On The Brink with Castle Island - Paolo Ardoino (Bitfinex/Tether) – Managing the growth of Tether (EP.87)

Episode Date: June 8, 2020

So far on the crypto-dollarization miniseries, we've covered Tether's stability mechanics, we've heard from traders and OTC desks using the asset, but we haven't heard from the issuers of the stablecoin itself. To give us insight into how they run the system, Paolo Ardoino, the CTO of Tether and Bitfinex, joins the show. In this episode:  The factors behind the outflow of BTC and inflow of ETH to Bitfinex Fork futures for ETH 2.0? Bitfinex' policy on staking on behalf of users The principal-agent problem inherent in exchange staking Whether the growth of crypto dollars threatens native collateral like BTC and ETH Paolo's explanation for the growth of tether after March 12th 2020 The advantages of cryptodollars over the current financial system Why Tether opted to list on 7 different blockchains (note: this was recorded before Tether listed on OmiseGo) Paolo's view on the claims that Tether is clogging Ethereum How Tether Gold works Could Tether go from $9b to $100b – what the constraints to scaling are Tether's ability and willingness to surveil transations Tether's business model in a negative rate world How Paolo deals with the pressure of being the public figurehead for Tether Stay up to date on the growth of Tether's capitalization here.

What's up everyone? Welcome back to On the Brink with Castle Island. I'm Nick Carter. Today we have another installment in our long-running crypto dollarization miniseries. So far in this series, we've talked to some of the entrepreneurs building stable coin systems. We've talked to academics evaluating the stability mechanics of assets like Tether. We've talked to traders and OTC desks that actually employ and use this asset on an everyday basis. But what we were missing was, of course, commentary from the issuers of the number one stable coin. I'm referring, of course, to Tether. So Tether on January 1st of this year had about 4.8 billion in capitalization. In the last six months, it's exploded to 9.3 billion today. So

a really dramatic increase, which left a lot of onlookers scratching their heads. So who better to weigh in on this than one of the administrators of the Tether system. Today we're lucky to have Paolo Arduino on the show. He is the CTO of Bitfinex and the CTO of Tether, so he's an extremely busy man. Paulo in recent months has become kind of the public face of Tether. He often chimes in on Twitter when Tether issuance occurs to contextualize it. And he has started doing more interviews. He was kind enough to agree to come on our show and discuss the growth of Tether with us. So today we talk about why, in his view, Tether exploded so much over the last months, how much they really know about the usage traits of the Tether system, and why you would

want to use crypto dollars instead of legacy financial rails. This is a super elucidating interview, especially if you're trying to learn more about the largest stable coin and who its user base really is. So let's dive right in. Brought down by bad mortgage investments, Lehman, which has 25,000 employees will be liquidated. The federal government loans American International Group, AIG, 85,000. billion dollars this is a different kind of market and the fed is asleep the federal government is stepping it to stabilize fanny may and freddie mac the two mortgage giants that have been threatened by the housing crisis the bank of england has pumped 75 billion pounds more into britain's ailing economy

with a new round of constituted easing you print a couple trillion dollars and all of a sudden people start to worry so out of this worry we have something called the bitcoin bitcoin palo arduino is the of Tether. He's a very busy man. So I appreciate you making time. Thanks so much for coming on the show. Thank you very much for having me. It's pleasure. The main thing I want to talk about was the growth of tether and some of the technical nuances there. But maybe before we do that, I want to talk about something interesting that's happening recently. We've seen since about March a massive outflow of BTC from Bipfinex and a big inflow of ether. Is there any color you can provide on the factors behind that?

Do you have an explanation for that? Yes, sure. So I cannot dive into many details. But on the BTC side, BFNX has been subject to or has been the home of a few big OTC deals. At the same time, the BTC price, BTCUSD price on BitFinx that for months, if not for the last few years, was above the competition of a significant amount. Recently, after the 12th and 13 of March, is considerably below the competition. So it is easier for people to for traders to send cash to Bitfinex and buy on the cheap and sell somewhere else.

So there has been an interesting inversion of the trend in terms of price. Recently after the 12th and 13 of March, all these deals, as you said, a big of big of these deals happen. I'll also comment the doubt on Twitter. On the theorem side is that we have seen, and I would say, really considerable inflow, more than one million Ethereum in still again since the last two months. It's harder to comment on that. I'm not sure if that is preparation for Ethereum 2.0 or such. But we have seen and we are monitoring the simphos and outflows.

