Bankless talks with Tether: Where will USDT go after the Stablecoin Act?

This article is based on an interview with Paolo Ardoino, CTO of Tether, conducted by Bankless on June 23. Some information may be outdated.

In this episode, he detailed Tether's global business layout, profitability, attitude towards the GENIUS Act, future compliance strategies, and whether it will launch a new stablecoin for the US domestic market. In addition, Paolo also shared Tether's investment directions in Bitcoin mining, AI, biotechnology, agriculture, energy and other fields, and responded to many discussions about Tether's market value and strategic positioning.

When this episode was recorded, the US GENIUS Act stablecoin bill had just passed the Senate and was likely to be signed into law by Trump. As the current largest stablecoin project by market value, Tether faces a new policy environment and market competition landscape. Hosts Ryan Sean Adams and David Hoffman had an in-depth conversation with Paolo on this, focusing on Tether's preparation for compliance, the global distribution strategy of the US dollar stablecoin, and its positioning adjustment in the US and global markets.

Paolo Ardoino, Tether's long-time technical director, responded to a number of key issues in this episode, including Tether's relationship with the US Treasury, its Treasury bond holding strategy, and its claim of nearly $14 billion in profits last year.

Please note: The views of the guests do not represent the views of Wu Say. Wu Say does not endorse any products or tokens. Readers are requested to strictly abide by local laws and regulations.

How will Tether respond to the GENIUS Act? Will it spin off and launch a local stablecoin?

Ryan: Welcome to Bankless, where we explore the forefront of stablecoin finance. I’m Ryan Sean Adams, and I’m joined by David Hoffman, and we’re committed to helping you live a less banked life. There’s a Game of Thrones going on in the stablecoin space right now, and Tether is the undisputed stablecoin king. So our guest today, Paolo Ardoino, is the “King of Stablecoins.” While he seems to be a low-key person himself, he has ambitious plans for Tether’s continued distribution and dominance, which is especially important in a new era — an era in which the stablecoin bill just passed the GENIUS Act and is heading to the next stage of Congress. The bill has already passed the Senate and will likely be signed by Trump.

My biggest question for this episode is this: Assuming the GENIUS Act is passed, what will Paolo do next with USDT and Tether? Will he go the compliance route, or will he launch a new U.S.-based stablecoin and split the business in two? The answer sounds like “both,” but it’s also very nuanced and complicated. You’ll have to listen to find out the full story. He also mentioned a number that almost made us fall off our chairs: Tether made nearly $14 billion in profits last year.

David: We welcome Paolo Ardoino again, the core leader of Tether, a stablecoin project with a market value of $150 billion and a pioneer in this industry. Our last conversation was before the GENIUS Act was proposed, and there was no news about legislation on Capitol Hill. Now this major bill has passed the Senate and is ready to go back to the House for further progress. We have a lot of topics to update. Paolo, welcome back!

First reaction to the GENIUS Act and Tether's compliance preparation

David: I would like to hear your first reaction to the GENIUS Act passing the Senate. Although this bill still needs to go back to the House for further voting, people are generally very optimistic. Trump even tweeted, "I just want to sign this bill, the House of Representatives, get it done quickly." What was your first reaction when you heard the news?

Paolo: As you know, Tether pioneered the stablecoin industry in 2014, and we are honored to see that the most powerful country in the world, the most powerful government, is taking seriously the technology we created 11 years ago and recognizing it through legislation. This is very exciting. I think the GENIUS Act is an important step in the right direction, which establishes a compliance framework for both local stablecoins and foreign stablecoins like USDT. Of course, as you said, it still needs to pass the House of Representatives, but the atmosphere now looks positive. This bill sets a high bar, especially in terms of anti-money laundering and compliance, and I really appreciate this standardized approach.

I announced a few months ago that we are promoting a localized stablecoin project in the United States. The passage of the GENIUS Act provides a clear route and requirements for such projects, and we believe that Tether USDT itself is already in a good position to meet the requirements through a "comparable system" approach.

Yesterday there was another important news, Tether is working with the U.S. Department of Justice. We have been using our own monitoring technology to identify and track suspicious activities on the chain for the past year. I think we have built the strongest stablecoin monitoring system in the entire blockchain ecosystem.

These examples show what Tether is doing. We work with more than 250 law enforcement agencies around the world, in more than 55 countries. This is unprecedented among financial institutions. We are willing and continue to promote higher transparency and standards. The requirements set out in the GENIUS Act are exactly what we have been practicing.

From a financial perspective, this bill also sets a high standard. No one wants to see another Terra Luna disaster. Tether holds more than $125 billion in U.S. Treasury bonds, and this number is still growing. Our monetary base is expanding, which shows that we are moving in the right direction. Strong balance sheet requirements are necessary.

