Dialogue with Tether CTO: Regulators should give more guidance on how stablecoins operate and reserves

Guest: Paolo Ardoino, Tether CTO

Interview: ChainCatcher

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Data source: Coingecko

After a series of events, Tether is also improving transparency through various means. Tether has promised to conduct a comprehensive audit since 2017, and it has been questioned for this reason. Recently, Paolo Ardoino, Tether's chief technology officer, accepted an interview with ChainCatcher. Proof, and that wording such as "official audit" did not mislead the public.

At present, Tether is still working hard to complete a comprehensive audit, covering not only recent years, but also previous years. Once the audit results are finalized, they will be made public as soon as possible.

In addition, in the interview, Paolo Ardoino also mentioned the issue of regulatory ambiguity. He believes that regulators should give more guidance on how stablecoins work and what reserves they should have.

Paolo Ardoino also shared with us about algorithmic stable currency, more application scenarios of USDT, cross-border payment of Bitcoin and other topics. The full text of the conversation is as follows:

1. ChainCatcher: Tether is "experienced" in dealing with regulators. What do you think of the recent actions taken by US regulators on the stablecoin and crypto market?

Paolo Ardoino：It is important to note that the regulatory landscape for cryptocurrencies and stablecoins is still evolving and changing. Overall, the approach to regulating the cryptocurrency market and the stablecoin industry is to strike a balance between protecting consumers and mitigating risks, while promoting innovation and growth in the industry.

While it remains uncertain how regulators will continue to adapt to this rapidly changing industry, we do think regulators should give more guidance on how stablecoins should work and what reserves they should have. Tether is committed to operating in a secure and transparent manner while adhering to all government compliance and regulations.

As a result, regulators such as the SEC and CFTC have taken steps to increase oversight of the industry, such as requiring cryptocurrency exchanges to register with the SEC as securities dealers.

2. ChainCatcher: Is there an objective standard for stablecoin regulation at present, for example, what information will regulators clearly require stablecoin providers to disclose, and are there any requirements for disclosing details such as banks hosting assets?

Paolo Ardoino：There is currently no universal standard that applies to every stablecoin company in the world. Whether stablecoin companies must disclose their financial institution partners depends on the laws and regulations of the relevant countries. In the case of Tether, we have taken the initiative to be an industry leader in transparency, providing evidence of our reserves through quarterly attestation reports. In fact, Tether's transparency policy can be viewed here:https://tether.to/en/transparency/。

3. ChainCatcher: Centralized stablecoins cannot get rid of their dependence on centralized issuers, and compliance with regulations may be the only way to go. At the same time, decentralized algorithmic stablecoins may have made some attempts at "de-regulation," although the collapse of UST last year caused the market to lose confidence in algorithmic stablecoins. How do you rate algorithmic stablecoins?

Paolo Ardoino：Algorithmic stablecoins play a key role in the cryptocurrency ecosystem, especially on-chain. But algorithmic stablecoins, unlike collateralized stablecoins backed by highly liquid collateral, rely on market operations to maintain value. But these market operations often fail, leading to severe declines in value. An example of this is the Terra algorithmic stablecoin, which ultimately proved to be under-collateralized. It employed several mechanisms to achieve stability, but ultimately none of them worked.

In contrast, Tether (USDT) is fully backed by a liquid reserve and is less susceptible to market volatility than algorithmic stablecoins. After the Terra/Luna debacle, investors scrutinized stablecoins and became more cautious, but Terra and its unique algorithmic approach needs to be compared with other stablecoins directly pegged by assets similar to Tether distinguish. Terra and USD₮ use different designs, mechanics, and collateralization methods.

4. ChainCatcher: "Forbes" inA recent reportQuestions were raised in:

Tether has largely kept its finances a secret. Tether has never submitted a full audit of its reserves, and has only provided incremental snapshots of its accounts in the form of periodic "attestations" produced by third-party accounting firms (most recently BDO Italia)...by comparison, its competing Rival Circle, which manages the stablecoin USD Coin, released details of the specific treasury bonds, CUSIPs and maturities backing its $41 billion digital dollar.

How does Tether respond to these doubts?

