CryptoSlate’s James Van Straten and I recently spoke with Paolo Ardoino, CEO of Tether, at BTC Prague. In one of his most transparent interviews, he addressed key issues related to Tether, including fears, uncertainties, and doubts (FUD) surrounding the company, its holdings in US treasuries, and industry competition.

2022: A Year of Challenges and Resilience

Paolo reflected on 2022, which he described as significant for both positive and negative reasons. He noted that while many bad actors exited the crypto industry, Tether had the chance to showcase its resilience. He recounted:

"When we met, I think 2022 was incredible for good and bad. Many bad actors left the industry, and it was a good moment for Tether to prove its resilience."

Paolo emphasized that the events of 2022 tested Tether, allowing it to demonstrate its stability. He recalled predicting the downfall of Terra Luna, a competitor, which some criticized as competitive bias. He explained his concerns were based on Terra Luna’s flawed model.

Bank Run and Short Attack on Tether

Paolo described a coordinated attack against Tether, where attackers tried to short the stablecoin and create a bank run to prove Tether lacked sufficient reserves. These attackers borrowed large amounts of USDT and sold it at a discount, aiming to cause panic and mass redemptions. Paolo explained how market makers bought the discounted USDT, redeemed it at full value, and repeated the cycle, demonstrating Tether’s ability to handle massive redemptions. Tether successfully redeemed about 25 billion USDT in less than a month.

Paolo compared Tether’s handling of the attack to traditional banking failures, highlighting Washington Mutual’s collapse in 2008, which failed to redeem a significant portion of its reserves.

US Bank Failures and Competitor Issues in 2023

Paolo discussed the failures of major US banks like Silicon Valley Bank, Silvergate, and Signature in 2023, where other stablecoin issuers had relationships. These banks failed due to poor risk management and illiquid long-term investments. A major competitor of Tether had significant uninsured cash deposits in Silicon Valley Bank, leading to a depeg when the bank failed. Paolo contrasted this with Tether’s strategy of maintaining a liquid reserve balance sheet, primarily consisting of US Treasury bills. Tether is now the third-largest holder of three-month Treasury bills globally.

Dealing with FUD and Tether’s Naivety

Paolo reflected on Tether’s past challenges with FUD and how it had to change its communication strategy to address public concerns and improve transparency. He admitted that Tether naively thought that simply doing good work would dispel doubts. Paolo emphasized the importance of being more public and transparent, leading him to take a more prominent role in communicating Tether’s actions and financial health. He reiterated the importance of the “don’t trust, verify” motto.

Paolo discussed Tether’s audit and attestation practices, highlighting its partnership with BDO for quarterly attestations. He noted the thoroughness and diligence BDO applies, which ensures transparency and trust. Paolo also mentioned the challenges posed by regulatory pressures, making it difficult for Tether to secure a full audit from a Big Four firm. Despite these challenges, Paolo expressed confidence in Tether’s efforts to prove its legitimacy and financial health.

Commitment to Bitcoin

Paolo concluded by discussing Tether’s commitment to Bitcoin, focusing on using Bitcoin as a reserve for profits rather than for stablecoin backing.