Currently, Tether's total group equity is about $176 billion, and the market value of the USDT stablecoin is $155 billion. In addition to our 100% USDT reserves, we also retain about $6 billion in excess reserves. Compared to traditional banks, which usually only retain 10% of liquid assets and implement a 90% partial reserve system, Tether is more than 105% full reserve. In addition, our group has an additional $15 billion in assets. This structure is extremely rare in the financial system.

So overall, we are very excited about this bill. Of course, the final version needs to be released before we can further advance our stablecoin issuance plan in the United States. But I want to applaud Senator Cynthia Lummis and other lawmakers who pushed for this legislation. David: Assuming the GENIUS Act passes in its current form, what new doors will it open for Tether? What will happen next? What is your strategy after the bill passes? In addition, is there anything in the GENIUS Act that you feel is missing? If it could be amended, what provision would you most like to see added? Paolo: I think the GENIUS Act will provide much-needed clarity to the entire industry, allowing everyone to operate more safely. For the past four years, our entire industry has been in a hostile environment, not just Tether. That period of time was called "Operation Choke Point 2.0", and the OCC and the executive branch were suppressing the crypto industry. Crypto banking was almost impossible. You remember in 2023, Silicon Valley Bank and Silvergate Bank had a series of incidents, which almost eliminated our main competitors. All of this is a direct result of Choke Point 2.0.

Now, the new administration is developing a new regulatory framework, showing the support of the federal government and regulators for crypto banks. This will greatly enhance the security of the entire industry, and we are very excited about it.

In addition, the GENIUS Act also provides opportunities for more new players. For example, now we see JP Morgan, Amazon, Walmart, etc. have expressed their desire to issue their own stablecoins. Now every big company wants to issue its own stablecoin, which I think is great, and the more players the better. As I said at X, "Welcome to the second player." But what's interesting is that these new competitors are mainly focused on the US market. And I would say that the opportunity in this market is actually very short.

Ryan: I do think Tether has done a great job outside the United States, especially in expanding the stablecoin users and usage scenarios, and these indicators do reflect your efforts.

Is USDT seeking compliance? Why is there a need to launch another US-based stablecoin? Ryan: Paolo, I want to get a little more insight into your specific plans after the GENIUS Act passes. Right now, it looks like Tether could take multiple paths. Let's just assume that this bill does pass, and I was looking at Polymarket this morning, and the probability there is already at 80%, which is the highest so far. I think back to the last time we spoke to you was in February of 2024, and the regulatory environment was completely different then it is now, especially in terms of the relationship between the U.S. and the crypto industry and stablecoins. It was the height of the "Choke Point" action. We just spoke to Senator Bill Hagerty, the co-author of the GENIUS Act, yesterday, and he talked specifically about Tether. He said that if an offshore issuer like Tether wants to enter the U.S. market, the bill allows the Treasury Department to conduct a "comparable regime" test, and if its home country's regulations match the U.S., it can continue to operate. Otherwise, it will need to set up a US subsidiary to meet the same reserve and information disclosure standards. He also said that Tether can start the compliance process tomorrow.

Can you elaborate on Tether's plans? Currently, USDT does not meet US domestic regulatory standards, but it seems that there is indeed a path to compliance. Achieving this path may require stricter audits, optimizing reserve structure, increasing local operations, or obtaining an OCC license. At the same time, we also know that you are promoting a new local stablecoin project, which will be an asset completely independent of USDT and focused on the US market. Are you worried that this will split liquidity? Can you talk about your considerations in more detail?

Paolo: Yes, the market is now paying attention to the $13.7 billion profit we generated last year. This year I think we can do better. Our current market value is $155 billion, and the Federal Reserve did not cut interest rates as much as many people predicted. We said this a long time ago, and it did happen.

Why do people think we can’t meet regulatory requirements? I’m not saying you think so, but I see a lot of similar comments on X. They think we will abandon the US market and stop supporting the best business in the world. But why do they think so? We are profitable enough, in fact, we are now one of the largest institutions that buy US Treasuries, except for a few countries. Last year we were the fifth largest buyer of US Treasuries.

Ryan: Many people may not know that Tether is the fifth largest buyer of US Treasuries, which is ranked with the purchasing power of those countries.

Paolo: Yes, in terms of total holdings, we are equivalent to the 18th largest "national" treasury holder in the world, even though we are not a country. This is the power of stablecoins. I think Treasury Secretary Janet Yellen fully understands this, and the President understands it. USDT is an important boost to the US economy.

As Senator Hagerty said, there is indeed a path to a “comparable system” or mutual recognition system. This process may take some time because countries need to establish corresponding regulatory mechanisms. But I think the greatest value of the GENIUS Act is that it will become a template for other countries around the world to follow.

The United States is the most influential country in the world, so once it passes the GENIUS Act, other countries will follow suit. At present, with the exception of the UAE, the system in Europe is actually very bad — — for example, requiring 60% of reserves to be placed in uninsured bank cash accounts. Do you remember what happened to our competitors when Silicon Valley Bank got into trouble? Europe has such a bad system. And the UAE is already doing something similar to the GENIUS Act, and Singapore is also testing the waters. So I believe that once the United States legislates, other countries will soon follow suit, which will open up a clear path for the global compliance of USDT.