Paolo Ardoino：According to our recent proof for the first quarter of 2023, Tether continues to put transparency first, and has made significant progress in emerging markets, becoming a safe choice for users in the market turmoil. Tether had a remarkably strong performance in the first quarter, with a net profit of $1.48 billion and very strong reserves. Additionally, the 20% increase in the supply of tokens in circulation demonstrates the high level of trust customers have in Tether and confirms the company’s positive outlook for the year ahead.

Regrettably, certain traditional media outlets persist in spreading outdated and false claims about our financial situation. The truth is, Tether maintains a strong, prudent and liquid portfolio with a priority on safeguarding reserves. Every quarter we provide an assurance opinion with a comprehensive explanation that all Tether tokens are backed by reserves.

It should be emphasized that Tether was the first among its peers to disclose the composition of reserves and provide public proof, and did not mislead the public into thinking it was an official audit. Although Tether and its main competitors have not yet conducted a financial audit of stablecoins, Tether is working hard to complete a comprehensive audit, covering not only recent years, but also previous years. Once the audit results are finalized, we will make them public.

In addition to reserves, Tether's resilience during market volatility also proves why Tether is the most trusted stablecoin in the world. When Terra/Luna crashed, Tether managed to redeem over 10% of the USDT in circulation within 48 hours, equivalent to $7 billion. From market peaks to troughs, Tether processed nearly $20 billion in redemptions. While other players favored by traditional media falter under market scrutiny, Tether has grown to become the largest, most liquid, and widely adopted stablecoin in the industry.

5. ChainCatcher: How to further let users understand the transparency of Tether?

Paolo Ardoino：user can log inour website, to view the quarterly attestation opinion on reserves, Tether is educating and engaging users through multiple channels to keep our community informed. Not only are we committed to providing quarterly transparency reports, but we also work with auditors to complete audits as quickly as possible. In addition, we have listened to users, such as converting all commercial paper in the reserve to short-term US Treasury bills, and we will continue to ensure that every action we take is in the best interest of the industry and the community.

6. ChainCatcher: In addition to digital payments and cross-border payments, what other use cases and potentials can stablecoins have in developing economies?

Paolo Ardoino：Stablecoins have the potential to disrupt the entire financial sector, starting with revolutionizing digital payments, enabling seamless transactions in decentralized finance, and more. Tether's USDT itself offers many benefits, enhancing business, simplifying operations, minimizing transaction errors, and greatly reducing credit card fraud.

The transferability of USDT between exchanges and individuals removes the need for intermediaries such as banks that have traditionally been involved in the process of moving funds. Tether can provide a user-friendly buying and selling experience and is currently available on cryptocurrency exchanges. As a result, Tether is often used as the go-to option for holding funds on exchanges during periods of wild market volatility.

Stablecoins, including Tether, are also facilitating cross-border trade and remittances, especially in emerging markets. USDT provides a stable and efficient means of transferring U.S. dollars, and is used by tens of thousands of users from Asia, Latin America, and Europe every day. The adoption of Tether and other stablecoins in these regions has increased the efficiency of trading activities, provided more arbitrage opportunities, and various other transactions.

Additionally, stablecoins like Tether, which offer convenience, stability, and efficiency, are empowering businesses, facilitating economic activity on a global scale, and reshaping the financial landscape by enabling secure and swift transactions.

7. ChainCatcher: In addition to being used for encrypted transactions, USDT has also become a retail currency tool for many developing countries in Latin America, Africa and other regions. For example, Lugano, Switzerland announced that USDT will be used as legal tender, which is of great significance to the entire encryption industry. It is a very meaningful thing. What other plans does Tether have in promoting the mass adoption of USDT? What are the difficulties in the promotion process in different countries and regions?

Paolo Ardoino：With "Plan ₿", a collaborative initiative between Tether and Lugano, we demonstrate the transformative potential of blockchain technology more broadly. Working with local businesses and well-known retailers such as renowned fashion brand Guess, we demonstrate the feasibility and advantages of integrating Bitcoin and cryptocurrencies into everyday life.

We can proudly say that USDT is essentially a tool for financial freedom, promoting financial inclusion and democracy. Our goal is not only to provide services to white-collar customers on Wall Street, but instead, we have entered emerging markets. Tether tokens are not only a safe haven product for the unbanked group, but also an opportunity for them to enter the global financial market.

