CryptoSlate’s James Van Straten and I had an in-depth discussion with Paolo Ardoino, CEO of Tether, at BTC Prague this month. In one of his most candid interviews to date, Paolo covered several key issues concerning Tether, such as the FUD around the company, its investments 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 when we first met at Paris Blockchain Week. He noted that while many bad actors exited the crypto industry, it was also an opportunity for Tether to demonstrate its resilience. He recounted:

"When we met in 2022, it was an incredible year for both good and bad reasons, in my opinion. The positive aspect was that many bad actors left the crypto industry for good. It was also a crucial moment for Tether to prove its resilience."

Paolo emphasized that the events of 2022 tested Tether’s stability and reliability. He had publicly predicted the collapse of Terra Luna, a competitor in the stablecoin market, and faced criticism for it, as many thought his comments were driven by competitive motives. He explained:

"At the Blockchain Week in Paris in 2022, before the Terra Luna fallout, I publicly stated that I thought Terra Luna would collapse. I was criticized for this, with people saying I only said it because they were a competitor."

He clarified that his concerns were based on the inherent flaws he saw in Terra Luna’s model, which he compared to something insubstantial. He contrasted this with Tether’s commitment to ensuring its stablecoin could always be redeemed for its face value, highlighting the importance of liquidity and reliability.

**Bank Run and Short Attack on Tether**

Paolo described a coordinated attack on Tether, where attackers tried to short the stablecoin and incite a bank run to prove Tether lacked sufficient reserves. They borrowed large amounts of USDT, sold it at a discount, and created panic. Paolo detailed:

"We discovered that they had around 7 billion USDT and started selling it at a 1 percent discount, causing panic. They had 7 billion plus another 15 billion from the panic they created."

Market makers bought the discounted USDT, redeemed it for full value, and repeated the process, showing Tether’s ability to handle massive redemptions. Paolo noted that Tether successfully redeemed about 25 billion USDT in under a month, demonstrating its liquidity and resilience.

He compared Tether’s handling of the attack to traditional banking failures, specifically mentioning Washington Mutual’s collapse in 2008. He emphasized Tether’s robustness compared to traditional banks, stating:

"There is no better trial by fire than that. When banks failed, like Washington Mutual in 2008, they were asked to redeem 10% of their reserves and went bankrupt. Tether, on the other hand, managed large-scale redemptions without failing."

**US Bank Failures and Competitor Issues in 2023**

Paolo then discussed 2023, focusing on the failures of major US banks like Silicon Valley Bank, Silvergate, and Signature, which had relationships with other stablecoin issuers. He pointed out these banks failed due to poor risk management and investments in illiquid long-term municipal bonds. He mentioned that a major Tether competitor had significant uninsured cash deposits in Silicon Valley Bank, leading to a depeg when the bank failed. Paolo elaborated:

"These banks failed because they invested most of their reserves in long-term municipal bonds. Imagine billions of dollars invested in 10, 20, 30-year municipal bonds."

Paolo contrasted this with Tether’s strategy of maintaining a simple and liquid reserve balance sheet, mainly consisting of US Treasury bills. He shared that Tether is the third largest holder of three-month T-bills in the world, following the UK and Cayman hedge funds.

He emphasized the importance of precise decision-making in managing large sums of money and the role of key financial partners like Cantor Fitzgerald in Tether’s operations. Paolo noted:

"When you grow from 10 billion to 112 billion, you have to be perfect all the time. You have to ensure every decision is correct."

He highlighted Cantor Fitzgerald’s support and its CEO’s public endorsement of Tether’s financial stability, which has significantly contributed to trust in Tether within the financial community.

**Dealing with FUD and Tether’s Naivety**

Reflecting on past challenges with FUD, Paolo acknowledged Tether’s previous naivety in thinking that good work alone would dispel doubts. He stated:

"I understand that part of the FUD was because we naively thought we could keep our heads down and work, and if we were doing good, the FUD would go away."

He stressed the need for more transparency and public communication about Tether’s operations. Paolo reiterated the importance of the “don’t trust, verify” motto, encouraging people to ask questions and seek verification.

Paolo discussed Tether’s audit and attestation practices, particularly its partnership with BDO for quarterly attestations. He highlighted the thoroughness and diligence BDO applies, ensuring transparency and trust. Paolo explained:

"Doing attestation on a stablecoin, especially Tether, brings a lot of attention and risk management, rightfully so."

He also mentioned the challenges posed by regulatory pressures, such as Senator Warren’s call for auditors to avoid crypto companies, making it difficult for Tether to secure a full audit from a Big Four firm. Despite these challenges, Paolo expressed confidence in Tether’s ongoing efforts to prove its legitimacy and financial health, and he appreciated public endorsements of Tether’s economic practices, which have helped mitigate skepticism.

Paolo Ardoino’s open conversation with CryptoSlate provided insights into Tether’s battle with FUD and its commitment to Bitcoin. He stated that Tether focuses on using Bitcoin as a reserve for profits rather than for stablecoin backing. The full interview and a series of clips will be published on CryptoSlate’s X account.