Division of labor and profitability challenges of the two stablecoins in the US market

Ryan: Regarding the USDT issue, it sounds like your main plan is to make USDT compliant with the GENIUS Act. If that's the case, why issue another stablecoin in the US? Why two? Is it for redundancy? Or is it a backup plan?

Paolo: That's a great question. In fact, the two are aimed at completely different use cases. My opinion may be controversial, but I think the current business model of stablecoins will not work in the US. Of course, everyone is paying attention to Circle's IPO now, and many projects are preparing for business in the US, but to be honest, it is almost impossible to make money with stablecoins in the US, and it will evolve into a "price war to the end" in the future.

You can see the example of crypto exchanges, like Bitfinex in 2012, which earned 20 basis points in fees for each transaction. But now you see that the market maker's fee is only one basis point, which is a significant drop from ten years ago. This is the result of "overefficiency". The United States is one of the most efficient markets in the world for financial infrastructure, and it has reached an efficiency level of 90%. If you introduce a stablecoin in the United States, at most you can only increase the efficiency from 90% to 95%, which is not very attractive to users, and the "premium" they are willing to pay for it is very limited.

But in a country like Nigeria, the efficiency of the financial system may be only 20%. If you introduce a stablecoin, you can increase the efficiency to 50%, which is a 30% increase. So in these countries, users are happy to hold USDT, even if they only get an annualized return of 4%, which is better than the intraday depreciation of their country's currency.

Therefore, I think we need to clearly distinguish between these two products and their respective use cases. For the United States, future stablecoins will be more like "Tokenized Money Market Funds", such as JP Morgan's JPMD products, which will eventually return all profits to users.

So the local stablecoins we plan to issue in the United States must compete in other dimensions, such as programmability, additional services, etc., and must not compete with our original business model for USDT. USDT was born for emerging markets around the world, while local stablecoins serve the United States. The two cannot be confused.

Faced with competition from banks and technology giants, where is Tether's moat?

Ryan: Got it. So you are indeed considering launching two products because they serve different use cases. But at the same time, you do intend to make USDT comply with the GENIUS Act, right?

Paolo：Yes, that's exactly what we're aiming for.

David：There's a lot of talk about domestic stablecoin issuers in the US. There are a lot of rumors that Amazon, Walmart, even Meta and Twitter might issue their own stablecoins. We also know that JP Morgan, Citibank, Wells Fargo are exploring similar stablecoin alliances. I personally think this is a bit like a "psychological placebo", but that's just my opinion. There will be a lot of competitors in the US in the future. If these big banks can issue tokenized deposits anchored to the Fed's balance, what moat will Tether have in five years?

Paolo：Tether still has very strong distribution partners and its own distribution network. The key is that banks usually only sell their stablecoins to their existing customers. I don't see any bank employees willing to go to the streets and educate ordinary people one by one on how to use stablecoins. And this is exactly our strategy all along.

We never walk into a country and go straight to the biggest bank to work with us, which is completely different from our competitors. We educate on the streets, promote in the community, hold educational seminars, and popularize knowledge door-to-door. We look for local partners who are completely consistent with our "bottom-up" philosophy. This is how we promote stablecoins.

Although the financial infrastructure in the United States is very complete, I recently saw a report saying that many people even have difficulties opening a bank account. Therefore, there will be a group of people in the United States who need our "direct-to-user" products, rather than those who sit in ivory towers and think that the world is the same as it was 20 years ago.

What do you think of Circle's valuation after its IPO? Will Tether consider an IPO?

David: I want to talk about Circle's stock price after its IPO. It was issued at $31 and has now risen to $200. I saw someone do a simple valuation calculation on Twitter, and if you use a similar P/E ratio to Tether, it would be worth about $3 trillion. What do you think of Circle's stock price performance after going public? I think it's amazing.

Paolo: First of all, we don't plan to go public. Companies usually go public for two reasons: one is to raise money, but we are very profitable and don't need it; the other is to get shareholders to exit. And we have invested more than $5 billion of our profits in the United States in the past two years, which is rarely mentioned, but it's actually very important. We are also giving back to the country that created the strong currency of the dollar.

You go public to get capital more cheaply or to get shareholders to exit. We don't need this. We are having a lot of fun now. It feels like this company is just getting started. There are still many things worth doing and many areas to expand. We have a lot of new ideas around the concept of USD and driving disruption in different verticals - for the masses instead of a few large companies.

So when I saw that multiple for Circle, I also thought, that's a good valuation multiple. Of course, valuation is ultimately a matter of the market, and we'll have to wait and see. But for us, this situation is already very good.

David: Let's go back to Tether's current position as a country in terms of US Treasury holdings. Combined with this potential valuation of several trillion dollars, does this scale and influence make you feel stressed? If I were you, I would probably feel a lot of pressure to manage so much US Treasury and even operate like a "country".

