Exclusive Interview with Tether CEO: Stablecoin Legislation, Circle IPO, Bitcoin, and Tether's Trillion Market Capitalization

Tether CEO Paolo Ardoino, as a leading figure in the stablecoin world, has ambitious plans for Tether's continued development and market position. With the U.S. Senate passing the landmark stablecoin bill, the stablecoin industry is about to enter a new phase of development.

In the surge of listings on Circle, where is the next battlefield for stablecoins? In particular, the "Genius Stablecoin Act" defines "payment stablecoin," expanding the battlefield from the crypto market to real-world payment settlement scenarios.

Bankless had an in-depth conversation with Tether CEO Paolo Ardoino, revealing the stablecoin giant Tether USDT's understanding and strategy regarding this matter. The interview covered facts overshadowed by the Circle IPO craze, as well as the national demand for on-chain dollars. Paolo's analysis of the stablecoin business model, target market advancement strategies, and Tether's investment logic are blind spots that current stablecoin research reports have failed to cover, and these are key points that Web3 payment practitioners need to pay attention to.

1. About the Genius stablecoin bill

The U.S. Senate has just passed the Genius stablecoin bill, which is undoubtedly a huge boost for domestic stablecoin issuers in the U.S., but how does the offshore stablecoin issuer Tether view this bill?

Paolo stated that Tether, as the pioneer of the stablecoin industry, has been committed to promoting the development of this field since its inception in 2014. This concept was almost unnoticed in the first decade, and the process was not easy. Despite facing numerous obstacles, especially from the traditional banking system, the Tether team has never given up on its mission to provide dollars to those excluded from mainstream finance.

Today, the world's most powerful countries and governments are beginning to pay attention to and move towards legislating regulations for stablecoin technology. The Tether team feels honored and encouraged. The GENIUS Act is an important step in the right direction, although it still needs to be passed by the House of Representatives, the momentum is currently good. Tether looks forward to seeing the final version in order to advance its stablecoin initiatives in the United States.

Paolo believes that the GENIUS Act has built a strong regulatory framework for onshore stablecoins and offshore stablecoins such as USDT in the United States. As an offshore stablecoin issuer, USDT is in a favorable position regarding compliance. The higher compliance thresholds set by the Act are fair and commendable, especially in terms of anti-money laundering and compliance. Tether has been actively cooperating with global law enforcement agencies and has currently established partnerships with over 250 law enforcement agencies in more than 55 countries, far surpassing other financial institutions.

Paolo emphasized that countries must establish corresponding systems, and the GENIUS Act will set an example for other countries. Once the United States passes this act, other countries will follow suit, paving the way for the development of the global stablecoin industry.

Regarding the requirements of the GENIUS Act, Paolo expressed that Tether is very confident. He pointed out that Tether achieved a profit of 13.7 billion dollars last year and is expected to exceed this figure this year. With assets of only 155 billion dollars, Tether can generate about 7.5 billion dollars in revenue at the current interest rates. In addition, Tether is also investing in gold and Bitcoin, which is expected to further increase profits.

Paolo questioned the views of those who believe that Tether cannot meet the requirements of the legislation. He revealed that last year Tether was the fifth largest purchaser of U.S. Treasury bonds, ranking 18th among all non-state entities. Tether's funds are held in top financial institutions in the U.S., holding over $120 billion in U.S. Treasury bonds, which indicates that Tether is not hiding funds but is engaged in transparent financial operations in the U.S.

Paolo believes that this mode of storing and operating funds can ensure that Tether can still operate stably when facing significant redemption pressure. He believes that the current government and the GENIUS Act will help make the entire industry more solid, providing a clearer and safer operating environment for Tether and other stablecoin issuers.

In addition, he emphasized that the strongest point of USDT is its focus on the offshore market. After offshore users purchase USDT, Tether uses these funds to buy US Treasury bonds, thereby diversifying the ownership of American debt and reducing the risk of a single point sell-off. He believes that it is more ideal for US Treasury bonds to be held by foreigners; otherwise, it could lead to catastrophic consequences.

Tether is confident in the compliance requirements proposed in the GENIUS Act, as they believe they can do better than other institutions. Tether is well aware of the importance of having a strong balance sheet to avoid a repeat of events similar to the Terra-Luna incident. Currently, Tether holds over $125 billion in government bonds, and this number continues to grow to ensure the stability of the stablecoin's value.

From an equity perspective, the Tether Group currently has approximately $176 billion in assets, while the market capitalization of its stablecoin is $155 billion. They strictly maintain a single reserve above the stablecoin, which means they have approximately $6 billion in addition to the 100% reserve base of the USDT stablecoin. In contrast, traditional banking systems typically adopt a fractional reserve system, with a retained liquidity asset ratio of only about 10%. Tether, on the other hand, possesses approximately 105% of liquid assets as reserves for the stablecoin, in addition to $15 billion in group equity as a supplement. This strong reserve model is unprecedented in the industry.

