Tether's CEO Speaks on His Insanely Profitable Business

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1:23Hello and welcome to another episode of the Odd Lots podcast. I'm Tracy Alloway. And I'm Joe Weisenthal. Joe, it is April here in New York. That's right. It is my 10-year anniversary at Bloomberg. This month? This month. Oh, that's awesome. You're going to get a pylon. That's great. It's put me in a very thoughtful mood a whole decade since Joe tricked slash enticed me into coming here. So thank you, Joe. Are you happy about how it worked out? I can't. I did try to. I can't complain. Okay, good, good. I will say it was a bit rocky in the beginning, but we worked it out. Where's this going? Okay.

1:59In that 10 years, a lot of things that I would never have expected to happen have happened. Yes, go on. One of them is the phenomenal growth of the crypto industry. So I first started writing about Bitcoin in 2011. And I will openly admit that I think by like 2013, I had written, I think, like three or four obituaries for Bitcoin as well. So, you know, I got that wrong, clearly. But one of the other things I got wrong on crypto is the phenomenal growth of stable coins. So you look at something like Tether, the world's biggest stable coin. We talk about it in the same sentence nowadays as euro dollars, for instance.

2:43And the company itself is this huge player in financial markets. Like it owns more T-bills nowadays than some countries, which is all pretty amazing. Well, let's be honest for a second here. You know, you might have thought that Tether wouldn't even exist at this point because it had a reputation for years and years. It's like there are a bunch of scammers. They can't pass an audit. The money isn't there, et cetera. It's going to go away. Why would you ever hold a Tether? We asked Sam Bankman for years ago. Why would you hold a Tether when there are other companies that have done audits, et cetera?

3:13There are many people not only setting aside the size, setting aside all of the assets that it owns that backs the world's most popular stable coin. There are many people who just thought, oh, this company can't continue. Oh, totally. The other thing I thought was that U.S. officials were never going to grow comfortable with the idea of a loosely regulated foreign company creating synthetic dollars. But, you know, the Trump administration seems to have some other ideas. So we should talk about all of that. Let's do it. We have the perfect guest. We do have the perfect guest. We're going to be speaking with Tether CEO Paolo Arduino.

3:46He is, of course, the head of the world's largest stablecoin. So, Paolo, thank you so much for coming on the show. Thank you for having me. I'm very excited to be here today. So just to begin, has Tether's growth surprised you? Did you ever expect to ramp up to this degree? So I joined Tether very early, was early 2015, just after a couple of months that was actually created. And we were discussing internally, myself and Giancarlo, and we were asking ourselves The biggest number we could think about in terms of growth and projection of growth of our stablecoin was between$100 million and$1 billion.

4:28And now today is$144 billion in total issued tokens. So we are incredibly excited. We are impressed ourselves. But I must say that it's all happened organically over a decade. The stablecoin business is so sick, it seems to me, right? Because you hold all of these assets that back one-to-one, these tokens that move on blockchains, and you collect all this interest, and the holders of the coins don't collect any interest. According to a release on Tether's own website, you made$13 billion in 2024. Various estimates have your total employees somewhere a little bit below 200. So that makes per-profit employees somewhere close to$90 million per employee.

5:14Like, that's basically correct, Matt, that this is like one of the most extraordinary, maybe the most profitable business in the history of business? Yeah, I think it's definitely extraordinary. I defined Tether once in a century company because of the capital that we have given our profits. In the last two years and a half, we made around 20 billion in profits. And we almost distributed, well, we distributed a very, very tiny part to their shareholders. I mean, name another company, another fund, whatever, that distributed less than, I know, 10 % or probably even less than 5 % of profits to their own shareholders.

5:54So that is something that is unprecedented. And it's, you know, it's set in Tether to be able to reinvest 95 % of its profits in keeping growing its distribution network for the US dollar. and also invest in other pretty cool things from artificial intelligence, Bitcoin mining, and the tens of other opportunities around the world. So you mentioned distribution of the US dollar, and there is some tension there, right? I mentioned earlier that I never thought regulators were going to be okay with someone basically creating a synthetic dollar that can trade around the world. But times have changed and some things are shifting on the regulatory front, but are you a competitor to the US dollar?

6:37Plenty of people would say you are, or are you something that perhaps complements it? I don't think we are a competitor to the US dollar. USDT is a digital dollar that is backed for most of it by US treasuries. We are bringing the US dollar out there in the emerging markets of developing countries. We have, as of today, more than 400 million users, actually, would be 550 million users. I'd like to be a bit more conservative to avoid double counting users. So I would say more than 400 million users. We grow at the pace of 30 million new users per quarter. That is, again, we are not Facebook, we are just a digital dollar.