Paolo: This does involve a lot of misunderstandings. Some people are still living in the public opinion of 2014 and still think that Tether is something that needs to be hidden. But we actually keep our assets in Gerald's formal custodian, and everything is open and transparent.

Ryan: I think many investors are also trying to figure out how much the stablecoin track is worth. You can see Wall Street trying to value Circle, stablecoins really starting to enter the public investment field, and Tether finally being put in the spotlight. For example, Treasury Secretary Janet Yellen recently recognized that Tether is a significant buyer of U.S. Treasuries.

Ryan: Let’s compare. Circle’s market cap is about $45 billion, and its annualized net profit is about $150 million. You just mentioned that Tether made $13 billion in profit last year and will be higher this year. David’s $3 trillion valuation does sound exaggerated, but your cash flow is not far-fetched to be in the top five — just behind NVIDIA, Apple, and Microsoft. And your U.S. Treasuries are also very strong. This comparison now makes sense because you have a real comparable, and that company is now a public company. So how much do you think Tether is worth today?

Paolo: To me, it’s worth a lot.

Ryan: Haha, that's true.

Paolo: Yes, it's very valuable to me personally because it's like my baby. But to be honest, I don't know if a 200x P/E ratio like Circle can be sustained in the long term. If they can, that's great, and it's also good for us.

We've come a long way, and we've experienced highs and lows, but there are a lot of people who have always been determined to keep going and build this company in the face of difficulties. So I would say that this is an achievement that belongs to everyone and deserves congratulations.

The Second Half of the Stablecoin War: The Next Phase of Distribution Strategy

Ryan: Let's talk about the second half of the stablecoin competition. Now it can be said that Tether won the "first phase", which was the era of crypto-native users. The passage of the GENIUS Act means we are entering the "second phase". David mentioned that many US companies, including banks, are planning to enter the stablecoin race. These will become your new competitors. Welcome to this new battlefield. Now, banks are starting to participate, and so are technology companies, such as Meta.

I saw an interesting article by Arthur Hayes on stablecoins. He pointed out that the core of stablecoin competition is actually the "distribution network". Tether was the first player to enter this field and took the lead in establishing crypto-native distribution capabilities. Tron is a very good distribution channel. Your circulation on Tron has reached 80 billion USDT, and the usage scenarios and payment scale are very impressive.

Then the next question is that in the next stage you will face big technology companies, such as Meta. Meta has more than 3 billion global users. This will be a whole new chapter. In this situation, how can Tether continue to win the distribution war?

Paolo: This is a very interesting topic. We still need to continue to observe the final language of the GENIUS Act, but from the current point of view, it may be difficult for companies like Meta to launch stablecoins on their own in the future.

I think big tech companies will eventually need to cooperate with existing stablecoin issuers or small banks to support stablecoins issued by others through agency issuance or revenue sharing. This model will bring an interesting competitive landscape. I still think that there is limited room for companies like Meta to issue stablecoins on their own.

In terms of distribution, Tether has made a lot of arrangements. More than 100 companies have accepted our investments through Tether Investments instead of using our reserves to invest. These investments have formed our huge distribution network.

To give another example, the US-based stablecoin product Rumble, we will launch Rumble Wallet, which will have 70 million users at the beginning. It's a great platform to start with, with more active users than even the largest crypto exchange in the US, which is obviously a great starting point.

We also have the USDT Dot Network website, which publishes data on our user behavior, such as 37% of users use USDT for savings. We are very deep in the construction of the distribution network, and it is a "boots on the ground" model. We can even penetrate the smallest village in the Philippines.

We have invested in cross-border remittance companies, set up service points in Central and South America, and built digital currency infrastructure in Africa. In Africa, we also launched a pilot project to build 500 stablecoin exchange booths.

Ryan: I was shocked to hear you share this data, all of this information can be found on USDT dot Network, right? 4.4 million estimated users, I think the United States as a whole is completely unaware of the scale of this use case. People keep saying there’s no “killer app” for crypto, but your data shows that 440 million people actually use dollars, which is the real killer app.

Behind the explosive growth of Tether users: How did the pandemic accelerate the adoption of stablecoins in developing countries?

Ryan: How did Tether’s first phase of distribution come about? This can’t be a purely emerging market story, right? Can you explain to people who are seeing these numbers for the first time how they came about?

Paolo: Actually, this is a very interesting question. If you look down at our market cap growth chart, you’ll see what happened in 2020. Do you remember what happened that year?

Ryan: We had a global pandemic, you mean that?

Paolo: Exactly. And we didn’t have a marketing team at the time, and we didn’t really build a marketing department until 2022. If you look at the growth between 2020 and 2022, we didn't really understand why there was such a change until later. We did a lot of self-review and asked ourselves a lot of questions.

If you think about developing countries, they have several common characteristics. First, they are generally poorer; second, the inflation rate is generally higher than that of developed countries. But more importantly, they have two important characteristics: one is that the penetration rate of smartphones is actually very high, and the degree of digitalization is not low; second, the population is obviously younger, with a large number of young people.

