Tether is still working to complete a comprehensive audit that covers not only recent years, but also previous years. Once the audit results are finalized, they will be announced as soon as possible.
Guest: Paolo Ardoino, CTO of Tether
According to Coingecko data, the current circulation of the stablecoin USDT has exceeded 83.3 billion US dollars, and its market share has exceeded 60%, and it is still growing. As the world’s largest stablecoin issuer, Tether has always been the focus of regulatory attention, and its financial status and transparency have been questioned by the market many times. Nevertheless, Tether remains stable after a series of black swan events such as the UST crash in Terra and the collapse of multiple crypto banks, and maintains a strong development momentum after many crises. In May of this year, Tether announced the completion of an audit by the independent accounting firm BDO Italia, and the net profit in the first quarter reached 1.48 billion U.S. dollars, an increase of more than double compared to the previous quarter.
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Data Source: Coingecko
After a series of events, Tether is also increasing transparency through various means. Tether has promised a comprehensive audit since 2017, and has therefore been questioned. Recently, Paolo Ardoino, the CTO of Tether, accepted an interview with ChainCatcher. He responded that Tether has taken the lead in disclosing the composition of reserves among peers and provided public proof, and has not misled the public with phrases such as “official audit.”
Currently, Tether is still working to complete a comprehensive audit that covers not only recent years, but also previous years. Once the audit results are finalized, they will be announced as soon as possible.
In addition, in the interview, Paolo Ardoino also mentioned the issue of unclear regulation. He believes that regulatory agencies should provide more guidance on the operating methods of stablecoins and what reserves they should have.
Paolo Ardoino also shared his thoughts on algorithmic stablecoins, more use cases for USDT, and Bitcoin cross-border payments. The following is the full text of the conversation:
1. ChainCatcher: Tether has “experience” in dealing with regulatory agencies. How do you view recent actions by US regulatory agencies towards stablecoins and the crypto market?
Blockingolo Ardoino: It should be noted that the regulation of cryptocurrencies and stablecoins is still evolving and changing. Overall, the approach to regulating the cryptocurrency market and stablecoin industry is to strike a balance between protecting consumers and reducing risks, while promoting innovation and development in the industry. Although it is uncertain how regulatory agencies will continue to adapt to this rapidly changing industry, we do believe that regulatory agencies should provide more guidance on how stablecoins operate and what reserves they should have. Tether is committed to operating in a secure and transparent manner while complying with all government compliance and regulations.
Therefore, regulatory agencies such as the SEC and CFTC have taken steps to strengthen supervision of the industry, such as requiring cryptocurrency exchanges to register with the SEC as broker-dealers.
2, ChainCatcher: Is there an objective standard for regulating stablecoins? For example, will regulatory agencies require stablecoin providers to disclose certain information, such as similar requirements to disclose custodial bank assets?
Blockingolo Ardoino: There is currently no universal standard applicable to every stablecoin company globally. Whether stablecoin companies must disclose their financial institution partners depends on the laws and regulations of the relevant countries. As far as Tether is concerned, we have proactively become a leader in transparency by providing evidence of our reserves through quarterly attestations. In fact, our transparency policy can be viewed here: https://tether.to/en/transparency/.
3, ChainCatcher: Centralized stablecoins cannot escape their reliance on centralized issuers, and compliance may be a necessary path. At the same time, decentralized algorithmic stablecoins may have made some attempts to “deregulate,” although the collapse of UST last year led the market to lose confidence in algorithmic stablecoins. How do you evaluate algorithmic stablecoins?
Blockingolo Ardoino: Algorithmic stablecoins play a critical role in the cryptocurrency ecosystem, especially on-chain. But algorithmic stablecoins are different from collateralized stablecoins supported by highly liquid collateral, relying on market operations to maintain value. However, these market operations often fail, causing the value to plummet. Terra algorithmic stablecoin is an example that was ultimately proven to be under-collateralized. It used several mechanisms to achieve stability, but ultimately these mechanisms did not work.
On the other hand, Tether (USDt) is less susceptible to market fluctuations compared to algorithmic stablecoins because it is fully supported by liquid reserves. Following the collapse of Terra/Luna, investors have scrutinized stablecoins more carefully and become more cautious, but it is important to distinguish Terra and its unique algorithmic approach from other asset-backed stablecoins similar to Tether. Terra and USD₮ use different designs, mechanisms, and collateral methods.
4. ChainCatcher: Forbes recently raised the question: “Tether has basically always hidden its financial situation. Tether has never submitted a comprehensive audit of its reserves and only provides incremental snapshots of its accounts in the form of periodic ‘proofs’ made by a third-party accounting firm (most recently BDO Italia) … In contrast, its competitor Circle manages the stablecoin USD Coin, which discloses detailed information on the specific government bonds, CUSIPs, and maturity dates that back its $41 billion digital dollars.”