7:19So it's really unprecedented and staggering. The reason why we are interesting for the United States and the regulators are now appreciating who we are and what we are doing is the fact that we have been building the biggest distribution network for US dollar in a physical form, in a digital form. We have millions of touch points around the world in the emerging markets. We never approached our distribution going through institutions in the emerging markets, but we built physical infrastructure from kiosks in villages in Africa to bodegas in Southern South America. And again, we are just distributing a digital dollar.

7:57And look, the reality is that the US dollar hegemony is very, very important for United States. And when we are in Africa, when we are in Central South America, there is not much US presence. There is, actually there is present, apart maybe McDonald's, but in some countries in Central South America, the actual presence of infrastructure in the United States is not there. So what TATR is doing in those countries is purely building that infrastructure and trying to, in a way, combat, actually, more than in a way, it's we are, I think, the last stronghold before the very strong push towards de-dollarization made by the BRICS countries.

8:39So we see, for example, that in Central South America or in Africa, there are hospitals, schools, libraries, and airports that are built by China. And again, there is an interest from the BRICS countries to launch a digital currency backed by gold. Plus, they are building an infrastructure in these countries. So all the employees, all the people that will rotate and gravitate around these new infrastructures built by BRICS countries will start using something that is not the US dollar. So I think it's becoming very, very clear that actually Tether is the best ally for the United States, is the company.

9:16When we are also in these countries, we are not seeing NGOs, we are not seeing charities. We are the company that also solved or is solving financial inclusion in the strongest way possible. Joe, I got to say, it's a little bit depressing that, you know, a company that was founded by an Italian in Europe, incorporated in the BVI, although I think you're moving to El Salvador, is the ambassador for U.S. presidents. Is the bulwark against the end of the dollar. Yeah, well, history can be funny in that respect. Why haven't you ever been audited? So with the past administration, the last four years, I must say that it was not easy to deal with the past administration.

10:01So I remember Senator Warren sending letters around to different organizations. There was a case of the Operation Chalk Point 2.0 that was very aggressive towards the banking industry that was supporting cryptocurrency companies. On the other side, that latter also scared away and was targeted towards the big four auditing firms and other auditors that were then disincentivized to go against the will, the strong will of an administration that was really against crypto in general. Just real quickly. So obviously you hold your money or a lot of your assets that you hold are with Cantor Fitzgerald, its former CEO, Howard Luck, now the Commerce Secretary, friendly with the administration.

10:46There has been this changing of the guard. Has the changing of the guard at the administration level had any bearing on the reason that you're here in New York City and comfortable visiting the U.S.? So I was being always comfortable to visit the U.S., but you want usually to go where what you are doing for 97 percent of your time or, well, 80 percent of your time, given I sleep only a few hours, is being accepted and is not considered a very bad thing. by the administration, right? So you want to deal with people that support what you're doing, and at least they have the will to understand what you're doing.

11:23So actually the change in administration is what is making possible for us, for Tether and other many cryptocurrency related companies to start to deal with the big four auditing firms. We are in discussions. We have multiple discussions on the topic of audit. We hired a new CFO a couple of months ago. It's great. Simon went through multiple contentious full audit across his entire career. I don't think that our audit should be contentious, but given, again, the complexity and the new field that is crypto world is possibly one correct term and adjective that I could use here. And look, we are very positive that the full audit is our top priority.

12:07And I'm pretty confident that we're going to make it. So just to be clear on the regulatory point, things are changing, as you just mentioned. And previously, there was regulatory pressure on the big accounting firms to not work with you. That seems to be going away. That's going to allow you to do an audit. Do you have a time frame for when you might do that? So in the past, we committed a few times and we provided timelines that were not realistic because of the fact that, as I said, the administration really doubled down on trying to kill an entire industry. That was very, very sad to see. So again, we are moving as fast as we can.

12:49There is, of course, some change that is still needed among the big four auditing firms. So while they're getting more comfortable, look, the administration changed only two months ago. So give them a little bit of time to get comfortable and we are providing all the, we are, again, already in discussion. So it's crazy. The optimization changed two months ago and we are already in discussions with big four auditing firms. So that is the best thing that I can say. And again, the fact that we hired a new CFO and that has the highest experience in the sector to get through audits is something that should reinvigorate our position.