From 2017 to 2020, this generation of young people was the first group to contact and understand cryptocurrencies. But when the epidemic broke out in 2020, the situation changed significantly. The parents of the "children" who originally understood encryption began to take to the streets because of unemployment and economic collapse due to the epidemic. Compared with the United States or Europe, the economies of developing countries have been hit harder, unemployment is more serious, and inflation is higher.

Ryan: So what applications do they use USDT? Is it a traditional crypto exchange application? Or a wallet like MetaMask that connects Ethereum and Tron?

Paolo: Mainly local exchanges and various wallets — there are really endless varieties. We never say "you must use this wallet" or "recommend that wallet". This is the point — when people really need it, they will naturally find a solution. This is also the problem in Europe and the United States. People's needs are not urgent enough.

When your family is in danger, you work hard all year, but at the end of the year you are poorer than at the beginning of the year, just because your local currency depreciates too fast, you will protect your family at all costs. This is the reality we see and the real reason behind the explosive growth of Tether users.

Is the growth of USDT still strongly correlated with the crypto market? Ryan: How much do you think the growth of Tether's market value is related to the total market value of the entire crypto market? It seems that there is indeed some correlation, such as a wave of large growth before 2022, and then a decline, although it did not fall back, and then it started to grow again. Do you think there is a causal relationship between them? Paolo: To be honest, we are actually collecting data on this, but from what we have observed so far, the part of Tether's market value that comes from the crypto market is conservatively estimated to be less than 40%. In other words, more than 60% of the growth comes from real usage needs in emerging markets, which is the demand for US dollars at the "grassroots" level. I think the next wave of growth of USDT will come from the commodity trading sector. Almost all commodity traders are contacting Tether because for them, USDT is the great invention "second only to sliced ​​bread." They need to make international settlements, but the traditional banking system is extremely inefficient, and for these traders, the capital efficiency is very poor. USDT can make their settlement process almost infinitely efficient.

You have to know that the main export destinations of commodities are in emerging markets.

For example, look at Bolivia. I tweeted about Bolivia last week. In small shops in Santa Cruz and some other cities, the prices of goods are directly marked with USDT. We never set up an office in Bolivia, nor did we send people there. All of this was formed spontaneously by users. It was completely organic growth.

Tether Ventures' investment strategy and global agriculture and energy layout

David: I want to turn the topic to Tether Ventures. You have made a lot of layouts in this area now, and there are many interesting projects in Tether's portfolio. Some are very intuitive, such as Plasma and Stably, which are L1 blockchain projects built specifically for Tether.

But your investments also cover some more "discrete" areas, such as the acquisition of mobile communication networks, fiat currency deposit and withdrawal infrastructure companies, and energy startups. There are even some media technology companies that help creators produce content. I heard that you also own an Italian football club? These portfolios are quite interesting. Can you talk about the strategy behind Tether Ventures?

Paolo: Yes, our portfolio is really large, so we have to develop different strategies for different areas.

We have also recently started to acquire land and agricultural companies. For example, a company called Adecoagro, which is listed in the United States, is one of the largest landowners in South America, with land in Brazil, Argentina and Uruguay. Their main business includes agricultural production, such as rice and beef.

The reason why we value this type of asset is first because land itself is a scarce and safe asset with the potential for long-term appreciation. As part of asset allocation, investing in resources that humans will always need, such as land and agriculture, is a very sound strategy.

More importantly, we believe that agriculture is also part of commodity trading, which can be combined with the use of stablecoins in commodity trading as we mentioned earlier. USDT and other stablecoins can help agricultural companies improve capital efficiency, whether it is financing or commodity payment, it can be faster, more transparent and decentralized. Therefore, the combination of agriculture and stablecoins will be a very promising direction.

In addition, there is an interesting idea that we are losing the ability to "think independently". Many people can't even do simple mental arithmetic because we have calculators. The development of AI may make us more dependent on "intelligence". Just like the saying "Not your keys, not your coins" in the encryption industry, I think there may be a concept like "Not your AI, not your intelligence" in the future.

If you give all your data to a company that controls your intelligence, then you are not actually getting smarter, but becoming more dependent, or even more dull. And those companies that control your data and "intelligence" will become more and more powerful. This trend deserves our attention.

Decentralized AI platform and data sovereignty vision: "Not your AI, not your intelligence"

Paolo: Based on the strength of our current balance sheet and our unique company's technical and capital capabilities, we hope to build a technology platform that can make AI closer to the public. This SII (decentralized intelligent interface) platform can run on all devices, whether it is a cheap $30 smartphone, a high-end flagship phone, a laptop, or a server, it can automatically adapt to the model, weights and other parameters used.

