Diversity provides a good case for regulatory agencies. If there is only one player in the stablecoin industry, regulators may have reason to shut it down.
LianGuaiolo Ardoino is the Chief Technology Officer of Tether. In this conversation, LianGuaiolo and host Pomp will discuss the rise of stablecoins, fund management, how to ensure that the tether is actually backed by the US dollar, regulation and auditing, banks, FDIC insurance, and more, taking us through everything about Tether stablecoins.
Host: Pomp, Anthony Pompliano
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Speaker: LianGuaiolo Ardoino, Chief Technology Officer of Tether
Podcast Source: Anthony Pompliano
The Rise of Stablecoins
Regarding the rise of stablecoins, LianGuaiolo mentioned that stablecoins were initially designed for cryptocurrency traders to help them transfer fiat currencies between different exchanges. However, 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 developing country communities.
Pomp mentioned that in the face of economic instability and currency depreciation, Bitcoin has long been seen as a solution, especially in countries facing economic difficulties, where Bitcoin is seen as a safe haven. LianGuaiolo believes that although Bitcoin is a relatively new type of currency compared to other traditional currencies, it is being accepted by a large population. Bitcoin represents ultimate financial freedom, and people need more time to understand and accept Bitcoin.
Pomp mentioned the existence of multiple USD-backed stablecoins in the market. Regarding the competition among stablecoins, LianGuaiolo 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 industry’s resilience and ability to withstand various risks.
LianGuaiolo further points out that diversity provides a good case for regulatory agencies. If there is only one player in the stablecoin industry, regulators may have reason to shut it down. But diversity can show that this is a real and evolving industry, not just a company’s business.
Risk Management of Tether
LianGuaiolo explains that Tether attaches great importance to risk management and has a dedicated team responsible for monitoring the market and understanding the microeconomics. The team’s main task is to continuously track market trends, ensure that Tether’s investment strategy aligns with the market environment, and remain vigilant against potential risk factors. He emphasizes that their team is very focused on protecting the portfolio.
LianGuaiolo mentioned that in 2022 and 2023, Tether faced a series of attacks, but at the same time demonstrated its strong liquidity and redemption capabilities. It successfully redeemed $7 billion within 48 hours and over $20 billion in the next 20 days.
LianGuaiolo pointed out that when considering that $7 billion represents 10% of its reserves, and $20 billion represents 25% of its reserves, this redemption capability is particularly prominent. Tether has successfully met a large number of redemption requests in a short period of time without causing significant impact on its reserves.
LianGuaiolo discussed the role of FDIC insurance in stablecoins. He pointed out that although FDIC insurance provides some peace of mind for ordinary consumers, it is not a reliable solution for large companies like Tether. Tether prefers to use short-term US Treasury bonds, which can be returned to holders in the event of bank bankruptcy.
Deep Tide Note: FDIC insurance is provided by the Federal Deposit Insurance Corporation (FDIC) in the United States. It covers various deposits but does not cover other financial products. Its main purpose is to protect depositors’ funds in the event of bank bankruptcy or other financial crises.
Tether’s Diversification of Investments
Regarding the source of Tether’s profits, Tether currently has a market value of $83 billion, and the company has accumulated over $3.3 billion in additional reserves in the past few quarters. LianGuaiolo pointed out that although the current high interest rate period is favorable for Tether, this situation will not last forever.
LianGuaiolo mentioned that Tether’s investment portfolio holds about $1.5 billion in Bitcoin. Despite having over $3.3 billion in additional capital, even if the value of Bitcoin goes to zero, Tether still has funds exceeding the total value of its issued tokens. In addition, Tether also holds gold as part of its reserves.
LianGuaiolo emphasized that the world is full of uncertainties, and Tether hopes to provide additional protection to users by diversifying its investment portfolio. Considering the large amount of US Treasury bonds held in its reserves, the company is considering small-scale asset diversification.
LianGuaiolo 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. LianGuaiolo emphasized that Tether is always committed to improving its transparency and has made significant progress in improving transparency.
Tether’s Diversified Development
LianGuaiolo pointed out that Tether’s goal is to support blockchains with actual utility value, and supporting too many blockchains would increase management complexity, especially when most of the blockchains have low transaction volumes. For example, Tether was initially issued on the OmniLayer, and over time, Tether started issuing USDT on Ethereum, and later chose to issue on Tron as well.
In Africa and South America, people tend to use Tron because the transaction fees on Ethereum are too high. Although there are now more Layer 2 solutions like Arbitrum and Optimism, Tron is still the preferred choice for many users as it provides simpler and lower-cost transaction options.
Pomp mentioned that with the popularity of stablecoins, large banks and other financial institutions may enter this field. LianGuaiolo believes that large banks may cooperate 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, as they may replace cash and potentially lead to negative interest rates.
LianGuaiolo mentioned that Tether is expanding its stablecoin business and, at the same time, expanding into other areas such as energy production, Bitcoin mining, and telecommunications. Tether’s ongoing educational projects are not only related to cryptocurrencies but also involve other fields. LianGuaiolo stated 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.
LianGuaiolo mentioned that Tether is carrying out educational projects that are not only related to cryptocurrencies. 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 have decided to invest in this area.
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