April 7, 2025 • 44 mins
Anything crypto-related is frequently greeted with a high degree of skepticism. Within that, one of the most controversial companies for a long time has been Tether, the company behind the popular stablecoin USDT. But despite people predicting otherwise, the company has boomed. It's insanely profitable. It's one of the largest holders of US Treasuries in the world. And because of the change in the US administration, it's gathering fans in Washington, DC. In this episode, we speak with Tether CEO Paolo Ardoino about what it's like to run this business, how they work with law enforcement, future growth opportunities, and why, after all these years, it's still never had a formal audit.
Read more:
What Are Stablecoins and Why Are Regulators Wary?
Tether To Buy a 30% Stake in Italian Media Company Be Water
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:18):
Hello and welcome to another episode of the Odd Thoughts podcast.
I'm Tracy Alloway.
Speaker 3 (00:23):
And I'm Joey.
Speaker 4 (00:23):
Isn't thal Joe?
Speaker 2 (00:25):
It is April here in New York.
Speaker 4 (00:27):
That's right.
Speaker 2 (00:27):
It is my ten year anniversary at Bloomberg this month.
Speaker 4 (00:32):
This month.
Speaker 3 (00:32):
Oh, that's awesome. You're going to get a pilon.
Speaker 4 (00:34):
That's great.
Speaker 2 (00:35):
It's put me in a very thoughtful mood a whole
decade since Joe tricked slash enticed me into coming here.
Speaker 1 (00:43):
So thank you.
Speaker 4 (00:43):
Are you're happy?
Speaker 3 (00:44):
Are you happy about how it worked out?
Speaker 2 (00:46):
I I can't complain. I will say it was a
bit rocky in the beginning, but we worked it out
where going okay. In that ten years, a lot of
things that I would never have expected to happen have happened, Yes,
go on. One of them is the phenomenal growth of
the crypto industry. So I first started writing about bitcoin
(01:09):
in twenty eleven, and I will openly admit that I
think by like twenty thirteen, I had written I think
like three or four obituaries for bitcoin as well, So
you know I got that wrong clearly. But one of
the other things I got wrong on crypto is the
phenomenal growth of stable coins. Yeah, so you look at
(01:29):
something like Tether, the world's biggest stable coin. We talk
about it in the same sentence nowadays as euro dollars,
for instance, and the company itself is this huge player
in financial markets, like it owns more t bills nowadays
than some countries, which is all pretty amazing.
Speaker 3 (01:48):
Well, let's be honest for a second here. You know,
you might have thought that Tether wouldn't even exist at
this point because it had a reputation for years and years,
like there are a bunch of scammers. They can't pass
an audit, the money is there, et cetera. It's going
to go away. Why would you ever hold it Tether?
We have Sam bankman fried that years ago. Why would
you hold Itchether when there are other companies that have
done audits, et cetera. There are many people not only
(02:09):
setting aside the size, setting aside all of the assets
that it owned the back, you know the world's most
popular stable coin. There are many people who just thought
of this company can't continue so totally.
Speaker 2 (02:19):
The other thing I thought was that US officials were
never going to grow comfortable with the idea of a
loosely regulated foreign company creating synthetic dollars. But you know,
the Trump administration seems to have some other ideas, so
we should talk about all that.
Speaker 4 (02:34):
Let's do it.
Speaker 3 (02:34):
You'k a perfect guest.
Speaker 2 (02:35):
We do have the perfect guest. We're going to be
speaking with Tether CEO, Paolo our do we know he is,
of course the head of the world's largest stable coin.
So Paolo, thank you so much for coming on the show.
Speaker 4 (02:46):
Thank you for having me. I'm very excited to be
here today.
Speaker 2 (02:50):
So just to begin, has Tether's growth surprised you? Did
you ever expect to ramp up to this degree?
Speaker 4 (02:58):
So I joined Tether very early, was early twenty fifteen,
just after a couple of months that was actually created,
and we were discussing internally, myself and Giancarlo, and we
were asking ourselves the biggest number we could think about
in terms of growth and projection of growth of our
stable coin was between one hundred million dollars and one
(03:22):
billion dollars, and now today is one hundred and forty
four billion dollars in total issue tokens. So we are
incredibly excited, we are impressed ourselves. But I must say
that it's all happened organically over a decade.
Speaker 3 (03:37):
The stable coin business is so sick, it seems to
me right, because you hold all of these assets that
back one to one, these tokens that move on blockchains,
and you collect all this interest and the holders of
the coins don't collect any interest. According to a release
on Tether's on website, you made thirteen billion dollars in
(03:58):
twenty twenty four. Various estimate have your total employees somewhere
a little bit below two hundred, so that makes per
profit employees somewhere close to ninety million per employee. Like,
there's basically correct math that this is like one of
the most extraordinary, maybe the most profitable business in the
history of business.
Speaker 4 (04:16):
Yeah, I think it's definitely extraordinary. I define TETA at
once in a century company because of the capital that
we have given our profits. In the last two years
and a half, we made around twenty billion in profits,
and we almost distributed well, we distributed a very very
tiny part to their shareholders. I mean a name, another company,
(04:39):
another fund or whatever that distributed less than I know,
ten percent or probably even less than five percent of
profits to their own their own shareholders. So that is
something that is unprecedented and it's you know, it's set
in TET to be able to reinvest ninety five percent
of its profits in keeping growing its distribution network for
(04:59):
the US dollar and also investing in other pretty cool
things from artificial intelligence, bigon mining, and the tens of
other opportunities around the world.
Speaker 2 (05:07):
So you mentioned distribution of the US dollar, and there
is some tension there right. I mentioned earlier that I
never thought regulators were going to be okay with someone
basically creating a synthetic dollar that can trade around the world.
But times have changed and some things are shifting on
the regulatory front. But are you a competitor to the
(05:30):
US dollar? Plenty of people would say you are, or
are you something that perhaps complements it.
Speaker 4 (05:36):
I don't think we are a competitor to the US dollar.
USDT is a digital dollar that is backed for most
of it by US treasuries. We are bringing the US
dollar out there in the emerging markets to developing countries.
We have as of today more than four hundred million users,
actually will be five hundred and fifty million users. I'd
(05:59):
like to be a bit more conservative to avoid double
counting users, so I would say more than four million users.
We grow at the pace of thirty million new users
per quarter. That is again, we are not Facebook. We
are just a digital dollar. So it's really unprecedented and staggering.
The reason why we are interesting for the United States
(06:20):
and the regulators are now appreciating who we are and
what we are doing is the fact that we have
been building the biggest distribution actor for US dollar in
a physical form and a digital form. We have millions
of touch points around the world in the emerging market.
We never approached our distribution going through institutions in the
emerging markets, but we build physically infrastructure from chosts in
(06:43):
villages in Africa to bodegas in southern South America. And
again we are just distributing a digital dollar. And look,
the reality is that the US dollar hegemony is very,
very important for United States. And when we are in Africa,
when we're in Central South America, there is not much
US presence. There is actually there is press and apart
(07:06):
maybe McDonald's, but in some countries in Central South America,
the actual presence of infrastructure in the United States is
not there. So what Tata is doing in those countries
is purely building that infrastructure and trying to in a
way combat Actually more than in a way, it's we
are i think, the last stronghold before the very strong
(07:30):
push towards diedalarization made by the bricks countries. So we see,
for example that in Central South America or in Africa,
there are hospital, schools, libraries, and airports that are building
the built by China. And again there is an interest
from breeks countries to launch a digital currency backed by
gold plus. There are building an infrastructure in these countries,
(07:53):
So all the employees, all the people that will rotate
and gravitate around these new infrastructures built by bridge countries,
we'll start using something that is not the US dollars.
So I think it's becoming very very clear that actually
Tatter is the best of life for the United States.
Is the company when we are also in these countries.
We are not seeing NGOs, we are not seeing charities.
(08:15):
We are the company that also solved or is solving
financial inclusion in the strongest way possible.
Speaker 2 (08:21):
Joe I got to say, it's a little bit depressing
that you know, a company that was founded by an
Italian in Europe incorporated in the BVII. Although I think
you're moving to El Salvador is the ambassador for US.
Speaker 3 (08:36):
Against the end of the dollar. Well, history can be
funny in that respect. Why haven't you ever been audited.
Speaker 4 (08:44):
So in the past administered with the past administration last
four years, I must say that was not easy to
deal with the past again administration. So I remember Senator
Warren sending letters around to different organizations. There was a
case of the Operation Truck point two point zero that
(09:07):
was very aggressive towards the banking industry that was supporting
cryptocurrency companies. On the other side, that letter also scared
away and was targeted towards the Big four auditing firms
and other auditors. That where then this incentivized to go
against the will, the strong will of an administration that
(09:27):
was really against crypto in general.
Speaker 3 (09:30):
Just real quickly. So obviously you hold your money or
a lot of your the assets the holder with counter Fitzgerald,
It's former CEO, Howard luck Nick now the Commerce secretary
friendly with the administration. There has been this changing of
the guard. Has the changing of the guard at the
administration level had any bearing on the reason that you're
(09:51):
here in New York City and comfortable visiting the US.
