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