Translation:

Original Title: Tether CTO: Revealing the Truth About Stablecoin Reserves

Podcast Source: Anthony Pompliano

Broadcast Date: September 19

The Rise of Stablecoins

Regarding the rise of stablecoins, Paolo mentioned that stablecoins were initially designed primarily for cryptocurrency traders to help them transfer fiat currency between different exchanges. However, with the outbreak of COVID-19 and the devaluation of national currencies, especially in emerging markets such as Turkey, Argentina, and Venezuela, stablecoins are increasingly seen as a lifeline for developing country communities.

Pomp mentioned that in the face of economic instability and currency devaluation, Bitcoin has long been seen as a solution, especially in countries facing economic hardship, where Bitcoin is seen as a safe haven. Paolo believes that although Bitcoin is relatively new compared to other traditional currencies, it is being widely accepted, representing ultimate financial freedom, and people need more time to understand and accept Bitcoin.

Pomp also mentioned the existence of multiple USD-backed stablecoins in the market and the competition between them. Paolo believes that an industry cannot have only one player, and diversity is a key factor. This not only provides users with more choices but also increases the industry's resilience and ability to withstand various risks.

Paolo further pointed out that diversity provides a good case for regulatory agencies. If the stablecoin industry had only one player, regulatory agencies might have reason to shut it down. However, diversity can demonstrate that this is a truly developing industry, not just a company's business.

Tether's Risk Management

Paolo explained that Tether places great importance on risk management and has a dedicated team responsible for monitoring the market and understanding the microeconomics. The team's main task is to continuously track market dynamics, ensure that Tether's investment strategy matches the market environment, and remain vigilant about potential risk factors. He emphasized that their team is very focused on protecting the portfolio.

Paolo mentioned that in 2022 and 2023, Tether faced a series of attacks, but at the same time demonstrated its strong liquidity and redemption capabilities. It successfully redeemed $7 billion within 48 hours and over $20 billion in the following 20 days.

When considering that $7 billion accounted for 10% of its reserves and over $20 billion accounted for 25% of its reserves, this redemption capability is particularly outstanding. Tether successfully met a large number of redemption requests in a short period without significantly impacting its reserves.

Paolo discussed the role of FDIC insurance in stablecoins. He pointed out that while FDIC insurance provides some peace of mind for ordinary consumers, it is not a reliable solution for large companies like Tether. Tether prefers to use short-term US Treasury bonds because these bonds can be returned to holders in the event of bank failure.

Tether's Diversified Investments

Regarding Tether's sources of profit, with Tether's current market value at $83 billion and the company accumulating over $3.3 billion in additional reserves in the past few quarters, Paolo pointed out that although the current high-interest rate environment is favorable for Tether, this situation will not last forever.

Paolo mentioned that Tether's investment portfolio holds about $1.5 billion in Bitcoin. Despite Tether having over $3.3 billion in additional capital, even if the value of Bitcoin were to drop to zero, Tether would still have funds exceeding the total value of its issued tokens. Additionally, Tether also holds gold as part of its reserves.

Paolo emphasized that the world is full of uncertainty, and Tether aims to provide additional protection for users by diversifying its investment portfolio. Considering the large amount of US Treasury bonds held in its reserves, the company is considering small-scale asset diversification.

Paolo mentioned that although Tether has publicly stated that it is undergoing an audit, the process has taken a long time for various reasons. He emphasized that Tether is always committed to increasing its transparency and has made significant progress in this regard.

Tether's Diversified Development

Paolo pointed out that Tether's goal is to support blockchains with actual utility value, and supporting too many blockchains would increase management complexity, especially when most of the blockchains have low transaction volumes. For example, Tether was initially issued on the OmniLayer, but over time, Tether began issuing USDT on Ethereum and later chose to issue on Tron.

In Africa and South America, due to the high transaction fees on Ethereum, people tend to use Tron. Despite the availability of more second-layer solutions such as Arbitrum and Optimism, Tron remains the preferred choice for many users, providing them with simpler and lower-cost transaction options.

Pomp mentioned that with the popularity of stablecoins, major banks and other financial institutions may enter this field. Paolo believes that major banks may collaborate to create a common stablecoin rather than each creating their own stablecoin. Central Bank Digital Currencies (CBDC) may face more challenges in Western countries, as they may replace cash and could lead to negative interest rates.

Paolo mentioned that Tether is expanding its stablecoin business and is also expanding into other areas such as energy production, Bitcoin mining, and communications. The educational projects Tether is undertaking are not only related to cryptocurrency but also involve other fields. Paolo stated that they firmly believe that digital education is a key point for future human development, and Tether is investing in this area.

Paolo mentioned that Tether is undertaking educational projects that are not only related to cryptocurrency. They believe that digital technology, online education platforms, and other educational technologies are important for future education, so they have decided to invest in this area.

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