Speaker 4 (09:54):
So I was been always comfortable to visit the US,
but you won't usually to go where what you are
doing for ninety seven percent of your time or eighty
percent of your time given sleep in a few hours
is being accepted and is not considered a very bad
thing by the administration. Right, So you want to deal
with people that support what you're doing. It at least
(10:16):
they have the will to understand what you're doing. So
actually the change in administration is what is making possible
for us for that or another many cryptocurrency related companies
to start to deal with the big four auditing firms.
We are in discussions. We have multiple discussions on the
topic of audit. We hired a new CFO a couple
(10:37):
of months ago. Is great. Simon went through multiple contentions
full audit across his entire career. I don't think that
audit should be contentious, but given again the complexity and
the new field that is cryptoward is possibly one correct
term and adjective that I could use here. And look,
(10:57):
we are very positive that the full audit is our
top priority, and I'm pretty confident that we're going to
make it.
Speaker 2 (11:05):
So just to be clear on the regulatory point, things
are changing, as you just mentioned, and previously there was
regulatory pressure on the big accounting firms to not work
with you. That seems to be going away. That's going
to allow you to do an audit. Do you have
a time frame for when you might do that?
Speaker 4 (11:25):
So in the past we committed a few times and
we provided timelines that were not realistic because of the
fact that, as I said, the administration really doubled down
on trying to kill an entire industry. That was very,
very sad to see. So again, we are moving as
fast as we can. There is of course some change
(11:46):
that is still needed among the big four auditing firms.
So while they are getting more comfortable, look the administration
changed only two months ago, so give them a little
bit of time to get comfortable. And we are providing
all the We are again in already in discussions. So
it's crazy. The monimization changed two months ago and we
are already in discussions way big four auditing firms. So
(12:09):
that is the best thing that can say. And again
the fact that we hire the new CFO and that
has you know, the highest experience in the sector to
get through audits is something that should reinvigorate our position.
Speaker 2 (12:36):
What's the complexity of doing an audit for a business
like Tether. I've always wanted to ask this question. So
you know, you need a professional accounting firm to do this,
because you want to give people who use Tether investors
some sense of safety and stability and truth in what
you're portraying. But at the same time, it seems like,
(12:57):
you know, you should have a pretty good idea.
Speaker 3 (12:58):
It seems simple, count of the treasuries and count the
circuits and if they merge, what are we missing here?
Speaker 4 (13:03):
I agree with that. In fact, the problem I don't
think is about the complexity of going through our reserves
because as we said, we keep the majority, the vast
majority of our treasure is in counterfigial. That is a
very highly regulated financial institution here in the US. I
think that the confidence in the industry, in the digital
assets industry is growing among the big four auditing firms.
(13:27):
And look, on the other side, you can go on
blockchains and blockchains are very very transparent, so you can
count to the liabilities through the transparency of the blockchain.
And on the other side, you can just independently contact
our custodians. I think that what we expect from the
full audit is also confirmation of our good practices that
we have within the company in terms of controls and
(13:48):
safety and proper management, for example, the private keys and
all that stuff. So that's a process that we want
to make sure that we go in the deepest details
possible with our auditors, because there is nothing that excites
me more than prove that we were always right we
had our lacking in twenty twenty four going out there
saying Tatter has the money. We are releasing a quarterly
(14:11):
attestation from a very reputable auditing firm called BDO. They
are international, so there are many many different independent validators
of our service. But you know, we just want to
get the flow of it done.
Speaker 3 (14:24):
Circle, one of your competitors, holds its money in a
money market mutual fund from Blackrock called the Circle Reserve Fund.
What is the advantage of going out and acquiring q
SIPs of various flavors directly such that you're direct holder
of treasuries rather than outsourcing it like that. Here's an
institution black Rock. They set up a money market mutual
(14:46):
fund that you could just buy into and not have
to think about that part. Why the preference towards the
direct holdings of the bills and bonds.
Speaker 4 (14:54):
So that's a good question. So we prefer to have
a direct control over the process and we that through Counterfaitgerald.
Also having that direct control allows us to have access
to the infinitely liquid ripple market. So we think that
is in case of huge pressure from the markets and
huge redemption pressure, our facility is much better than anything
(15:17):
else attempted by our competitors. Look think about in twenty
twenty three, our major competitors had and a big issue
with Silicon Valley Bank. They have uninsured cash deposits there.
In twenty twenty two, Tetter was attacked by funds that
were clearly trying to cause a bank run on USDT.
They tried the mussed billions and billions and billions of
(15:41):
USDT just to trying to sell them under par on
the secondary markets on the different cryptocurrency exchanges can Tetther
never refused the redemption. TATA never failed to redeem at
one dollar each token. But at that time when that happened,
these short sellers were trying to cause a bankrupt and
So what happened is that Tata was able to redeem
(16:03):
seven billion dollars in forty eight hours and the twenty
billion dollars in twenty five days. So seven billion dollars
weigh ten percent of our reserves and twenty billion dollars
where around the twenty something percent of our reserves. So
I mean, if you look at Washington, mood Well and
many other banks that failed from twenty eight and after,
(16:26):
there was no bank that was able to support a
ten percent bankrunt, and we did it with flying collars.
We could have gone to till the end. That's what
means to have a proper repo market and very deep
liquid market for treasuries. We keep all treasuries that are
basically three months in duration ninety days. So I think
we build the best facility for handling any sort of
(16:49):
redemption and provide the proper amount of trust that our
users need around the world.
Speaker 2 (16:54):
So you made it through twenty twenty two, it must
have still been fairly traumatized or scary at the time
to have that much withdrawal pressure on the business. Have
you changed any of your redemption policies since then or
perhaps instituted I don't know new risk management around the
(17:14):
PEG point.
Speaker 4 (17:16):
So the concept of PEG is interesting, right. People refer
to the PEG as you know, if USDT or another
stable coin trades you know, two, three business points or
ten business points below one dollar on secondary markets, that
is not the PEG. The PEG is our ability. The
official PEG of USDT is our ability to redeem every
(17:40):
token that can be sent to our primary market, that
is our platform, to one dollar. So we always redeem
every single token at one dollar. So if someone on
the secondary market is trying to short it and sell
it to one percent two percent under power, that is
a completely different thing. It does not mean that there
is an actual issue. In fact, we demonstrated that we
(18:01):
were able. Even when we were attacked in a very
heavy way that would have destroyed every single company and
every single financial institution in this world. We survived and
very well. So actually we have still PTSD, I must
say after that event. But I think that really reinforced
our commitment to transparency. It's funny because first we were
(18:22):
accused to not be transparent enough, and then when we're
now very transparent and we are also saying how much
money we are making, people get upset because we are
making too much money. So it's quite interesting how it
can go both ways. But look now, I think that
there is no doubt that the Tator has in this
moment one hundred and forty four billion dollars in issued outstanding
tokens and around one hundred and sixty four billion dollars
(18:45):
in excess equity across the group. So it's something. So
we have twenty billion dollars in proprietary capital within the company,
among which seven are specific seven billion are specifically to
let us at last attestation, where specifically are specifically attributed
to the access research of the stable coin. By again,
the group has twenty billion dollars in additional equity. So
(19:07):
it's very rare that you see a company like this,
and so yes, we want also the fact that we
basically took out very small amount of dividends prove the
fact that for us, the safety of our ecosystem, the
safety of our company is paramount. And if you look
at our other competitors to keep you know, some peanuts
on top of the reserves.
Speaker 3 (19:27):
You mentioned, people complain about, oh, you're making so much money,
and you know, look, people are always going to lie
about other people doing well, I get that, but I
can think of one group that might genuinely have an
eye on the profits, and that is institutional traders of crypto.
And the question I have is, you have this amazing
business model. Will you collect all this yield on your
(19:47):
treasuries and none of it remits? And how long can
that last? Because I would imagine that if I were
some hedge fund, or if I were some highest frequency
trading shop, et cetera, I would not want to be
holding this token. If I were holding a dollar, you know,
even for a minute, I would put it in some
sort of money market virtual front, collected day's worth of
(20:08):
yield whatever. You're not gonna leave that in a non
interest bearing asset even for ten seconds. Do you believe
that the business model, the margin between holdings what you
pay out, can sustain itself with competition or will it
inevitably compress?
Speaker 4 (20:22):
So you make a very good point, but I think
that they should. There is that you would be right
if stable coins in general would be a product made
for the United States. Stable coins are not a product
made for United States. Sure stable coins can work in
the United States. Stable coin can be used as a
faster settlement system across the inter banking settlement system. Materiality
(20:46):
is that data never focused on institutions. You know, institutions
would betray you for one basis point. They would would go,
you know, they would do they want, as you said,
to use money market funds to maximize their return. That
is fair, that is normal. But so Tether build the
biggest distribution network for US dollar in the emerging markets
(21:06):
and developing countries where if you think about Turkey, if
you think about Argentina, if you think about other countries,
the national currency of these places have been devaluating very
very fast against the US dollar. So in Argentina, I
think that pays Argentina the last ten twelve years, they
evaluated ninety eight percent against the US dollar, and the
(21:28):
Turkish leer the evaluated eighty percent against the US dollar
in the last a few years. So last year into.
