for 10% of its reserves and $20 billion accounts for 25% of its reserves, this redemption capability is particularly notable. Tether successfully met a large number of redemption requests in a short period without significantly impacting its reserves.

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

Deep Tide Note: FDIC insurance is provided by the Federal Deposit Insurance Corporation (FDIC) and covers various deposits but does not cover other financial products, primarily aimed at protecting depositors' funds in the event of bank failures or other financial crises.

Tether's Investment Diversification

Regarding Tether's sources of profit, Tether currently has a market capitalization of $83 billion and has accumulated over $3.3 billion in additional reserves over the past few quarters. Paolo pointed out that although we are currently in a high-interest-rate environment, which is favorable for Tether, this situation will not last forever.

Paolo mentioned that Tether holds approximately $1.5 billion in Bitcoin in its portfolio. Despite Tether having over $3.3 billion in additional capital, even if the value of Bitcoin were to drop to zero, Tether would still have funds exceeding all of its issued tokens. Additionally, Tether holds gold as part of its reserves.

Paolo emphasized that the world is full of uncertainties, and Tether hopes to provide users with additional protection by diversifying its portfolio. Given the large amount of U.S. Treasury bonds held in its reserves, the company is considering small-scale asset diversification.

Paolo mentioned that although Tether has publicly stated in the past that it is undergoing an audit, this process has taken a long time for various reasons. Paolo emphasized that Tether is always committed to improving its transparency and has made significant progress in this regard.

Tether's Diversified Development

Paolo pointed out that Tether's goal is to support blockchain technologies with real utility. Supporting too many blockchains increases management complexity, especially when most of those blockchains have low transaction volumes. For example, Tether was initially issued on OmniLayer, and over time, Tether began issuing USDT on Ethereum and later chose to issue on Tron.

In Africa and South America, due to high transaction fees on Ethereum, people tend to prefer using Tron. Although there are now more second-layer solutions like Arbitrum and Optimism, Tron remains the preferred choice for many users, offering simpler and lower-cost transaction options.

Pomp mentioned that with the popularity of stablecoins, large banks and other financial institutions may enter this space. Paolo believes that large banks may collaborate to create a common stablecoin rather than each bank creating its own stablecoin. Central Bank Digital Currencies (CBDCs) may face more challenges in Western countries, as they could replace cash and potentially lead to negative interest rates.

Paolo mentioned that Tether is expanding its stablecoin business while also branching out into other areas such as energy production, Bitcoin mining, and communications. Tether is conducting educational projects that are not only related to cryptocurrency but also involve other fields. Paolo stated that they firmly believe that the informatization of education is a key point for the future development of humanity, which is why Tether is investing in this area.

Paolo mentioned that Tether is conducting educational projects that are not solely related to cryptocurrency, and they firmly believe that the informatization of education is a key point for the future development of humanity. They see the importance of digital technology, online education platforms, and other educational technologies in the future of education, which is why they decided to invest in this area.