13:34Thank you.

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14:43To learn more, visit easycater.com slash podcast. What's the complexity of doing an audit for a business like Tether? I've always wanted to ask this question. So, you know, you need a professional accounting firm to do this because you want to give people who use Tether investors some sense of safety and stability and truth in what you're portraying. But at the same time, it seems like, you know, you should have a pretty good idea. It seems simple. You just count up the treasuries and count up the tokens. And if they match, what are we missing here? I agree with that. In fact, the problem I don't think is about the complexity of going through our reserves.

15:21because as we said, we keep the majority, the vast, vast majority of our treasuries in Cantor Fitzgerald. That is a very highly regulated financial institution here in the US. I think that the confidence in the industry, in the digital assets industry is growing among the big four auditing firms. And look, on the other side, you can go on blockchains and blockchains are very, very transparent. So you can count the liabilities through the transparency of the blockchain. And on the other side, you can just independently contact our custodians. I think that what we expect from the full audit is also confirmation of our good practices that we have within the company in terms of controls and safety and proper management, for example, the private keys and all that stuff.

16:04So that's a process that we want to make sure that we go in the deepest details possible with our auditors, because there is nothing that excites me more than prove that we were always right. We had our luck in 2024 going out there saying, Tether has the money. We are releasing a quarterly attestation from a very putable auditing firm called BDO. They are international. So there are many, many different independent validators of our resource. But, you know, we just want to get the full audit done. Circle, one of your competitors, holds its money in a money market mutual fund from BlackRock called the Circle Reserve Fund.

16:43What is the advantage of going out and acquiring Q-sips of various flavors directly such that you're a direct holder of treasuries rather than outsourcing it like that? Here's an institution, BlackRock, they set up a money market mutual fund that you can just buy into and not have to think about that part. Why the preference towards the direct holdings of the bills and bonds? So that's a good question. So we prefer to have a direct control over the process. And we do that through counterfeit Gerald. Also, having that direct control allows us to have access to the infinitely liquid repo market.

17:19So we think that is in case of huge pressure from the markets and huge redemption pressure, our facility is much better than anything else attempted by our competitors. Look, think about in 2023, our major competitors had a big issue with Silicon Valley Bank. They kept uninsured cash deposits there. In 2022, Tether was attacked by funds that were clearly trying to cause a bank run on USDT. They tried, they amassed billions and billions and billions of USDT just to try to sell them under par on the secondary markets on the different cryptocurrency exchanges. And Tether never refused a redemption.

18:01Tether never failed to redeem at$1 each token. But at that time when that happened, these short sellers were trying to just cause a bank run. And so what happened is that Tether was able to redeem$7 billion in 48 hours and$20 billion in 25 days. So$7 billion were 10 % of our reserves and$20 billion were around 20-something percent of our reserves. So, I mean, if you look at Washington Mutual and many other banks that failed from 2008 and after, there was no bank that was able to support the 10 % bank run. And we did it with flying colors. We could have gone to till the end. That's what means to have a proper repo market and very deep liquid market for treasuries.

18:51We keep all treasuries that are basically three months in duration, 90 days. So I think we built the best facility for handling any sort of redemption and provide the proper amount of trust that our users need around the world. So you made it through 2022. It must have still been fairly traumatizing or scary at the time to have that much withdrawal pressure on the business. Have you changed any of your redemption policies since then or perhaps instituted, I don't know, new risk management around the peg point? So the concept of peg is interesting, right? People refer to the peg as, you know, if USDT or another stable coin trades, you know, two, three basis points or 10 basis points below$1 on secondary markets, that is not the peg.

19:44The PEG is our ability, the official PEG of USDT is our ability to redeem every token that can be sent to our primary market, that is our platform, to$1. So we always redeem every single token at$1. So if someone on the secondary market is trying to short it and sell it 1%, 2 % under par, that is a completely different thing. It does not mean that there is an actual issue. In fact, we demonstrated that we were able, even when we were attacked in a very heavy way that would have destroyed every single company and every single financial institution in this world, we survived and very well. So actually, we had still PTSD, I must say, after that event.

20:26But I think that really reinforced our commitment to transparency. It's funny because first we were accused to not be transparent enough. And then when we are now very transparent and we are also saying how much money we are making, people get upset because we are making too much money. So it's quite interesting how it can go both ways. But look, now I think that there is no doubt that Tether has in this moment$144 billion in issued outstanding tokens and around$164 billion in excess equity across the group. So it's something, so we have$20 billion in proprietary capital within the company, among which seven billion are specifically to the last attestation where specifically are specifically attributed to the excess reserves of the stable coin.