Speaker 3 (21:34):
Those So you're saying that four percent doesn't.
Speaker 4 (21:36):
Matter, Yes, because the inter day volatility over their national
currency is higher than four percent, So why does it
matter to them? And that's they will stay with you.
They will be loyal will you as long as you
can prove them that you have the solid product that
can trust for their family savings. And by the way,
forty percent of all the USDT holders are using USDT
for savings, so that because we have people that live
(21:59):
in Nigeria and urgent markets that need that as a
lifeline against the evaluation of their national currency and inflation
in their countries.
Speaker 2 (22:06):
I take the point that tether is not necessarily aimed
at the US, But at the same time, there are rumors.
There are always rumors swirling around about big global companies
like an Amazon, maybe a Walmart rolling out some sort
of payment system, or maybe a stable coin competitor. And
(22:27):
I think one interesting thing that's been happening lately is
we've seen some retailers actually joining forces with crypto to
try to lobby for the stable coin bill, which is interesting.
They're trying to reduce their swipe fees. I guess do
you worry about that kind of competition coming in and
potentially taking some market share from your business model?
Speaker 4 (22:50):
Again, the countries where we operate and where we are
more successful is you know, the US top cos are
not necessarily that present, right As I said that are
invests that half of its portfolio and half of its
own equity. So outside of the reserves of the stable coin.
We invested in building our distribution network, so we are
(23:10):
building millions of touch points in across the world. You know.
One interesting example is you know we came across the concept.
Well we there is a clear statistic that six hundred
million people in Africa don't have electricity at home, but
they have smartphones, they have small televisions and a few
other things. So what we are doing now is we
(23:30):
are investing in a company that is building chosks in
villages in Africa with solar panels on top, and they
sell or they rent batteries for three USDT per month.
So with three ucit t per month, you can swap
the battery four times per month, so once per week.
Now the average salary a salary of a person in
Africa is around eighty dollars and so this is like
(23:53):
three USDT. Are you know a good compromise to have
electricity at home with these very good butteries. So this
is an exact how we and we have already three
hundred kiosks. We are planning to ramp up to ten
thousand KOs by the end of twenty twenty six and
one hundred dozen kosks by the end of two thou thirty.
So the idea is that by twenty thirty, we can
(24:14):
serve around sixty million people in Africa that will be
running on USDT as their main currency. So we are
actually converting people to get on the US dollar. That's
why I say that we are the best friends for
and best in life for the US dollar gemony. And
just to finish, we have with that company on not
only we are changing the end, we're pushing the adoption
(24:37):
of the US dollars. It's a great example of a
change that you will see from space because if you
see Africa, it's very dark during the night because they
don't have electricity. But if you power up sixty million people,
that will change, and that is a significant change.
Speaker 3 (25:05):
There is an effort right now to regulate stable coins
in the law, et cetera. If this passes, there's something
called the stable coin Legislation, the Genius Act, I think
it's called and who can issue a stable coin a
federal qualified non bank payment stable coin something by the OCS, the.
Speaker 2 (25:22):
Genius Act for stable coins for stable genius the.
Speaker 3 (25:26):
State, yeah, right, the subsidiary of an insured depository institution,
a state qualified payment stable coin. If something like this
were to pass. You're talking about you know, your priority
has really never been the United States. You're talking about Africa,
You're talking about Turkey, you're talking about Argentina, places that
have seen significant devaluation. Would you register in the United
(25:46):
States as a stable coin under this law or would
you choose to just like you know what the US
is it where our activity is right.
Speaker 4 (25:52):
So let me laborate on the answer has multiple point
of views. So first of all, we really appreciate keep
in mind that Keeping, the company that created the stable
coin industry in twenty fourteen, is a big owner than now.
Lawmakers in the most powerful country in the world are
looking at our technology and want to regulate it. So
we are very very excited for that. Second, the law
(26:15):
and the Genius Act is a very well done piece
of law and it allows few things. First of all,
Tator could consider to create a domestic US based stable coin.
The difference is that a US domestic stable coin would
go towards would be used more for institutions, so the
product market fit is completely different than a stable coin
(26:38):
that is used in costs in Africa.
Speaker 3 (26:40):
Right, So also be actually like a coin that might
have a different tecred, it wouldn't be USDT.
Speaker 4 (26:44):
Yes, we are discussing about that opportunity, that possibility. I mean, look,
we need to wait for the LA final language and
to see which bill will pass, but definitely we are
open to that. Tatter is we discussed before about law
enforcement regulations and all that. Tether Not many know theys,
but TET is the only stable coin, also including the
(27:05):
US based stable coins that on board the FBI United
States Secret Services. We work daily with the Department of
Justice and the other organizations within the US. We worked
on more than four hundred operations with US law enforcement
across the globe. We work with two hundred and thirty
law enforcement ages. It's across fifty different countries. So when
in the proposed Genius Act there is the requirement of
(27:29):
stable coins, even for endstable coins, because USDT would remain
potentially an international stable coin, we would be very happy
to continue our collaboration and see in the Brittain requirement
of a collaboration with US law enforcement that we think
is sensible and everyone now on at least on X
knows this. We are the fastest responder to law enforcement
(27:52):
requests compared to our competition. We don't wait for court orders.
That allows criminals to get away with it, to move
funds very quickly, immediately act upon contact being contacted by
law enforcement. But on top of that, among our people,
we have probably the most impressive investigation team in the
entire industry, also across again, also across traditional finance. In fact,
(28:15):
just a couple of weeks ago, there was the freezing
of Guarantex that was a cryptocurrency exchange sanction, a ration one,
and we worked for months with the Department Justice to
find the right way to do it, to the right processes.
Like it's a very good collaboration. We received I think
a couple of weeks ago, I thank you public thank
you note for our productivity in our collaboration with the
(28:36):
Department Justice. So this is how we are comfortable. So
we believe that no matter if you are an international
stable coin or domestic stable coin, you need to work
within the US parameters of sanctions and law enforcement. So
we believe that is important for in stable coins to
work with US law enforcement. But at the same time,
the domestic stable coins and foreign stable coins have different value.
(28:59):
Proper position. One is for people that are left behind
by the banking system because there are three billion people
that are on bank that they cannot afford to pay
one hundred and fifty dollars per year in banking fees
and those I mean, I'm pretty sure that if you
ask JPMorgan how many customers that they would want from
our user base, they would say probably four not four
(29:20):
undred million, just because our customers all singularly are too
poor of a being of their interest. But that's something
very unique to Tether in the US. You would need
different use cases for stable coins because you have Zell, PayPal,
cash up and six hundred gazillion ways to pay each other.
Speaker 2 (29:38):
How big is your investigations team?
Speaker 4 (29:41):
So we have a specific internal investigations team that is
between twenty and thirty people, plus a very big compliance team.
And then on top of that, we have been contracting
and working with the leaders in the space when it
comes to blockchain analytics, so we borrow also external investigations
team and ecosystem money tools. We work with channel Disease
(30:02):
trm LBS. We recently announced a huge phrase working with
trm LBS related to the Bybe attack and so on.
So again, I think that there is no doubt that
data has the highest standard when it comes to compliance
and investigation within the cryptocurrency industry and the digital as
in industry, but also above and beyond.
Speaker 2 (30:20):
So on this topic of cooperating with law enforcement, this
is something I always wondered about crypto in general. But
part of the selling point is anonymous transactions, right, And
it's not even necessarily that you need an anonymous transaction
in order to do something nefarious like buy drugs or whatever.
You might just want one for something like I don't know,
(30:43):
a husband buying his wife a birthday present and he
doesn't want to to see it or whatever. Anonymity is
part of the selling point here for some of your customers.
And yet at the same time we always hear that
the transactions are traceable, you're cooperating with law enforcement. How
do you sort of square that tension?
Speaker 4 (31:05):
So he's the thing, right, So, sure, blockchains are transparent,
and they are not necessarily anonymous, they're pseudonymous. So with
proper CoSystem monitoring tools, and we spent ten years to
perfect this, we can trace transactions. We can prove that
criminals are found and punished. Let me give you an example.
(31:27):
I think less than one year ago, our internal investigation
team started to follow certain transactions, and they got some
alerts from our triggers and configurations of our monitoring systems,
and we found out that there was a potential pig
butchering network that yeah, that was converting or using USDT,
(31:50):
and that was on all the newspapers then eventually, but
it ended up that Tetor was the company that initially
found out that there was this pig butchering scheme and
then contacted law enforcement and we all together with law enforcement,
we conducted the investigation and we decided to freeze these assets.
(32:10):
These assets amounted to two hundred and twenty million dollars
now all on the newspapers. There was the headline, oh, yes,
it is being used by the pig butchers, but actually
not many understand the actual process. So pig bachering or
romance scam happens when you have might have a girl
contacting a guy online asking for some money to pay
(32:32):
the rent and or whatever. It's crazy that this amounted
to two hundred million dollars, but it is what it is.