Also, you know, BigFlex is a margin trading platform. So it means that shorts or margin can be both on spot and withdrew. So there are plenty of dynamics that we need to do, that the listeners have to be aware of. On the topic of Ethereum 2.0, historically when there have been fork events, You've offered things like fork futures, which were really interesting because it allowed people to price potential catalysts. I believe you also had it for Segwit 2X, if I'm not mistaken. Are you thinking of anything like that for a theorem 2.0 given that there's a big possibility space around what could happen there?

So this is really interesting question, you know, and has different nuances. So, of course, we are interested to explore, we are interested in exploring our options there. I was talking to our legal team, and the fact is that the difference is that Ethereum, sorry, the second week to X was a contentious hardcore. So there was a lot of noise and a lot of different parties that had quite different interests. The theorem 2.0 should be a fairly fairly simple upgrade, not simple as in technically simple, but the interests are much more aligned. What we were interested in to is to trying to find a solution in order to use our technology called change the token, that is what you were referring to, referred to 2X, and explore how to

offer the ability to our users to use that technology to signal the interest from their side to lock certain amount of Ethereum in order for us to start the staking process. So I think that the Ethereum 2.0 is more directly to the staking part and the segment, Chainsclic token would have that component. So we are trying to understand with our legal team if that is feasible. And of course, one key part of it, since there will be a staking reward and a future staking reward, you might see how this can be characterized as a security. And of course, we are quite protective in that sense.

So we don't want to have to risk to list something that can be considered. there are different things that at different considerations that has to be taken in mind but we are definitely looking for it. On the topic just briefly before we dive into the subject at hand, so on the topic of staking on behalf of users, there's a big drama recently with Steam where Binance was asked to make political decisions because in practice you have staking. You have staked is not only a potentially yield generating function, but it's also involved in some cases making governance decisions over networks. Do you guys have a policy there of non-intervention or voting on behalf of users if something, if you were to support staking for Ethereum and

then that became a vector for governance decisions? So we touched this topic with years. So between XVIN. as a US blog producer and we decided to build a software staff that use a technology similar to Monero in order to allow our users to anonymously vote, signing their votes, confirming the amounts that they won't vote with and signing the block producer's name they won't vote for. Although we gave this, I believe really good and interesting and, you know, new technology to our users,

only few really use it. So they seem that although users claim or say that they really want to be involved in the decisions, we had just few users really that they were willing to take their time and understand the different options and vote and decide really for whom they wanted to vote more. That was kind of sad because we built an entire software for it and I think that it would be interesting and good if users would take active decisions. At the same time, it can become a mess from the exchange point of view in imagining

you have 10 different tokens and if you have to give the opportunity to users to vote for every single decision that happened for all the 10 different blockchains, it basically is a huge, huge work and it requires an enormous amount of people. So it's hard to give the freedom to our users to still decide and vote independently from us, but also use us as a way, as a simplified way to get rewards. So we are still thinking about it because, of course, we don't like to take complex and possibly breaking decisions on behalf of our users. So in case there will be that event,

we will probably reuse the same tool and trying to get the sense of what our users want. Okay, so because there's this principal agent problem for certain proof of stake chains where exchanges have ownership, they're effectively the agents of users, you prefer not to make decisions on behalf of users. You prefer to equip them to make those decisions,

but in practice, users don't often get involved in governance. It's not worth it for them. Yes. So we had to push really hard and start pinging users, start having, say, look, there is this tool, please use it. I'm not telling you what to do, but be aware that we have this tool. And although we were pushing them, it was hard to be able to be able to engagement maybe they were doing once but not many times and so after the

first time they were really forgetting about it and you know EOS in the first at the beginning had plenty of these cases where you know you had if you recall the migration between Ethereum Eos required there were many cases where users were scam so being a blog producers were meant to be involved in having to block or freeze addresses in order to the users to get back their funds so there were plenty of these decisions you know there was there was that that party that was trying to create a proper governance I think that the project then failed in some way but so that was a big opportunity and

and Tessaran, I believe, and we didn't see much engagement. Maybe we would be different. Hopefully the decisions will be a bit more lightweight. But in case there will be a big decision and breaking decisions, we will reuse that tool because it would be unfair for us to take breaking decisions and be helpful. Yeah, I think the reluctance isn't that surprising to me.

It's a little bit like retail investors own public equity and they can vote at the AGM on, you know, the, I guess the board of directors and so on. You know, they have certain procedural matters they can vote on. But in practice, they tend not to. And it's just the bigger funds that own a much larger portion of the stock that actually go to the effort to make those decisions and exert governance because it's only because there's a cost to that information and to, you know, determining the right answers to those governance questions. So they'll only do it if there's a payoff, I guess. Yeah, and you have to put a threshold, like at least 30% of the AUM that you have in the wallet should vote.