We have also invested in some biotech companies, such as Blackark Neurotech, which has nothing to do with Blackrock, although we may consider changing the name. We are particularly interested in brain-computer interface technology, which I believe is humanity's ultimate line of defense against being "ruled by robots". In the future, if humans want to become more intelligent, they will need some kind of "mathematical coprocessor" implanted in their brains, but it cannot upload all your thoughts to OpenAI or other big companies.

This is why I came up with the idea of ​​"Not your AI, not your intelligence". I am full of expectations for the future of combining local computing intelligence with brain-computer interfaces. I am a heavy science fiction fan.

You just mentioned that we invested in a football club. Yes, we did invest in Juventus in Italy. Juventus won 5:2 in the first game of the World Club Championship yesterday, which was a good start. Giancarlo and I are both football fans. This investment is actually small relative to our entire portfolio, but it does bring a lot of fun.

David: Is this investment for fun?

Paolo: Yes, a little bit for fun. But if you think about it, this could also become a huge distribution channel. Juventus fans are all over the world. We can bring more fans to Juventus through our own network, and at the same time, we can use Juventus' influence to expand our user network. This linkage is actually very potential.

Investment strategy core: Prioritize the evaluation of distribution potential and promote AI wallet SDK (WDKS)

David: In the long run, when you evaluate a potential investment project, is distribution the first factor you consider? Do all your investments prioritize distribution capabilities?

Paolo: Absolutely right. Even in the process of building our AI platform, distribution is still the first priority. I believe we will see 1 trillion AI agents in the next 15 years, and every AI agent should have a non-custodial wallet. It is hard for me to imagine my AI agent opening an account at the Federal Reserve or JPMorgan Chase.

So we are building an SDK called WDKS (Wallet Development Kit for Smart agents), which is a completely open source wallet development kit that anyone can use to build a non-custodial wallet. We will not hold any private keys, it supports various blockchains, and you can use any AI model to integrate the wallet.

My vision is this: I have a smart refrigerator, it displays a QR code, and this QR code links to a non-custodial wallet. I put $50 in the refrigerator, and it will help me buy food. I don't want the money in the refrigerator to be stored in PayPal, that's not the experience I want.

And, imagine that billions of devices in the future will need this function. I even imagine that in the next 20 years, every light bulb should have a micro AI that can adjust the optimal brightness and energy consumption according to the environmental conditions. Maybe not in 20 years, maybe 30 or 40 years, but this is the direction we are heading.

That's why we are building localized AI. I don't think every light bulb should be connected to ChatGPT, the system will definitely crash and the latency will be very high. Local AI will become very important, and giving local AI its own wallet will also become very critical.

No "Tether Chain" will be launched, but multi-chain high-speed payment infrastructure will be supported

David: Some of Tether's recent investment projects that have attracted attention in the crypto community include Plasma, Stably, and a number of Layer 1 blockchains built specifically for Tether. In particular, Tron's recent transaction fees have risen to $4-5, which is obviously not feasible as a payment chain. So projects like Plasma and a few others are trying to build a payment blockchain specifically for Tether. Tether has invested in these projects. Are you going to make one of them the "Tether Chain"? Or what do you think of these high-throughput blockchains designed specifically for Tether?

Paolo: Tether is not going to launch a so-called "Tether Chain" and I don't think there will be one in the future. But there are a lot of great teams and projects building great ecosystems that we want to invest in and support.

You mentioned that some chains have increased fees, and fees fluctuate, sometimes they are high and sometimes they are low. I imagine that in the future there should be a user experience that we can integrate into some wallets. Tether may launch its own wallet by the end of this year — I have never said this before.

Ryan: Will it be launched on a specific network? Or will it support multiple chains?

Paolo: It will support all networks. We hope that this wallet will be equipped with WDKS (Wallet Development Kit for Smart agents), and anyone can develop a similar wallet based on this framework. We are not trying to make money from this wallet. In fact, I don't even want to launch a wallet, but I want to make sure that there is a truly excellent wallet product on the market.

David: Speaking of Plasma, this chain has attracted a lot of attention on crypto Twitter. It is actually a Bitcoin sidechain. Before Tether exploded on Ethereum, it was actually deployed on the Omni network, and Omni is a sidechain of Bitcoin. That can almost be said to be the earliest chain built for Tether, at a time when the entire industry did not really understand blockchain technology. So now it is back to the Bitcoin sidechain, which feels a bit like "reincarnation".

The relationship between Tether and Bitcoin: Believers in holding positions, the origin of the development of stablecoins

David: Tether initially issued stablecoins on Ethereum, and later expanded to multiple blockchain networks. It is now incubating some projects similar to the "Tether chain", including a Bitcoin sidechain. What do you think of the relationship between Tether and Bitcoin? Do you think Bitcoin is special? Is it just another chain? You obviously hold a lot of Bitcoin and are bullish on it — — What comes to your mind when you think about Bitcoin?

Paolo: I love Bitcoin very much, and our entire team loves Bitcoin. It was Bitcoin that brought us into this industry. The birth of Bitcoin is poetic.