But this girl that contacts the guy what will not
ask for us will ask for a payment through a
payment processor. They will usually send a link so there
is a guy that will swipe its card or input
(32:54):
the car numbers on a website to do a payment
to what he thinks is a nice girl, and and
that payment goes through another payment processor, then goes to
a cryptocurrency exchange and that gets converted to usday moved
on chain. So three different opportunities failed in the traditional
financial system when the credit cards is being wiped and
(33:14):
then the payment processor fails to recognize the issue and
all that, so three times people and institutions fail to
freeze that transaction and recover the funds. And then when
it gets to us it we find it out and
we freeze it and we can return the money to
the legitimate owners. So that is the headline that should
have been there, because it's the right one, is the
(33:35):
correct one.
Speaker 3 (33:36):
That all makes sense to me. However, you know, the
definition of what's criminal can be a spectrum. It can
change by culture, can change by time. So for example,
in the US, it's illegal to deal drugs, but in
another country it may be illegal to distribute bibles or
distribute condoms to an NGO or anything like that. There
(33:58):
are also certain circumstances in which capital flight could be
considered a crime. And when you talk about some of
these countries with intense devaluation of their currencies, I could
imagine a foreign minister in one of these em countries
saying tether is contributing to capital flight because our own
city making are making it. It's making it very easy
(34:19):
for them to move their dollar assets, to get quire
dollar assets in a way that we would never allow
through our traditional regulated banking system. You talk about working
with law enforcement, what if a law enforcement agency within
one of these countries says no, like, we do not
want our population swapping our currency to be able to
(34:40):
hold dollar assets.
Speaker 4 (34:41):
Very good points. So first of all, it's a matter
of the education, right they I met with the finance
minister last year and I thought, working in that meeting,
I thought, well, he will be very annoyed also for
what we are doing. I will not name the country,
but I thought that, and and then I went there
and actually and that was something that I was going
(35:04):
to explain to him anyway. But actually what we agreed
on is that sure, many people in those countries are
using USDT to fly and fight inflation and the evaluation
of their national currencies. But on the other side, there
are billions of dollars that are flowing in the form
of USDT for emittancies. So actually USDT is counterbalancing those outflows,
(35:29):
if you will, with the new inflows and new faster
and cheaper inflows when it comes to emittancies. So the
average percentage of a GDP of an emerging market when
it comes to emittanc is twenty percent. For Philippines is
thirty three billion dollars per year, and if you look
at many other emerging markets, twenty percent is probably the lowbar.
(35:50):
There are countries that have forty fifty, sixty, eighty percent
of the GDP is remittancies. So actually we make remittancies
cheaper because if you look at you know, the traditional
remittancies companies, they charge from six to twenty eight percent
to move money internationally. So that is something that really
well resonates with the other country prime ministers, with institutions
(36:13):
in these countries and so on. So in our point
of view, we need to work primarily with US law
enforcement and law enforcement, and we tend to not work
with the tyrannical countries law enforcements.
Speaker 2 (36:26):
Okay, so we started this conversation talking about how big
you've grown, and you know I mentioned you are an
actual presence in the treasury market nowadays in the repo market.
As your holdings get larger, would you ever be tempted
to maybe I don't know if it invests is the
(36:47):
right word, but invest, trade a little bit more, maybe
extend into slightly riskier assets bitcoin, I don't know. Do
you diversify?
Speaker 4 (36:59):
So our reserves are in the majority, quite a higher
majority of US treasuries short term. We have a bit
of gold and we have a bit of bitcoin. The
reason for that is that there is in the emerging markets,
developing countries, those other two things are very well respected
and of much interest at the same time. That's why
(37:21):
also we keep very good amount of billions within the
access reserves to also prove to everyone that we're not
here to speculate. We have the entire risk management very solid.
Even if bitcoin was going to zero, the company would
still have several billion dollars in access equity. So that's
the message we want to give. I mean, if it
is important to perfect a product that is very interesting
(37:46):
for the audience, but at the same time prove that
you are solid, that you're strong, and again we are
very happy to see regulations moving towards the reinforcement of
what could be held in reserve by stable coins.
Speaker 2 (37:57):
So summing it all up again and the company has
grown quite a lot and actual presence in traditional financial
markets nowadays. What's the biggest risk to your business nowadays?
Speaker 4 (38:09):
What?
Speaker 2 (38:10):
This is such a cliche, but what keeps you up
at night? What do you worry about?
Speaker 4 (38:15):
Yes, could be. I mean, I'm sure that this will
sound like an obvious and well crafted well answer, well,
maybe not well crafted, but nevertheless, I think that I
want to keep going doing what I have been doing
and what my team has been doing for the last
ten years. The biggest risk to me is that you know,
(38:36):
for you know, one reason or the other the for example,
the US or other countries don't understand the opportunity the
potential of a stable corn industry when it comes to
tether I think that really in the last month, we
have been taking so many meetings within the Hill and
everyone has been incredibly receptive. So now there is proper
(38:59):
education and understanding in what we are doing. But what
keeps me up the night is simply the fact that
we have the biggest opportunity in the history of humanity
to actually include billions of people in the financial world,
and I don't want to fail.
Speaker 3 (39:12):
Very very high minded. I was going to a real
quick question. Are you talking about other Wall Street banks
diversifying away from Caunter Fitzgerald or is that going to
be the only bank where you hold your treasury assets?
Speaker 4 (39:25):
So treasuries are and the beauty and the difference between
holding treasuries and holding uninsured cash deposits, as our competitor
is is that if anything happens, you can take your
securities and move them anywhere else. Right, So it's a
very easy and clean process. But I must say that
counter Fitzgerald is the best company that believed in this
(39:47):
industry already two three years ago, when no one else
understood this industry two three years ago. So we are
very respectful our relationship.
Speaker 2 (39:57):
Plus you have a friend in the White House, right.
Speaker 4 (40:00):
Great guy, but I'm not allowed to talk to him.
Speaker 3 (40:02):
Okay, okay, oh really good?
Speaker 2 (40:04):
All right, Pallo, Thank you so much for coming on
all thoughts.
Speaker 4 (40:07):
Thank you for having me. Was very exciting. That was
very fun.
Speaker 3 (40:10):
Thank you so much for coming you.
Speaker 4 (40:11):
Thank you, thank you, Joe.
Speaker 2 (40:26):
That was so interesting. Obviously, there have always been a
lot of questions swirling around Tether, so it was good
to you know, put some of them to the CEO.
Speaker 3 (40:36):
Can I say that when Tether reached out to us
about there, like, oh, do you want to have? Oh
the CEO on the podcast? I thought there was like
at least a fifty percent chance that we were going
to get like deep faked, that it was like going
to be some North Korean hackers and that we're going
to like have to click into a link of that
was like something that looked like the word zoom but
that actually wasn't and then enter credential and then there
(40:57):
would be a video and your private AI, So like yeah, really,
you know, Center Private Keys, here's an AI representation of
Paulo ut or do we know? I'm still not sure.
It could be that when this comes out, maybe we're
going to hear no. I don't think so, but maybe
when it.
Speaker 2 (41:11):
Comes at a at a minimum, we can we can
confirm the existence of Pallo, Right.
Speaker 3 (41:17):
You could confirm that we talked to someone who looks
a lot like every picture of Polo or do we
know that we could confirm No. I thought it was
really interesting. You know, it's a big force. It seems
like a pretty big, real, like powerful entity within global finance.
Speaker 2 (41:33):
Yeah, this is the thing. And I guess, going back
to where we started this whole discussion again, like fifteen
years ago or whatever, I don't think anyone would have
expected that we're in a world where stable coins are
so large, and we're in a world where, you know,
we're really preparing for stable coins to become even bigger
(41:55):
in the form of that stable coin bill, putting in
potential guardrails, that sort of thing.
Speaker 3 (42:00):
What a sick business model. I mean, let's just talk
about it's so sick. They're making so much money for
like no effort. And you asked, like, what's so complicated
about the business. It's clearly not that complicated. They just
hold a bunch of money and then they have a token.
They just got to match it one to one and
that's all. And then they collect the interests and they
remit none of that to their holders. I do wonder,
you know, I asked that about like that margin, whether
(42:22):
it's going to compress. Paulo talked about Okay, in the
US maybe for institutional that margin and it's important. You
gotta wonder maybe someone will enter the non US markets
with the ideas like not only can you hold dollar assets,
but we'll give you some we'll remit that yield to you.
But in the meantime, that's a money printer printing money.
Speaker 4 (42:39):
Yeah.
Speaker 2 (42:40):
Literally, all right, shall we leave it there.
Speaker 4 (42:41):
Let's leave it there.
Speaker 2 (42:42):
This has been another episode of the Odd Thoughts podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway and.
Speaker 3 (42:48):
I'm Jill W. Wassenthal. You can follow me at the Stalwart.
Follow our guest Paolo Arduino. He's at Paolo Arduino. Follow
our producers Kerman Rodriguez at Kerman Arman, dash O Bennett
at dashbod In, Kale Brooks at Kalebrooks. From our Oddlots content,
go to Bloomberg dot com slash odd Lots, where we
have all of our episodes as well as the daily newsletter,
(43:08):
and you can shout about all of these topics twenty
four to seven, including crypto in our discord Discord dot
gg slash od Loots and.