How does Tether respond to these questions?
Blockingolo Ardoino: According to our recent proof for Q1 2023, Tether continues to prioritize transparency and has made significant progress in emerging markets, becoming a safe choice for users in turbulent markets. Tether had a strong performance in Q1, with a net profit of $1.48 billion and a very strong reserve. In addition, the circulating token supply increased by 20%, demonstrating a high level of customer trust in Tether and confirming the company’s optimistic outlook for the next year.
Unfortunately, some traditional media outlets continue to spread outdated and untrue claims about our financial situation. The fact is, Tether maintains a strong, cautious, and liquid investment portfolio that prioritizes reserves. We provide an assurance opinion every quarter, which contains a comprehensive explanation proving that all Tether tokens are reserve-backed.
It is important to emphasize that Tether was the first in the industry to disclose the composition of its reserves and provide public proof, and did not mislead the public into believing it was an official audit. Although Tether and its main competitors have not yet conducted financial audits of stablecoins, Tether is working hard to complete a comprehensive audit covering not only the past few years but also the previous years. Once the audit results are finalized, we will make them public.
Aside from its reserves, Tether’s resilience during market volatility demonstrates why it is the most trusted stablecoin in the world. During the Terra/Luna collapse, Tether successfully redeemed over 10% of circulating USDT, equivalent to $7 billion, within 48 hours. Tether processed nearly $20 billion in redemptions from market peak to trough. While other players favored by traditional media faltered under market scrutiny, Tether has grown to become the largest stablecoin in the industry, with the strongest liquidity and the widest adoption.
5. ChainCatcher: How can users be further educated on Tether’s transparency?
Paolo Ardoino: Users can log on to our website and view the quarterly attestation opinions regarding our reserves. Tether is educating and engaging with our community through multiple channels. We are committed not only to providing quarterly transparency reports, but also working with auditors to complete audits as soon as possible. Additionally, we have listened to feedback from users, such as converting all commercial paper reserves to short-term U.S. Treasury bills, and we will continue to ensure that every action we take is in the best interest of the industry and community.
6. ChainCatcher: What are some use cases and potential for stablecoins beyond digital and cross-border payments in developing economies?
Paolo Ardoino: Stablecoins have the potential to disrupt the entire financial landscape, starting with revolutionizing digital payments and enabling seamless transactions in decentralized finance. The USDT itself can offer many benefits, such as enhancing businesses, simplifying operations, minimizing transaction errors, and significantly reducing credit card fraud.
The transferability of USDT between exchanges and individuals eliminates the need for intermediaries such as banks in the traditional process of transferring funds. Tether can provide a user-friendly buying and selling experience and is currently available on cryptocurrency exchanges. Therefore, during periods of market volatility, Tether is often used as the preferred solution for holding funds on exchanges.
Stablecoins, including Tether, also facilitate cross-border trade and remittances, particularly in emerging markets. USDT provides a stable and efficient means of transmitting dollars, with tens of thousands of users in Asia, Latin America, and Europe using it every day. The adoption of Tether and other stablecoins in these regions improves trading efficiency, provides more arbitrage opportunities, and various other transactions.
Furthermore, stablecoins like Tether can provide convenience, stability, and efficiency, empowering businesses and promoting economic activity worldwide by enabling secure and rapid transactions and reshaping the financial landscape.
7. ChainCatcher: Besides being used for crypto trading, USDT has also become a retail currency tool for many developing countries in Latin America, Africa, etc. For example, Lugano, Switzerland announced that it would use USDT as legal tender, which is a very meaningful thing for the entire crypto industry. What other plans does Tether have to promote the widespread adoption of USDT? What are the difficulties in promoting it in different countries and regions?
Blockingolo Ardoino: With “Plan ₿” (Tether’s collaboration initiative with Lugano), we have demonstrated the transformative potential of blockchain technology more broadly. By partnering with local businesses and well-known retailers such as the famous fashion brand Guess, we have demonstrated the feasibility and advantages of integrating Bitcoin and cryptocurrencies into daily life.
We can proudly say that USDT is essentially a tool for achieving financial freedom, promoting financial inclusivity and democracy. We don’t just serve white-collar customers on Wall Street; instead, we go into emerging markets and Tether tokens are not only a safe haven product for the unbanked, but also an opportunity for them to enter the global financial market.
It is also very gratifying to witness the organic growth of our product in the community. For example, in countries like El Salvador and Turkey, where severe inflation is a problem, people use USDT as a means of preservation. Similarly, immigrant workers who previously relied on expensive services such as Western Union for cross-border remittances have turned to Tether. Our tokens enable them to save more hard-earned money and avoid interference from uncontrollable external factors.