A lot of people say that it's too slow to produce a block every ten minutes, yes, it is slow, which is why you see the emergence of various Layer 2s, such as Lightning Network, or new architectures like Plasma. My view is that you shouldn't use the Bitcoin mainnet directly for daily payments.

But Bitcoin's "true removability" is important. With a block every ten minutes and a block size of about 1 to 4MB, even if you are in a village in Africa, with a simple antenna device, you can download several megabytes of data in ten minutes. This means that Bitcoin is currently the only blockchain that can achieve truly decentralized access even in the most remote areas. If the blocks are more frequent and larger, it will be difficult to keep up with the blockchain in developing countries.

Ryan: This also fits in well with your Treasury investment strategy. Tether holds about 100,000 Bitcoins in its treasury. Do you think you will consider allocating other crypto assets in the future?

Paolo: The question is… (To be continued)

Bitcoin Mining Layout: Tether Plans to Become the World’s Largest Miner

Ryan: What about Bitcoin mining? I remember Tether also invested in this field, can you tell us about it?

Paolo: Yes, Tether is expected to become the world’s largest Bitcoin miner by the end of this year.

Ryan: Wait, you’re saying that Tether will become the world’s largest Bitcoin miner?

Paolo: That’s right. There’s this view about Bitcoin mining — — if you have a lot of money to invest, you have to choose between buying Bitcoin directly and investing in mining.

David: Then you will be the most consistent miner in the Bitcoin network. Because some people, like myself, are worried that when the block reward of Bitcoin gradually reaches zero, its security may decrease. But what you mean now is that if you hold 100,000 Bitcoins and are the largest miner, you have enough motivation to maintain the normal operation of the Bitcoin network.

Paolo: Yes, this is also one of our considerations. We are working to make mining deployment more decentralized. We currently have mines in South America and many countries, including the United States. We think that the role of the United States is particularly important at this critical moment, and we are willing to give back and contribute. At the same time, Bitcoin also needs such firm support.

I think the future trend is that when the block reward is close to zero, the transaction fees on the chain will rise sharply. This will be a natural evolutionary path for the continued operation of the Bitcoin network.

The current situation, logic and physical exchange mechanism of gold stablecoins

Ryan: Let's talk about another very traditional asset, not digital gold, but real gold. This is actually an application scenario that has existed for a long time but has recently seen a growing demand. Can you update the relevant data? I see that there are currently about $2 billion in gold tokens on the chain, of which Tether accounts for about 50%. Although the rise in gold prices is a factor, it seems that market demand is indeed increasing.

Paolo: I think gold tokenization is a complex but promising area. We have seen huge interest in this product last year. Tether is different from other gold stablecoins. The gold stablecoin we launched is held in physical gold in a vault controlled by Tether itself. Therefore, one reason for users to choose gold stablecoins is to hedge against various risks such as potential collapse of financial markets. At the same time, you cannot be sure whether the so-called "paper gold" is actually backed by physical gold. Therefore, the logic of "not your gold is not your gold" makes sense. Currently, Tether holds about 80 tons of gold stablecoins and its own gold.

Ryan: The gold in your vault is part of your fiscal reserves. I saw it was about 50 tons, are you saying it's 80 tons now?

Paolo: Yes, it's about 80 tons now.

Ryan: For people who don't know about the Tether gold token product, what is it exactly? It is of course a tokenized product that represents gold, which means that there is actual gold backing it somewhere. And you control the vault and the gold yourself, right? What is the basic mechanism of this product?

Paolo: Most large gold bars are about 400 ounces, which is about 12.5 kilograms.

Ryan: Really? So you can exchange the tokens for the actual gold bar and take it out physically?

Paolo: Yes, of course you need to have the number of tokens that represent a full bar of gold to do so. We won't sell you half a gold bar.

David: You don't do fragmented gold withdrawals?

Ryan: David is right, you either buy the whole thing or just tokenize it on the chain. But tokenization itself can be very fragmented, right?

Paolo: Yes, no problem at all.

Ryan: This product is very cool.

David: Do you plan to tokenize other assets?

Ryan: After gold, will you consider real estate?

Paolo: The problem is, for example, oil or silver. If you consider silver, its volume is 100 times that of gold, and because the unit value is 100 times lower, the storage cost will also be much higher.

GENIUS Act in the United States may become a global regulatory template, while MiCA in Europe faces challenges

Ryan: The total amount of gold is not actually large. All the gold in the world combined is equivalent to the size of an Olympic-standard swimming pool. If you really buy up all the gold, then Tether will control the world's gold. Today's episode is really great, Paolo. I think everyone has a clearer understanding of Tether's size, ambitions, and the breadth of your involvement.

Ryan: I want to go back to a topic you just mentioned, which is the "template effect" of the GENIUS Act. You mentioned that the GENIUS Act may become a blueprint for legislation in other countries. I'm actually not very clear about the current progress of Europe's legislation on cryptocurrencies, especially stablecoins, such as how MiCA (Market Regulation of Crypto Assets) is developing? Do you think the ideas behind the GENIUS Act will be transmitted to Europe? How will the global regulatory landscape evolve in the future?