Speaker 2 (43:16):
If you enjoy odd Lots, if you like it when
we check in on stable coins, then please leave us
a positive review on your favorite podcast platform. And remember,
if you are a Bloomberg subscriber, you can listen to
all of our episodes absolutely ad free. All you need
to do is find the Bloomberg channel on Apple Podcasts
and follow the instructions there. Thanks for listening.
Speaker 4 (44:01):
In an e.
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:18):
Hello and welcome to another episode of the Odd Thoughts podcast.
I'm Tracy Alloway.
Speaker 3 (00:23):
And I'm Joey.
Speaker 4 (00:23):
Isn't thal Joe?
Speaker 2 (00:25):
It is April here in New York.
Speaker 4 (00:27):
That's right.
Speaker 2 (00:27):
It is my ten year anniversary at Bloomberg this month.
Speaker 4 (00:32):
This month.
Speaker 3 (00:32):
Oh, that's awesome. You're going to get a pilon.
Speaker 4 (00:34):
That's great.
Speaker 2 (00:35):
It's put me in a very thoughtful mood a whole
decade since Joe tricked slash enticed me into coming here.
Speaker 1 (00:43):
So thank you.
Speaker 4 (00:43):
Are you're happy?
Speaker 3 (00:44):
Are you happy about how it worked out?
Speaker 2 (00:46):
I I can't complain. I will say it was a
bit rocky in the beginning, but we worked it out
where going okay. In that ten years, a lot of
things that I would never have expected to happen have happened, Yes,
go on. One of them is the phenomenal growth of
the crypto industry. So I first started writing about bitcoin
(01:09):
in twenty eleven, and I will openly admit that I
think by like twenty thirteen, I had written I think
like three or four obituaries for bitcoin as well, So
you know I got that wrong clearly. But one of
the other things I got wrong on crypto is the
phenomenal growth of stable coins. Yeah, so you look at
(01:29):
something like Tether, the world's biggest stable coin. We talk
about it in the same sentence nowadays as euro dollars,
for instance, and the company itself is this huge player
in financial markets, like it owns more t bills nowadays
than some countries, which is all pretty amazing.
Speaker 3 (01:48):
Well, let's be honest for a second here. You know,
you might have thought that Tether wouldn't even exist at
this point because it had a reputation for years and years,
like there are a bunch of scammers. They can't pass
an audit, the money is there, et cetera. It's going
to go away. Why would you ever hold it Tether?
We have Sam bankman fried that years ago. Why would
you hold Itchether when there are other companies that have
done audits, et cetera. There are many people not only
(02:09):
setting aside the size, setting aside all of the assets
that it owned the back, you know the world's most
popular stable coin. There are many people who just thought
of this company can't continue so totally.
Speaker 2 (02:19):
The other thing I thought was that US officials were
never going to grow comfortable with the idea of a
loosely regulated foreign company creating synthetic dollars. But you know,
the Trump administration seems to have some other ideas, so
we should talk about all that.
Speaker 4 (02:34):
Let's do it.
Speaker 3 (02:34):
You'k a perfect guest.
Speaker 2 (02:35):
We do have the perfect guest. We're going to be
speaking with Tether CEO, Paolo our do we know he is,
of course the head of the world's largest stable coin.
So Paolo, thank you so much for coming on the show.
Speaker 4 (02:46):
Thank you for having me. I'm very excited to be
here today.
Speaker 2 (02:50):
So just to begin, has Tether's growth surprised you? Did
you ever expect to ramp up to this degree?
Speaker 4 (02:58):
So I joined Tether very early, was early twenty fifteen,
just after a couple of months that was actually created,
and we were discussing internally, myself and Giancarlo, and we
were asking ourselves the biggest number we could think about
in terms of growth and projection of growth of our
stable coin was between one hundred million dollars and one
(03:22):
billion dollars, and now today is one hundred and forty
four billion dollars in total issue tokens. So we are
incredibly excited, we are impressed ourselves. But I must say
that it's all happened organically over a decade.
Speaker 3 (03:37):
The stable coin business is so sick, it seems to
me right, because you hold all of these assets that
back one to one, these tokens that move on blockchains,
and you collect all this interest and the holders of
the coins don't collect any interest. According to a release
on Tether's on website, you made thirteen billion dollars in
(03:58):
twenty twenty four. Various estimate have your total employees somewhere
a little bit below two hundred, so that makes per
profit employees somewhere close to ninety million per employee. Like,
there's basically correct math that this is like one of
the most extraordinary, maybe the most profitable business in the
history of business.
Speaker 4 (04:16):
Yeah, I think it's definitely extraordinary. I define TETA at
once in a century company because of the capital that
we have given our profits. In the last two years
and a half, we made around twenty billion in profits,
and we almost distributed well, we distributed a very very
tiny part to their shareholders. I mean a name, another company,
(04:39):
another fund or whatever that distributed less than I know,
ten percent or probably even less than five percent of
profits to their own their own shareholders. So that is
something that is unprecedented and it's you know, it's set
in TET to be able to reinvest ninety five percent
of its profits in keeping growing its distribution network for
(04:59):
the US dollar and also investing in other pretty cool
things from artificial intelligence, bigon mining, and the tens of
other opportunities around the world.
Speaker 2 (05:07):
So you mentioned distribution of the US dollar, and there
is some tension there right. I mentioned earlier that I
never thought regulators were going to be okay with someone
basically creating a synthetic dollar that can trade around the world.
But times have changed and some things are shifting on
the regulatory front. But are you a competitor to the
(05:30):
US dollar? Plenty of people would say you are, or
are you something that perhaps complements it.
Speaker 4 (05:36):
I don't think we are a competitor to the US dollar.
USDT is a digital dollar that is backed for most
of it by US treasuries. We are bringing the US
dollar out there in the emerging markets to developing countries.
We have as of today more than four hundred million users,
actually will be five hundred and fifty million users. I'd
(05:59):
like to be a bit more conservative to avoid double
counting users, so I would say more than four million users.
We grow at the pace of thirty million new users
per quarter. That is again, we are not Facebook. We
are just a digital dollar. So it's really unprecedented and staggering.
The reason why we are interesting for the United States
(06:20):
and the regulators are now appreciating who we are and
what we are doing is the fact that we have
been building the biggest distribution actor for US dollar in
a physical form and a digital form. We have millions
of touch points around the world in the emerging market.
We never approached our distribution going through institutions in the
emerging markets, but we build physically infrastructure from chosts in
(06:43):
villages in Africa to bodegas in southern South America. And
again we are just distributing a digital dollar. And look,
the reality is that the US dollar hegemony is very,
very important for United States. And when we are in Africa,
when we're in Central South America, there is not much
US presence. There is actually there is press and apart
(07:06):
maybe McDonald's, but in some countries in Central South America,
the actual presence of infrastructure in the United States is
not there. So what Tata is doing in those countries
is purely building that infrastructure and trying to in a
way combat Actually more than in a way, it's we
are i think, the last stronghold before the very strong
(07:30):
push towards diedalarization made by the bricks countries. So we see,
for example that in Central South America or in Africa,
there are hospital, schools, libraries, and airports that are building
the built by China. And again there is an interest
from breeks countries to launch a digital currency backed by
gold plus. There are building an infrastructure in these countries,
(07:53):
So all the employees, all the people that will rotate
and gravitate around these new infrastructures built by bridge countries,
we'll start using something that is not the US dollars.
So I think it's becoming very very clear that actually
Tatter is the best of life for the United States.
Is the company when we are also in these countries.
We are not seeing NGOs, we are not seeing charities.
(08:15):
We are the company that also solved or is solving
financial inclusion in the strongest way possible.
Speaker 2 (08:21):
Joe I got to say, it's a little bit depressing
that you know, a company that was founded by an
Italian in Europe incorporated in the BVII. Although I think
you're moving to El Salvador is the ambassador for US.
Speaker 3 (08:36):
Against the end of the dollar. Well, history can be
funny in that respect. Why haven't you ever been audited.
Speaker 4 (08:44):
So in the past administered with the past administration last
four years, I must say that was not easy to
deal with the past again administration. So I remember Senator
Warren sending letters around to different organizations. There was a
case of the Operation Truck point two point zero that
(09:07):
was very aggressive towards the banking industry that was supporting
cryptocurrency companies. On the other side, that letter also scared
away and was targeted towards the Big four auditing firms
and other auditors. That where then this incentivized to go
against the will, the strong will of an administration that
(09:27):
was really against crypto in general.
Speaker 3 (09:30):
Just real quickly. So obviously you hold your money or
a lot of your the assets the holder with counter Fitzgerald,
It's former CEO, Howard luck Nick now the Commerce secretary
friendly with the administration. There has been this changing of
the guard. Has the changing of the guard at the
administration level had any bearing on the reason that you're
(09:51):
here in New York City and comfortable visiting the US.
Speaker 4 (09:54):
So I was been always comfortable to visit the US,
but you won't usually to go where what you are
doing for ninety seven percent of your time or eighty
percent of your time given sleep in a few hours
is being accepted and is not considered a very bad
thing by the administration. Right, So you want to deal
with people that support what you're doing. It at least
(10:16):
they have the will to understand what you're doing. So
actually the change in administration is what is making possible
for us for that or another many cryptocurrency related companies
to start to deal with the big four auditing firms.