It's also great to see the product grow organically within the community. For example, in countries plagued by severe inflation such as El Salvador and Turkey, people use USDT as a store of value. Likewise, migrant workers who previously relied on expensive services like Western Union to send money across borders have switched to Tether. Our tokens allow them to save more of their hard-earned money, free from uncontrollable external factors.

8. ChainCatcher: What is the current progress of the previously launched "Plan ₿"?

Paolo Ardoino：With "Plan ₿", Lugano has made remarkable progress in the adoption of cryptocurrencies, a breakthrough model of 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 begun to accept Bitcoin, USDT and Lugano's native token LVGA as their products and means of payment for services. The wide acceptance of Bitcoin and blockchain technology in Lugano illustrates the potential of a free, open and borderless monetary system.

Mainstream adoption of Bitcoin is an inevitable progression; however, like any financial system adoption, it will undoubtedly take time. Nonetheless, as more and more Lugano residents and tourists experience the convenience of paying with cryptocurrencies, the number of shops and businesses that accept cryptocurrencies continues to increase (currently 150), and interest in Bitcoin and other cryptocurrencies is growing. Demand will naturally increase. This is where our annual "Plan ₿" forum can play a key role in promoting Bitcoin and blockchain education. Through the adoption of the Tether token, we realized that when people can easily adopt the tools of financial freedom, they will use them. We firmly believe that the essence of Bitcoin is to provide individuals with the opportunity to gain financial autonomy.

9. ChainCatcher: Some views believe that Bitcoin is more like a means of value storage, coupled with greater volatility, it is difficult to be accepted as a means of payment. What do you think about this?

Paolo Ardoino：We do not focus on volatility, but more on Bitcoin as a permissionless payment solution. In addition, with the advancement of Bitcoin scaling technologies such as the Lightning Network, its payment efficiency and adoption rate will increase significantly. Bitcoin was designed from the beginning as a decentralized, peer-to-peer cash ledger system that can operate independently of legal tender. This is why we strongly advocate for Bitcoin as a peer-to-peer network to promote global financial inclusion.

To further this goal, Tether remains committed to supporting the development and adoption of the Lightning Network and similar technologies so that Bitcoin can be seamlessly integrated. Additionally, we will continue to invest in and support the Bitcoin community, including developers and white hat hackers, to strengthen the strength, resilience, and immutability of the Bitcoin network. Promoting the widespread use of Bitcoin as a means of peer-to-peer financial transactions moves us closer to achieving global financial inclusion.

10. ChainCatcher: Do you have anything to share with us about Tether's recent developments?

Paolo 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 jointly launch Keet, a peer-to-peer text and video chat application with Bitfinex and software company Hypercore, which can build a more Efficient and decentralized connections while maintaining a high level of security and privacy through encryption.

Also, in order 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, promoting free speech. Course topics will focus on Bitcoin, Lightning Network, stablecoins, peer-to-peer technology, mining, blockchain analysis, regulation, self-regulation, and more. The “Plan ₿ ” summer school will allow participants to collaborate with industry leaders, develop peer-to-peer prototypes, deepen understanding of technology, and help shape the next generation of founders, developers, and creators.

We will be holding the second "Plan ₿" Forum in Lugano on October 20-21, 2023, where we will bring together world leaders, technologists and entrepreneurs to discuss Bitcoin adoption, economics, financial freedom and freedom of speech.

11. ChainCatcher: What specific areas of cryptocurrency are you personally optimistic about?

Paolo Ardoino：I believe the stablecoin space will continue to grow. Although the stablecoin space as a whole will have to face more difficult challenges involving the regulatory and systemic risks of the traditional banking system. Tether has been the most resilient in the face of market volatility, and of course given that USDT is backed by an extremely liquid conservative reserve, I believe Tether's competitors will get better and better. We welcome innovation and fair competition. After all, if only Tether is "dominant" in this field, it cannot be called an "industry". Users should not have only one choice.

Additionally, I expect to see more development in the decentralized finance (DeFi) space in 2023. In the past few months, we have seen many problems with centralized traditional institutions and exchanges. Decentralization should be the encryption spirit pursued by the builders. Keeping money in your own wallet, or on your own phone or laptop, is what people want 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 about the original vision of Bitcoin and focus only on speculation, competing with each other on the latest meme coin, then we will come back to square one - the current banking system is still only synonymous with the financial industry.