Paolo: I hope so. As a European, I can also speak some truth. The problem with MiCA is that it requires stablecoin issuers to keep at least 60% of their assets in uninsured bank cash deposits. The deposit insurance limit in the United States is $250,000 and in Europe it is 100,000 euros.

Paolo: Think about the bankruptcy of Silicon Valley Bank in 2023, where our main competitor suffered heavy losses because of $330 million deposited in the bank, and those funds were actually uninsured.

Paolo: So you can imagine how dangerous it is if a stablecoin project keeps 60% of its funds in such an uninsured bank account. We proposed before the MiCA legislation that 100% of the reserve funds should be used to purchase government bonds. The GENIUS Act obviously does better in this regard, and it requires stronger asset security. It stipulates that stablecoin issuers must be able to achieve 100% government bond coverage.

Paolo: So I hope and expect to see the GENIUS Act become a global template. Maybe it can push Europe to modify existing regulations. If Europe continues to insist on this unsafe reserve requirement, their regulatory system cannot be considered "comparable" with the United States. And other countries, I think, will use the US GENIUS Act as a reference. Some may set a 90% government bond ratio, some slightly lower, but the direction will definitely move closer to the United States.

Why the EU does not welcome the US dollar stablecoin? Contradictory path with central bank digital currency

Ryan: What about the euro? In addition to the US dollar stablecoin, what do you think of the development direction of Europe's own euro stablecoin? Do you think the EU will be more inclined to launch the European Central Bank's digital currency (CBDC)? This seems to be different from the US direction of "letting private companies launch stablecoins." Of course, sometimes it is difficult to see the direction of European policy, and the EU's decision-making process is indeed quite opaque.

Paolo: I think they want to go all out on central bank digital currencies (CBDCs), but I don't think this is a good direction. First of all, the EU is afraid of dollar stablecoins, and they want to limit the circulation of dollar stablecoins as much as possible because they are worried that the widespread use of the dollar will further weaken the euro.

Paolo: Look, if you go to a country outside the United States and randomly interview 1,000 people on the street and ask them whether they prefer to use their own currency or the US dollar, almost no one will choose their own currency. Everyone will say "I want the US dollar." And if you ask people outside Europe whether they like the euro, most people don't even know what the euro is, let alone choose it. Even within Europe, many people don't like the euro. So you can imagine how low the euro's appeal is globally.

Paolo: From this perspective, some of the protectionist measures that Europe is taking now may be understandable. They are trying to protect their monetary system from being eroded by the US dollar. But I personally don't like the central bank's approach to launching digital currencies. Now, when we use credit and debit cards, banks act as intermediaries, standing between users and the state, playing a buffer and protecting privacy. If all payments are made through the central bank's digital euro, the state can accurately track every transaction, such as if you spend money in a bar in Milan, the central bank will know immediately. This makes me very uneasy.

How Tether went from the margins to the center of the compliance stage and became a supporter of American interests

Ryan: Paolo, this is a really great interview. I would like to ask you to summarize at the end. In the past, Tether's relationship with the US government can be said to be ups and downs, and the same is true within the crypto industry. Tether has been questioned and criticized a lot, and has also experienced a lot of uncertainty.

Paolo: I think Tether is good for the United States. First of all, our business supports the global circulation of the US dollar.

We are actually promoting the expansion of the US dollar hegemony. While China and other BRICS countries are trying to weaken the dominance of the US dollar, we are promoting the US dollar around the world. We are not very present in Africa, Central and South America, and the BRICS countries are actively deploying. But Tether's influence has penetrated every corner of these regions, and we are helping the US dollar become the preferred and most commonly used currency in these markets.

In addition, we are also one of the largest buyers of US Treasury bonds and debt. You know, China once held $2.3 trillion in US debt, but now it has dropped to less than $700 billion, and they may even use this as a weapon to put pressure on the United States. Therefore, it is very important to decentralize the structure of holders of US debt, and we are contributing to this.

I think the passage of the GENIUS Act will enable us to continue this contribution in a stronger way. We are also reinvesting a lot in the United States to support excellent local companies. Our US debt is also hosted in the United States, not in some unknown European bank. All of this reflects the deep binding between Tether and the United States.

As for the criticism of the crypto industry, I think it's just "fear talk" (FUD), but the data doesn't lie. Judging from the growth curve, our business has always maintained a steady upward trend.

Ryan: You are bringing the US dollar to places that US banks can't reach. Thank you for sharing today, Paolo, it's really wonderful.

Paolo: Thank you for your time and opportunity. Thank you.

Ryan: Please note that the above does not constitute investment advice. Crypto assets are risky and you may lose money. We are heading towards the unknown western frontier — — this journey is not for everyone, but I am glad that you have joined Bankless on its journey of exploration. Thank you again.