Otherwise, I don't know, you take no action or you decide. It's tough, right? So it's all arbitrary numbers. and it's tough to really to find the right balance. So moving on to the topic of the day. So from March to now, from early March to today, Tether has grown by about $4.5 to $5 billion. Correct me if I'm wrong there.

Over $4 billion at least, yeah. So you recently passed $9 billion. in total monetary base on Tether. That's correct. Which is pretty astonishing. And it's almost been a little overlooked. Like a few people have been posting the stats and showing the growth. But it's interesting because people were super focused on the growth of Tether in 2017 when it was still really, really small.

And then now in 2020, it's been somewhat overlooked. But what's interesting is the transactional volumes of Tether on chain are outstripping all the other. public blockchain the kind of native unit transactional volumes including Ethereum and then potentially soon Bitcoin so we're sort of seeing like the tetherization or the dollarization of public blockchains what do you make of this what do you make of the fact that crypto dollarization seems to be occurring that moving dollars around seems to be a massive use case today well I think I was reading a report that 95% of wealth transfer on chain, probably more than 95%, was

is BTC, Tether and Ethereum. And you're right, Tether growth massively in terms of market cap. It is astonishing also for France for Tether itself. We know that we of course two months ago we were still by far the biggest one But we didn't expect so much growth in such a short time So it is refreshing and really good to see the The interest that the community puts in pattern We have seen growth in growth in

bought Ethereum and Trump in terms of blockchings. We have seen interest from many other, many companies in pattern outside of the simple crypto trading use case. We have seen mining pools interested in using patterns to buy equipment and pay the bills. Of course, the crypto trading remains the main use case. One thing that I want to underline here is that the tetar growth in the last months, so the four or five billion of growth doesn't necessarily mean new money coming into crypto per se. also mean that money that was sitting on crypto and fiaton realm crypto changes has been transferred

and transformed in pattern the reason i believe it's quite simple and obvious so in the 2013 of march when there was that that huge drop 50% in in bitcoin and other major currencies we have we have seen people being stuck on Fiaton round exchanges because they couldn't move fast enough their dollars in order to exploit the market divisions or protect themselves or whatever you want there. So I believe that and so this is what people said to us that who had dollar, cattle dollars and who could use those on tethered exchanges, who was able to react much better,

much faster to the market, to the sudden changes of market conditions. So possibly this awareness made the difference and made the growth, and I believe that tether is absorbing part of the, the cash wealth that is seeking in cash in bank accounts on many other changes. I believe that it's a great thing to see. It will allow many, so the growth of liquidity,

the more liquidity there is in better since it is becoming the common denominator for many changes will allow to have more money. to have more markets, tied markets, more protection in terms of, you know, order books more liquid. That is really important. When, you know, Bitcoinx traded $11 million in less than one minute during a crash in the 12th of March. I mean, that is that type of liquidity is really important if we want to become a more and more

solid tax class. So you're identifying a few phenomena here. So one is you're saying there's more and more kind of crypto-native business being transacted with tether as a unit of account, or actually as the medium of exchange, rather, dollar as the unit of account, I guess. And maybe this would previously have been settling in Bitcoin, but for convenience, things like mining equipment purchase is settling in tether. And then the other really interesting phenomenon is the crash on March 12th was a reminder to a lot of industry participants that they need crypto-native liquidity. They need on-chain liquidity that they can use to get access to these market venues. Dollars in bank accounts aren't good enough. They need to be ready.

They need to be able to transact a short notice. And so you're saying they basically turned their balance sheet, it might have been dollars in a bank account into dollars on chain so they could be ready to act at a moment's notice. That is correct. I think that is the key factor, at least in my opinion, that so this awareness made better even more popular. So we have seen obviously that's that started dealing massively in Padder as well. Is there a credibility acquisition that occurs with time? Is there kind of a lindy effect when it comes to Tether? I mean, you guys have been around for, well, BidFinex has been around for a long time too,

but Tether has been around since 2014. Is that right? 2014-15. Yeah, that's correct. Is that a significant advantage, you would say, the fact that you've been around for over five years now? Yes, we have been around since five years. I think that this, I don't want to hide behind a finger. We have a massive first mover advantage, that including the fact that we decided to support many blockchains and many communities,

is giving us and keeping, is keeping giving us a big edge against competition. So I think that we are gaining more and more trust. I think that people understand that cattle is solid and the space anyway needs a solution like data. Because you cannot, so it is naive to think that you can trade Bitcoin without an asset, a base asset, that moves at the same pace of Bitcoin. So wires are not moving on the same pace, at the same speed. So that was the full reason why Peta was born in 2013.