We are in discussions. We have multiple discussions on the
topic of audit. We hired a new CFO a couple
(10:37):
of months ago. Is great. Simon went through multiple contentions
full audit across his entire career. I don't think that
audit should be contentious, but given again the complexity and
the new field that is cryptoward is possibly one correct
term and adjective that I could use here. And look,
(10:57):
we are very positive that the full audit is our
top priority, and I'm pretty confident that we're going to
make it.
Speaker 2 (11:05):
So just to be clear on the regulatory point, things
are changing, as you just mentioned, and previously there was
regulatory pressure on the big accounting firms to not work
with you. That seems to be going away. That's going
to allow you to do an audit. Do you have
a time frame for when you might do that?
Speaker 4 (11:25):
So in the past we committed a few times and
we provided timelines that were not realistic because of the
fact that, as I said, the administration really doubled down
on trying to kill an entire industry. That was very,
very sad to see. So again, we are moving as
fast as we can. There is of course some change
(11:46):
that is still needed among the big four auditing firms.
So while they are getting more comfortable, look the administration
changed only two months ago, so give them a little
bit of time to get comfortable. And we are providing
all the We are again in already in discussions. So
it's crazy. The monimization changed two months ago and we
are already in discussions way big four auditing firms. So
(12:09):
that is the best thing that can say. And again
the fact that we hire the new CFO and that
has you know, the highest experience in the sector to
get through audits is something that should reinvigorate our position.
Speaker 2 (12:36):
What's the complexity of doing an audit for a business
like Tether. I've always wanted to ask this question. So
you know, you need a professional accounting firm to do this,
because you want to give people who use Tether investors
some sense of safety and stability and truth in what
you're portraying. But at the same time, it seems like,
(12:57):
you know, you should have a pretty good idea.
Speaker 3 (12:58):
It seems simple, count of the treasuries and count the
circuits and if they merge, what are we missing here?
Speaker 4 (13:03):
I agree with that. In fact, the problem I don't
think is about the complexity of going through our reserves
because as we said, we keep the majority, the vast
majority of our treasure is in counterfigial. That is a
very highly regulated financial institution here in the US. I
think that the confidence in the industry, in the digital
assets industry is growing among the big four auditing firms.
(13:27):
And look, on the other side, you can go on
blockchains and blockchains are very very transparent, so you can
count to the liabilities through the transparency of the blockchain.
And on the other side, you can just independently contact
our custodians. I think that what we expect from the
full audit is also confirmation of our good practices that
we have within the company in terms of controls and
(13:48):
safety and proper management, for example, the private keys and
all that stuff. So that's a process that we want
to make sure that we go in the deepest details
possible with our auditors, because there is nothing that excites
me more than prove that we were always right we
had our lacking in twenty twenty four going out there
saying Tatter has the money. We are releasing a quarterly
(14:11):
attestation from a very reputable auditing firm called BDO. They
are international, so there are many many different independent validators
of our service. But you know, we just want to
get the flow of it done.
Speaker 3 (14:24):
Circle, one of your competitors, holds its money in a
money market mutual fund from Blackrock called the Circle Reserve Fund.
What is the advantage of going out and acquiring q
SIPs of various flavors directly such that you're direct holder
of treasuries rather than outsourcing it like that. Here's an
institution black Rock. They set up a money market mutual
(14:46):
fund that you could just buy into and not have
to think about that part. Why the preference towards the
direct holdings of the bills and bonds.
Speaker 4 (14:54):
So that's a good question. So we prefer to have
a direct control over the process and we that through Counterfaitgerald.
Also having that direct control allows us to have access
to the infinitely liquid ripple market. So we think that
is in case of huge pressure from the markets and
huge redemption pressure, our facility is much better than anything
(15:17):
else attempted by our competitors. Look think about in twenty
twenty three, our major competitors had and a big issue
with Silicon Valley Bank. They have uninsured cash deposits there.
In twenty twenty two, Tetter was attacked by funds that
were clearly trying to cause a bank run on USDT.
They tried the mussed billions and billions and billions of
(15:41):
USDT just to trying to sell them under par on
the secondary markets on the different cryptocurrency exchanges can Tetther
never refused the redemption. TATA never failed to redeem at
one dollar each token. But at that time when that happened,
these short sellers were trying to cause a bankrupt and
So what happened is that Tata was able to redeem
(16:03):
seven billion dollars in forty eight hours and the twenty
billion dollars in twenty five days. So seven billion dollars
weigh ten percent of our reserves and twenty billion dollars
where around the twenty something percent of our reserves. So
I mean, if you look at Washington, mood Well and
many other banks that failed from twenty eight and after,
(16:26):
there was no bank that was able to support a
ten percent bankrunt, and we did it with flying collars.
We could have gone to till the end. That's what
means to have a proper repo market and very deep
liquid market for treasuries. We keep all treasuries that are
basically three months in duration ninety days. So I think
we build the best facility for handling any sort of
(16:49):
redemption and provide the proper amount of trust that our
users need around the world.
Speaker 2 (16:54):
So you made it through twenty twenty two, it must
have still been fairly traumatized or scary at the time
to have that much withdrawal pressure on the business. Have
you changed any of your redemption policies since then or
perhaps instituted I don't know new risk management around the
(17:14):
PEG point.
Speaker 4 (17:16):
So the concept of PEG is interesting, right. People refer
to the PEG as you know, if USDT or another
stable coin trades you know, two, three business points or
ten business points below one dollar on secondary markets, that
is not the PEG. The PEG is our ability. The
official PEG of USDT is our ability to redeem every
(17:40):
token that can be sent to our primary market, that
is our platform, to one dollar. So we always redeem
every single token at one dollar. So if someone on
the secondary market is trying to short it and sell
it to one percent two percent under power, that is
a completely different thing. It does not mean that there
is an actual issue. In fact, we demonstrated that we
(18:01):
were able. Even when we were attacked in a very
heavy way that would have destroyed every single company and
every single financial institution in this world. We survived and
very well. So actually we have still PTSD, I must
say after that event. But I think that really reinforced
our commitment to transparency. It's funny because first we were
(18:22):
accused to not be transparent enough, and then when we're
now very transparent and we are also saying how much
money we are making, people get upset because we are
making too much money. So it's quite interesting how it
can go both ways. But look now, I think that
there is no doubt that the Tator has in this
moment one hundred and forty four billion dollars in issued outstanding
tokens and around one hundred and sixty four billion dollars
(18:45):
in excess equity across the group. So it's something. So
we have twenty billion dollars in proprietary capital within the company,
among which seven are specific seven billion are specifically to
let us at last attestation, where specifically are specifically attributed
to the access research of the stable coin. By again,
the group has twenty billion dollars in additional equity. So
(19:07):
it's very rare that you see a company like this,
and so yes, we want also the fact that we
basically took out very small amount of dividends prove the
fact that for us, the safety of our ecosystem, the
safety of our company is paramount. And if you look
at our other competitors to keep you know, some peanuts
on top of the reserves.
Speaker 3 (19:27):
You mentioned, people complain about, oh, you're making so much money,
and you know, look, people are always going to lie
about other people doing well, I get that, but I
can think of one group that might genuinely have an
eye on the profits, and that is institutional traders of crypto.
And the question I have is, you have this amazing
business model. Will you collect all this yield on your
(19:47):
treasuries and none of it remits? And how long can
that last? Because I would imagine that if I were
some hedge fund, or if I were some highest frequency
trading shop, et cetera, I would not want to be
holding this token. If I were holding a dollar, you know,
even for a minute, I would put it in some
sort of money market virtual front, collected day's worth of
(20:08):
yield whatever. You're not gonna leave that in a non
interest bearing asset even for ten seconds. Do you believe
that the business model, the margin between holdings what you
pay out, can sustain itself with competition or will it
inevitably compress?
Speaker 4 (20:22):
So you make a very good point, but I think
that they should. There is that you would be right
if stable coins in general would be a product made
for the United States. Stable coins are not a product
made for United States. Sure stable coins can work in
the United States. Stable coin can be used as a
faster settlement system across the inter banking settlement system. Materiality
(20:46):
is that data never focused on institutions. You know, institutions
would betray you for one basis point. They would would go,
you know, they would do they want, as you said,
to use money market funds to maximize their return. That
is fair, that is normal. But so Tether build the
biggest distribution network for US dollar in the emerging markets
(21:06):
and developing countries where if you think about Turkey, if
you think about Argentina, if you think about other countries,
the national currency of these places have been devaluating very
very fast against the US dollar. So in Argentina, I
think that pays Argentina the last ten twelve years, they
evaluated ninety eight percent against the US dollar, and the
(21:28):
Turkish leer the evaluated eighty percent against the US dollar
in the last a few years. So last year into.
Speaker 3 (21:34):
Those So you're saying that four percent doesn't.
Speaker 4 (21:36):
Matter, Yes, because the inter day volatility over their national
currency is higher than four percent, So why does it
matter to them? And that's they will stay with you.