21:16But again, the group has$20 billion in additional equity. So it's very rare that you see a company like this. And so, yes, we want also the fact that we basically took out a very small amount of dividends, prove the fact that for us, the safety of our ecosystem, the safety of our company is paramount. And if you look at our other competitors, they keep some peanuts on top of their reserves. You mentioned people complain about, oh, you're making so much money. And look, people are always going to whine about other people doing well. I get that. But I can think of one group that might genuinely have an eye on the profits, and that is institutional traders of crypto.

21:53And the question I have is, you have this amazing business model where you collect all this yield on your treasuries and none of it remits. And how long can that last? Because I would imagine that if I were some hedge fund or if I were some high frequency trading shop, etc., I would not want to be holding this token. If I were holding a dollar, you know, even for a minute, I would put it in some sort of money market mutual fund, collected days worth of yield, whatever. You're not going to leave that in a non-interest bearing asset even for 10 seconds. Do you believe that the business model, the margin between holdings and what you pay out can sustain itself with competition or will it inevitably compress?

22:33So you make a very good point, but I think that the issue there is that you would be right if stablecoins in general would be a product made for the United States. Stablecoins are not a product made for the United States. Sure, stablecoins can work in the United States. Stablecoins can be used as a faster settlement system across the interbanking settlement system. But the reality is that Tether never focused on institutions. You know, institutions would betray you for one basis point. They would go, you know, they would do, they want, as you said, to use money market funds to maximize their returns.

23:11That is fair. That is normal. But so Tether built the biggest distribution network for US dollar in the emerging markets in developing countries, where if you think about Turkey, if you think about Argentina, if you think about other countries, the national currency of these places has been devaluating very, very fast against the US dollar. So in Argentina, I think that Peso Argentina in the last 10, 12 years devaluated 98 % against the US dollar. And the Turkish Liat evaluated 80 % against the US dollar in the last few years. So last year in - So you're saying that 4 % doesn't matter? Yes, because the intraday volatility of their national currency is higher than 4%.

23:52So why does it matter to them? And they will stay with you. They will be loyal with you as long as you can prove them that you have the solid product they can trust for their family savings. And by By the way, 40 % of all the USDT holders are using USDT for savings. So that's because we have people that live in Nigeria and emerging markets that need that as a lifeline against the devaluation of their national currency and inflation in their countries. I take the point that Tether is not necessarily aimed at the US, but at the same time, there are rumors, there are always rumors swirling around about big global companies like an Amazon, maybe a Walmart, rolling out some sort of payment system or maybe a stablecoin competitor.

24:39And I think one interesting thing that's been happening lately is we've seen some retailers actually joining forces with crypto to try to lobby for the stablecoin bill, which is interesting. They're trying to reduce their swipe fees, I guess. Do you worry about that kind of competition coming in and potentially taking some market share from your business model? So again, the countries where we operate and where we are more successful is, you know, the US top co's are not necessarily that present, right? As I said, Tether invested half of its portfolio and half of its own equity. So outside the reserves of the stablecoin, we invested in building our distribution network.

25:21So we are building millions of touch points in across the world. And, you know, one interesting example is, you know, we came across the concept, well, there is a clear statistic that 600 million people in Africa don't have electricity at home, but they have smartphones, they have small televisions and a few other things. So what we are doing now is we are investing in a company that is building kiosks in villages in Africa with solar panels on top, and they sell or they rent batteries for three USDT per month. So with three USDT per month, you can swap the battery four times per month, so once per week.

25:58Now, the average salary of a person in Africa is around$80. And so this is like three USDT are a good compromise to have electricity at home with these very good batteries. So this is an example of how we, and we have already 300 kiosks. We are planning to ramp up to 10 ,000 kiosks by the end of 2026 and 100 ,000 kiosks by the end of 2030. So the idea is that by 2030, we can serve around 60 million people in Africa that will be running on USDT as their main currency. So we are actually converting people to get on the US dollar. That's why I say that we are the best friends and best alive for the US dollar hegemony.

26:40And just to finish, we have with that company, not only we are changing and we're pushing the adoption of the US dollar, it's a great example of a change that you will see from space because if you see Africa, it's very dark during the night because they don't have electricity. But if you power up 60 million people, that will change and that is a significant change.