8. ChainCatcher: How is the previously launched “Plan ₿” progressing?
Blockingolo Ardoino: Through “Plan ₿,” Lugano has made significant progress in adopting cryptocurrencies, which are a breakthrough model for financial and technological innovation not only in Europe, but globally. Since the launch of “Plan ₿” in March 2022, more and more merchants in Lugano (including well-known brands such as Guess and McDonald’s) have started accepting Bitcoin, USDT, and Lugano’s local token LVGA as payment methods for their products and services. Lugano’s wide acceptance of Bitcoin and blockchain technology demonstrates the potential of a free, open, and borderless monetary system.
The mainstream adoption of Bitcoin is an inevitable progression; however, as with the adoption of any financial system, this undoubtedly takes time. Nevertheless, as more and more Lugano residents and tourists experience the convenience of using cryptocurrency payments, the number of stores and businesses accepting cryptocurrencies is increasing (currently at 150), naturally increasing the demand for Bitcoin and other cryptocurrencies. This is where our annual “Plan ₿” forum can play a key role in promoting Bitcoin and blockchain education. Through the adoption of Tether tokens, we realized that when people have easy access to tools of financial freedom, they are willing to use them. We believe that the essence of Bitcoin is to provide individuals with an opportunity to obtain financial autonomy.
9. ChainCatcher: Some believe that Bitcoin is more of a store of value and, given its volatility, is difficult to be adopted as a means of payment. What do you think about this?
Blockingolo Ardoino: We do not focus on volatility but rather on the fact that Bitcoin is an unlicensed payment solution. Furthermore, with the advancement of Bitcoin scaling technologies such as the Lightning Network, its payment efficiency and adoption rate will be greatly improved. Bitcoin was designed from the beginning as a decentralized, peer-to-peer cash ledger system that can operate independently of fiat currencies. That’s why we strongly advocate for Bitcoin as a peer-to-peer network to promote global financial inclusiveness.
In order to further achieve this goal, Tether remains committed to supporting the development and adoption of Lightning Network and similar technologies to seamlessly integrate Bitcoin. In addition, we will continue to invest and support the Bitcoin community, including developers and white hat hackers, to strengthen the strength, resilience, and immutability of the Bitcoin network. By promoting the widespread use of Bitcoin as a peer-to-peer financial transaction method, we are better able to achieve global financial inclusiveness.
10. ChainCatcher: Do you have anything to share with us about recent developments with Tether?
Blockingolo Ardoino: For Tether, freedom of communication and financial freedom go hand in hand. In addition to stablecoins, we also focus on platforms like Holepunch to build peer-to-peer applications. Last year, we used the framework provided by Holepunch to launch a peer-to-peer text and video chat application called Keet in conjunction with Bitfinex and software company Hypercore. This can establish a more efficient and decentralized connection for users while maintaining high levels of security and privacy through encryption.
In addition, to continue the achievements of the “Plan ₿” initiative, we will once again hold a two-week summer school course in Lugano, mainly to provide training for people to understand Bitcoin and peer-to-peer technology and how they will bring financial freedom and promote freedom of speech. The course topics will focus on Bitcoin, Lightning Network, stablecoins, peer-to-peer technology, mining, blockchain analysis, regulation, and self-regulation. The “Plan ₿” summer school will allow participants to work with industry leaders to develop peer-to-peer prototypes, deepen their understanding of technology, and help shape the next generation of founders, developers, and creators.
We will hold the second “Plan ₿” forum in Lugano on October 20-21, 2023. At that time, we will convene world leaders, technology experts, and entrepreneurs to discuss the adoption of Bitcoin at the national level, economic and financial freedom, and freedom of speech.
11, ChainCatcher: Which specific areas of cryptocurrency do you personally like?
Blockingolo Ardoino: I believe that the stablecoin field will continue to grow. Although the entire stablecoin field will face more difficult challenges, these challenges involve the regulation and systemic risks of the traditional banking system. Tether has shown the most resilience in the face of market fluctuations, and of course, given that USDT is supported by a highly liquid conservative reserve, I believe that Tether’s competitors will also get better and better. We welcome innovation and fair competition. After all, if there is only one giant in this field, Tether, it cannot be called an “industry.” Users should not only have one choice.
In addition, I hope to see more development in the decentralized finance (DeFi) field in 2023. In the past few months, we have seen many problems with centralized traditional institutions and exchanges. Decentralization should be the cryptographic spirit that builders pursue. Putting money in your own wallet or on your own phone or laptop is what people need and what DeFi should focus on. DeFi is a way to solve real-life problems for people, which is highly consistent with Tether’s vision.
If we forget the original vision of Bitcoin and only focus on speculation, competing with each other on the latest Meme coins, we will end up where we started. The current banking system remains the only synonym for the financial industry.