They will be loyal will you as long as you
can prove them that you have the solid product that
can trust for their family savings. And by the way,
forty percent of all the USDT holders are using USDT
for savings, so that because we have people that live
(21:59):
in Nigeria and urgent markets that need that as a
lifeline against the evaluation of their national currency and inflation
in their countries.
Speaker 2 (22:06):
I take the point that tether is not necessarily aimed
at the US, But at the same time, there are rumors.
There are always rumors swirling around about big global companies
like an Amazon, maybe a Walmart rolling out some sort
of payment system, or maybe a stable coin competitor. And
(22:27):
I think one interesting thing that's been happening lately is
we've seen some retailers actually joining forces with crypto to
try to lobby for the stable coin bill, which is interesting.
They're trying to reduce their swipe fees. I guess do
you worry about that kind of competition coming in and
potentially taking some market share from your business model?
Speaker 4 (22:50):
Again, the countries where we operate and where we are
more successful is you know, the US top cos are
not necessarily that present, right As I said that are
invests that half of its portfolio and half of its
own equity. So outside of the reserves of the stable coin.
We invested in building our distribution network, so we are
(23:10):
building millions of touch points in across the world. You know.
One interesting example is you know we came across the concept.
Well we there is a clear statistic that six hundred
million people in Africa don't have electricity at home, but
they have smartphones, they have small televisions and a few
other things. So what we are doing now is we
(23:30):
are investing in a company that is building chosks in
villages in Africa with solar panels on top, and they
sell or they rent batteries for three USDT per month.
So with three ucit t per month, you can swap
the battery four times per month, so once per week.
Now the average salary a salary of a person in
Africa is around eighty dollars and so this is like
(23:53):
three USDT. Are you know a good compromise to have
electricity at home with these very good butteries. So this
is an exact how we and we have already three
hundred kiosks. We are planning to ramp up to ten
thousand KOs by the end of twenty twenty six and
one hundred dozen kosks by the end of two thou thirty.
So the idea is that by twenty thirty, we can
(24:14):
serve around sixty million people in Africa that will be
running on USDT as their main currency. So we are
actually converting people to get on the US dollar. That's
why I say that we are the best friends for
and best in life for the US dollar gemony. And
just to finish, we have with that company on not
only we are changing the end, we're pushing the adoption
(24:37):
of the US dollars. It's a great example of a
change that you will see from space because if you
see Africa, it's very dark during the night because they
don't have electricity. But if you power up sixty million people,
that will change, and that is a significant change.
Speaker 3 (25:05):
There is an effort right now to regulate stable coins
in the law, et cetera. If this passes, there's something
called the stable coin Legislation, the Genius Act, I think
it's called and who can issue a stable coin a
federal qualified non bank payment stable coin something by the OCS, the.
Speaker 2 (25:22):
Genius Act for stable coins for stable genius the.
Speaker 3 (25:26):
State, yeah, right, the subsidiary of an insured depository institution,
a state qualified payment stable coin. If something like this
were to pass. You're talking about you know, your priority
has really never been the United States. You're talking about Africa,
You're talking about Turkey, you're talking about Argentina, places that
have seen significant devaluation. Would you register in the United
(25:46):
States as a stable coin under this law or would
you choose to just like you know what the US
is it where our activity is right.
Speaker 4 (25:52):
So let me laborate on the answer has multiple point
of views. So first of all, we really appreciate keep
in mind that Keeping, the company that created the stable
coin industry in twenty fourteen, is a big owner than now.
Lawmakers in the most powerful country in the world are
looking at our technology and want to regulate it. So
we are very very excited for that. Second, the law
(26:15):
and the Genius Act is a very well done piece
of law and it allows few things. First of all,
Tator could consider to create a domestic US based stable coin.
The difference is that a US domestic stable coin would
go towards would be used more for institutions, so the
product market fit is completely different than a stable coin
(26:38):
that is used in costs in Africa.
Speaker 3 (26:40):
Right, So also be actually like a coin that might
have a different tecred, it wouldn't be USDT.
Speaker 4 (26:44):
Yes, we are discussing about that opportunity, that possibility. I mean, look,
we need to wait for the LA final language and
to see which bill will pass, but definitely we are
open to that. Tatter is we discussed before about law
enforcement regulations and all that. Tether Not many know theys,
but TET is the only stable coin, also including the
(27:05):
US based stable coins that on board the FBI United
States Secret Services. We work daily with the Department of
Justice and the other organizations within the US. We worked
on more than four hundred operations with US law enforcement
across the globe. We work with two hundred and thirty
law enforcement ages. It's across fifty different countries. So when
in the proposed Genius Act there is the requirement of
(27:29):
stable coins, even for endstable coins, because USDT would remain
potentially an international stable coin, we would be very happy
to continue our collaboration and see in the Brittain requirement
of a collaboration with US law enforcement that we think
is sensible and everyone now on at least on X
knows this. We are the fastest responder to law enforcement
(27:52):
requests compared to our competition. We don't wait for court orders.
That allows criminals to get away with it, to move
funds very quickly, immediately act upon contact being contacted by
law enforcement. But on top of that, among our people,
we have probably the most impressive investigation team in the
entire industry, also across again, also across traditional finance. In fact,
(28:15):
just a couple of weeks ago, there was the freezing
of Guarantex that was a cryptocurrency exchange sanction, a ration one,
and we worked for months with the Department Justice to
find the right way to do it, to the right processes.
Like it's a very good collaboration. We received I think
a couple of weeks ago, I thank you public thank
you note for our productivity in our collaboration with the
(28:36):
Department Justice. So this is how we are comfortable. So
we believe that no matter if you are an international
stable coin or domestic stable coin, you need to work
within the US parameters of sanctions and law enforcement. So
we believe that is important for in stable coins to
work with US law enforcement. But at the same time,
the domestic stable coins and foreign stable coins have different value.
(28:59):
Proper position. One is for people that are left behind
by the banking system because there are three billion people
that are on bank that they cannot afford to pay
one hundred and fifty dollars per year in banking fees
and those I mean, I'm pretty sure that if you
ask JPMorgan how many customers that they would want from
our user base, they would say probably four not four
(29:20):
undred million, just because our customers all singularly are too
poor of a being of their interest. But that's something
very unique to Tether in the US. You would need
different use cases for stable coins because you have Zell, PayPal,
cash up and six hundred gazillion ways to pay each other.
Speaker 2 (29:38):
How big is your investigations team?
Speaker 4 (29:41):
So we have a specific internal investigations team that is
between twenty and thirty people, plus a very big compliance team.
And then on top of that, we have been contracting
and working with the leaders in the space when it
comes to blockchain analytics, so we borrow also external investigations
team and ecosystem money tools. We work with channel Disease
(30:02):
trm LBS. We recently announced a huge phrase working with
trm LBS related to the Bybe attack and so on.
So again, I think that there is no doubt that
data has the highest standard when it comes to compliance
and investigation within the cryptocurrency industry and the digital as
in industry, but also above and beyond.
Speaker 2 (30:20):
So on this topic of cooperating with law enforcement, this
is something I always wondered about crypto in general. But
part of the selling point is anonymous transactions, right, And
it's not even necessarily that you need an anonymous transaction
in order to do something nefarious like buy drugs or whatever.
You might just want one for something like I don't know,
(30:43):
a husband buying his wife a birthday present and he
doesn't want to to see it or whatever. Anonymity is
part of the selling point here for some of your customers.
And yet at the same time we always hear that
the transactions are traceable, you're cooperating with law enforcement. How
do you sort of square that tension?
Speaker 4 (31:05):
So he's the thing, right, So, sure, blockchains are transparent,
and they are not necessarily anonymous, they're pseudonymous. So with
proper CoSystem monitoring tools, and we spent ten years to
perfect this, we can trace transactions. We can prove that
criminals are found and punished. Let me give you an example.
(31:27):
I think less than one year ago, our internal investigation
team started to follow certain transactions, and they got some
alerts from our triggers and configurations of our monitoring systems,
and we found out that there was a potential pig
butchering network that yeah, that was converting or using USDT,
(31:50):
and that was on all the newspapers then eventually, but
it ended up that Tetor was the company that initially
found out that there was this pig butchering scheme and
then contacted law enforcement and we all together with law enforcement,
we conducted the investigation and we decided to freeze these assets.
(32:10):
These assets amounted to two hundred and twenty million dollars
now all on the newspapers. There was the headline, oh, yes,
it is being used by the pig butchers, but actually
not many understand the actual process. So pig bachering or
romance scam happens when you have might have a girl
contacting a guy online asking for some money to pay
(32:32):
the rent and or whatever. It's crazy that this amounted
to two hundred million dollars, but it is what it is.
But this girl that contacts the guy what will not
ask for us will ask for a payment through a
payment processor. They will usually send a link so there
is a guy that will swipe its card or input
(32:54):
the car numbers on a website to do a payment
to what he thinks is a nice girl, and and
that payment goes through another payment processor, then goes to
a cryptocurrency exchange and that gets converted to usday moved
on chain. So three different opportunities failed in the traditional
financial system when the credit cards is being wiped and
(33:14):
then the payment processor fails to recognize the issue and
all that, so three times people and institutions fail to
freeze that transaction and recover the funds. And then when
it gets to us it we find it out and
we freeze it and we can return the money to
the legitimate owners. So that is the headline that should
have been there, because it's the right one, is the
(33:35):
correct one.