Paolo believes that if the Genius Act is passed in its current form, it will bring many opportunities for Tether and the entire industry. He pointed out that over the past four years, the industry has faced the "Operation Chop Point 2.0" initiative, with government agencies like the Office of the Comptroller of the Currency opposing cryptocurrencies, limiting the development of crypto-friendly banks. This is also one of the reasons why Silicon Valley Bank and SilverGate Signature went bankrupt, nearly suffocating Tether's competitor Circle.

However, the government is currently building a framework to support crypto-friendly banks, which will enhance the security of the entire industry, and Tether is very optimistic about this. Recently, Federal Reserve Chairman Powell stated that banks can provide banking services to the cryptocurrency industry and engage in related business, provided that the safety and robustness of the financial system are ensured.

Many banking consortiums, such as JP Morgan and companies like Amazon and Walmart, have announced their intention to create stablecoins. In Paolo's view, the more intense the competition, the better, as it will drive technological advancement, improve efficiency, and reduce costs.

For markets outside of the United States, Paolo hopes to see more countries adopt legislative frameworks similar to the GENIUS Act. Paolo pointed out that Europe's MICA compliance requirements mandate that stablecoin issuers hold at least 60% of their assets in uninsured cash deposits at banks. This is in stark contrast to the GENIUS Act in the United States, which requires the reserve assets of stablecoins to be in US dollars or US Treasury bonds. Paolo believes that this requirement is more robust in the United States because the deposit insurance limit is $250,000, while it is €100,000 in Europe. He mentioned that having 60% of uninsured cash deposits for a stablecoin company would pose a huge risk, especially in the event of a bank failure.

In addition to the United States and Europe, other regions are also actively promoting legislation for stablecoins. For example, Hong Kong has already passed the "Stablecoin Bill." Singapore also released a stablecoin regulatory framework in 2023. These legislative developments indicate that there is a gradual consensus forming globally regarding the regulation of stablecoins, and the GENIUS Act may serve as a reference template for legislation in other countries.

Paolo believes that the GENIUS Act provides a clear regulatory framework for the stablecoin market, particularly with more robust requirements for reserve assets. He hopes that Europe can learn from the experience of the United States and adjust its legislative requirements to promote the healthy development of stablecoins. At the same time, he also looks forward to other countries adopting similar legislative frameworks to promote the unification and standardization of the global stablecoin market.

Paolo pointed out that Europe is concerned about the popularity of dollar stablecoins, fearing that the dollar will replace the euro's international status. He mentioned that if people were randomly asked outside of Europe whether they prefer their local currency or the dollar, most would choose the dollar. In contrast, the euro has lower recognition and acceptance outside of Europe. Therefore, Europe is trying to maintain the status of its local currency through protectionist measures.

Paolo expressed concerns about CBDCs, particularly regarding issues of privacy and freedom. He pointed out that currently, in credit and debit card transactions, banks act as intermediaries, providing a layer of separation between individuals and the state, thus protecting personal privacy. However, if CBDCs are used, central banks would be able to track every transaction, which could lead to excessive invasion of personal privacy. He emphasized that this excessive monitoring could be used to restrict freedom of speech and other fundamental rights.

Paolo believes that part of the motivation for Europe to implement CBDC is to counter the popularity of dollar stablecoins and protect the international status of the euro. However, he is concerned that this approach may sacrifice personal privacy and freedom. He hopes that Europe can be more open to accepting innovations from the private sector rather than overly relying on central bank digital currencies to achieve its goals.

Paolo stated that Tether currently has no plans for an IPO. He explained that companies typically choose to go public for two main reasons: first, they need capital, but Tether's profitability is very strong and does not require external funding; second, to provide an exit mechanism for shareholders, but Tether currently does not need to consider shareholder exits. He emphasized that Tether's profitability not only supports the company's own operations but also enables them to make large-scale investments. Over the past two years, Tether's investments in the United States have exceeded $5 billion, a fact that is often overlooked but is crucial for the company. They are committed to giving back to the United States - the country that created the great currency of the dollar.

Paolo also mentioned that going public is usually to obtain cheap capital or to meet the exit demands of shareholders, which Tether does not need for either. He himself has no intention of leaving the company because there is still too much development potential and areas that need to be proven. Under the concept of USDT, there are many different verticals and industries that can be explored, and they are committed to serving the interests of the people in a disruptive way, rather than just for the benefit of a few enterprises.

Although Tether currently has no plans for an IPO, Paolo acknowledged that Circle's stock performance is indeed impressive from a valuation perspective. He believes that if Tether's valuation could reach a similar level, it would be a very good outcome. However, he also stated that they will focus on the sustainability of this valuation level, but in any case, it is a positive signal for Tether.

2. Stablecoin Business Models

Despite the visible hype around Circle's IPO and many large companies preparing to issue their own stablecoins, Paolo believes that stablecoins have vastly different applications in the United States and other parts of the world, which may be a rather controversial viewpoint.

He pointed out that the current stablecoin business model in the US market seems difficult to work. Although Circle's initial public offering has attracted widespread attention in the US, in fact, it is almost impossible to profit from stablecoins in the US. All these competitors will focus on the more easily accessible US market for profits, as it is within their reach. However, in his view, the US stablecoin market is caught in a race to the bottom.

Paolo reviewed the development history of cryptocurrency exchanges. Around 2010, exchanges began to emerge,