Speaker 3 (33:36):
That all makes sense to me. However, you know, the
definition of what's criminal can be a spectrum. It can
change by culture, can change by time. So for example,
in the US, it's illegal to deal drugs, but in
another country it may be illegal to distribute bibles or
distribute condoms to an NGO or anything like that. There
(33:58):
are also certain circumstances in which capital flight could be
considered a crime. And when you talk about some of
these countries with intense devaluation of their currencies, I could
imagine a foreign minister in one of these em countries
saying tether is contributing to capital flight because our own
city making are making it. It's making it very easy
(34:19):
for them to move their dollar assets, to get quire
dollar assets in a way that we would never allow
through our traditional regulated banking system. You talk about working
with law enforcement, what if a law enforcement agency within
one of these countries says no, like, we do not
want our population swapping our currency to be able to
(34:40):
hold dollar assets.
Speaker 4 (34:41):
Very good points. So first of all, it's a matter
of the education, right they I met with the finance
minister last year and I thought, working in that meeting,
I thought, well, he will be very annoyed also for
what we are doing. I will not name the country,
but I thought that, and and then I went there
and actually and that was something that I was going
(35:04):
to explain to him anyway. But actually what we agreed
on is that sure, many people in those countries are
using USDT to fly and fight inflation and the evaluation
of their national currencies. But on the other side, there
are billions of dollars that are flowing in the form
of USDT for emittancies. So actually USDT is counterbalancing those outflows,
(35:29):
if you will, with the new inflows and new faster
and cheaper inflows when it comes to emittancies. So the
average percentage of a GDP of an emerging market when
it comes to emittanc is twenty percent. For Philippines is
thirty three billion dollars per year, and if you look
at many other emerging markets, twenty percent is probably the lowbar.
(35:50):
There are countries that have forty fifty, sixty, eighty percent
of the GDP is remittancies. So actually we make remittancies
cheaper because if you look at you know, the traditional
remittancies companies, they charge from six to twenty eight percent
to move money internationally. So that is something that really
well resonates with the other country prime ministers, with institutions
(36:13):
in these countries and so on. So in our point
of view, we need to work primarily with US law
enforcement and law enforcement, and we tend to not work
with the tyrannical countries law enforcements.
Speaker 2 (36:26):
Okay, so we started this conversation talking about how big
you've grown, and you know I mentioned you are an
actual presence in the treasury market nowadays in the repo market.
As your holdings get larger, would you ever be tempted
to maybe I don't know if it invests is the
(36:47):
right word, but invest, trade a little bit more, maybe
extend into slightly riskier assets bitcoin, I don't know. Do
you diversify?
Speaker 4 (36:59):
So our reserves are in the majority, quite a higher
majority of US treasuries short term. We have a bit
of gold and we have a bit of bitcoin. The
reason for that is that there is in the emerging markets,
developing countries, those other two things are very well respected
and of much interest at the same time. That's why
(37:21):
also we keep very good amount of billions within the
access reserves to also prove to everyone that we're not
here to speculate. We have the entire risk management very solid.
Even if bitcoin was going to zero, the company would
still have several billion dollars in access equity. So that's
the message we want to give. I mean, if it
is important to perfect a product that is very interesting
(37:46):
for the audience, but at the same time prove that
you are solid, that you're strong, and again we are
very happy to see regulations moving towards the reinforcement of
what could be held in reserve by stable coins.
Speaker 2 (37:57):
So summing it all up again and the company has
grown quite a lot and actual presence in traditional financial
markets nowadays. What's the biggest risk to your business nowadays?
Speaker 4 (38:09):
What?
Speaker 2 (38:10):
This is such a cliche, but what keeps you up
at night? What do you worry about?
Speaker 4 (38:15):
Yes, could be. I mean, I'm sure that this will
sound like an obvious and well crafted well answer, well,
maybe not well crafted, but nevertheless, I think that I
want to keep going doing what I have been doing
and what my team has been doing for the last
ten years. The biggest risk to me is that you know,
(38:36):
for you know, one reason or the other the for example,
the US or other countries don't understand the opportunity the
potential of a stable corn industry when it comes to
tether I think that really in the last month, we
have been taking so many meetings within the Hill and
everyone has been incredibly receptive. So now there is proper
(38:59):
education and understanding in what we are doing. But what
keeps me up the night is simply the fact that
we have the biggest opportunity in the history of humanity
to actually include billions of people in the financial world,
and I don't want to fail.
Speaker 3 (39:12):
Very very high minded. I was going to a real
quick question. Are you talking about other Wall Street banks
diversifying away from Caunter Fitzgerald or is that going to
be the only bank where you hold your treasury assets?
Speaker 4 (39:25):
So treasuries are and the beauty and the difference between
holding treasuries and holding uninsured cash deposits, as our competitor
is is that if anything happens, you can take your
securities and move them anywhere else. Right, So it's a
very easy and clean process. But I must say that
counter Fitzgerald is the best company that believed in this
(39:47):
industry already two three years ago, when no one else
understood this industry two three years ago. So we are
very respectful our relationship.
Speaker 2 (39:57):
Plus you have a friend in the White House, right.
Speaker 4 (40:00):
Great guy, but I'm not allowed to talk to him.
Speaker 3 (40:02):
Okay, okay, oh really good?
Speaker 2 (40:04):
All right, Pallo, Thank you so much for coming on
all thoughts.
Speaker 4 (40:07):
Thank you for having me. Was very exciting. That was
very fun.
Speaker 3 (40:10):
Thank you so much for coming you.
Speaker 4 (40:11):
Thank you, thank you, Joe.
Speaker 2 (40:26):
That was so interesting. Obviously, there have always been a
lot of questions swirling around Tether, so it was good
to you know, put some of them to the CEO.
Speaker 3 (40:36):
Can I say that when Tether reached out to us
about there, like, oh, do you want to have? Oh
the CEO on the podcast? I thought there was like
at least a fifty percent chance that we were going
to get like deep faked, that it was like going
to be some North Korean hackers and that we're going
to like have to click into a link of that
was like something that looked like the word zoom but
that actually wasn't and then enter credential and then there
(40:57):
would be a video and your private AI, So like yeah, really,
you know, Center Private Keys, here's an AI representation of
Paulo ut or do we know? I'm still not sure.
It could be that when this comes out, maybe we're
going to hear no. I don't think so, but maybe
when it.
Speaker 2 (41:11):
Comes at a at a minimum, we can we can
confirm the existence of Pallo, Right.
Speaker 3 (41:17):
You could confirm that we talked to someone who looks
a lot like every picture of Polo or do we
know that we could confirm No. I thought it was
really interesting. You know, it's a big force. It seems
like a pretty big, real, like powerful entity within global finance.
Speaker 2 (41:33):
Yeah, this is the thing. And I guess, going back
to where we started this whole discussion again, like fifteen
years ago or whatever, I don't think anyone would have
expected that we're in a world where stable coins are
so large, and we're in a world where, you know,
we're really preparing for stable coins to become even bigger
(41:55):
in the form of that stable coin bill, putting in
potential guardrails, that sort of thing.
Speaker 3 (42:00):
What a sick business model. I mean, let's just talk
about it's so sick. They're making so much money for
like no effort. And you asked, like, what's so complicated
about the business. It's clearly not that complicated. They just
hold a bunch of money and then they have a token.
They just got to match it one to one and
that's all. And then they collect the interests and they
remit none of that to their holders. I do wonder,
you know, I asked that about like that margin, whether
(42:22):
it's going to compress. Paulo talked about Okay, in the
US maybe for institutional that margin and it's important. You
gotta wonder maybe someone will enter the non US markets
with the ideas like not only can you hold dollar assets,
but we'll give you some we'll remit that yield to you.
But in the meantime, that's a money printer printing money.
Speaker 4 (42:39):
Yeah.
Speaker 2 (42:40):
Literally, all right, shall we leave it there.
Speaker 4 (42:41):
Let's leave it there.
Speaker 2 (42:42):
This has been another episode of the Odd Thoughts podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway and.
Speaker 3 (42:48):
I'm Jill W. Wassenthal. You can follow me at the Stalwart.
Follow our guest Paolo Arduino. He's at Paolo Arduino. Follow
our producers Kerman Rodriguez at Kerman Arman, dash O Bennett
at dashbod In, Kale Brooks at Kalebrooks. From our Oddlots content,
go to Bloomberg dot com slash odd Lots, where we
have all of our episodes as well as the daily newsletter,
(43:08):
and you can shout about all of these topics twenty
four to seven, including crypto in our discord Discord dot
gg slash od Loots and.
Speaker 2 (43:16):
If you enjoy odd Lots, if you like it when
we check in on stable coins, then please leave us
a positive review on your favorite podcast platform. And remember,
if you are a Bloomberg subscriber, you can listen to
all of our episodes absolutely ad free. All you need
to do is find the Bloomberg channel on Apple Podcasts
and follow the instructions there. Thanks for listening.
Speaker 4 (44:01):
In an e.
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