So there was a massive spread between exchanges, even 203% at some point. And in order to cover those spreads, if you send Bitcoin. in 10 minutes you need to send the equivalent dollars in 10 minutes or faster so there is no other way around otherwise you will be always have spreads and discrepancies and latest and wires just in practice they settle much more slowly I guess yes I mean if let's say that you have two trading venues that use the same bank and you have inter you know you can have in trapping settlement procedure that is super fast, right? Maybe even one second. But these works only if, let's say,

couple of two exchanges use the same underlying bank. But that is in crypto is not the case. Exchanges are popping around. There are many, there are many in Asia, in US, in Europe and so. So you cannot use the same underline back. In traditional finance, if I send the probably the time of segment between you know moving around stocks between exchanges and and and and and why this is kind of the same while um so that that works pretty pretty well because speed is the same is it's not so you have to have the same conditions in cryptic and tether allows you to do that There are other simple points that have the same speed factor, but they adjust him later. They don't have the same hedge of innovation simple as that.

So now that Tether exists, it's ubiquitous in virtually every crypto exchange. I mean, most crypto exchange is really, it's highly liquid, as we know, and there's, you know, 9 billion or so in monetary base, Would you say, you know, crypto dollars are just functionally more efficient way to send value worldwide than using the traditional banking system? Like, has that flippening occurred effectively? I think so. Of course, the number of gateways that accept better is infinitely lower than who accept credit cards and, you know, wires, SEPA or H. So it is still a really long run before getting feathered real mass adoption. But you know, year after year we will get there. We are seeing tether use with as a remittancy system and

for used by travel agencies and you know paying the deals and paying salaries. So You know, you always want things to go as fast as possible and is always annoying to wait. But you know, adoption takes time and I think that no one even us could think that in mid-2020 would be already at $19.00, even at the beginning of the year, we were around four. So, you know, things can change quite quickly, especially. especially if the conditions of the world will change and the fact that there were stricter rules recently in terms of travel, in terms of cash management, you can, during plenty of places, you can, you couldn't even, I mean, the bank notes were not allowed as a mean of payment.

So these, or all these, um, um, these type of conditions are really first. very high or cattle growth. Totally. And you know, with the monetary, we've seen a lot of devaluations recently in various sovereign currencies, weak of currencies devaluing against the dollar. This has been accompanied by capital controls, new capital controls in places like Lebanon, which is having a banking crisis. So you can certainly see why people would turn to crypto dollars, which are just fundamentally

less encumbered and offer them a bit more true. transactional freedom. Yeah. And you can keep control of your wealth. No, you have. So you have your private keys and you can keep control of your wealth and move it as fast as you want. So that is a big hedge as well, right?

So there is recently there was a big, also with the COVID situation, there was concerns about, you know, the banks have been fractional reserve and so on. So you want to move pretty fast. If you want to move really fast, Tether is an interesting solution. So one thing you alluded to is Tether's existence on multiple chains, which I find very interesting because, and actually most Tether has moved from Omni, which is on Bitcoin to Ethereum recently, and then a lot has moved onto Tron as well. So this kind of validates a hypothesis that lots of people have had about,

about chain agnosticism among popular applications, basically. I guess it helps because Tether isn't particularly idiosyncratic in terms of the way it uses the chain, given that it's just a token. But Tether is moving around on multiple blockchains frictionlessly, which is kind of an interesting new phenomenon. I don't think we've really seen something like that before. You know, we wanted to create something

that could consider common denomination. for the entire blockchain industry. So, you know, in our industry, for example, I'm a big bit-oiner, but I cannot, I have to wear, if I work in a company like Tether, I have to wear multiple hats, right? It's important that a private company like Tatter trying to maximize its growth and business. and business case. So we started thinking to the blockchain cryptospace at a whole.

And you can see that although blockchain is one technology, well, there are different nuances, but then you have a lot of different communities like the Bitcoin community, the favorite community, the Yots community, and the Tron one. And you can see how sometimes they don't agree or they fight each other. So we thought, okay, but all these communities have a lot of power, a lot of the interest and they need a stable coin. So why don't make the common the common stable coin among all these communities? So in 2017, really, we started moving to, not moving, we started and in the Ethereum because the traders, the crypto traders were annoyed by the really high Bitcoin fees that were at the peak where you could even spend $500 to get a transaction.

So only depending on Bitcoin was subject to that, right? So everyone was asking, well, why you cannot you issue on Ethereum? So we did that at the end of 2017, but suddenly the market comes, the crypto winter started. And almost no exchange really added category. Only when the market started moving a bit, I think Wobie was the first exchange to add it, then others started to add it. the more volatility, the more interest is from people to have tatters moving faster on change because 10 minutes or 20 minutes because you have some exchanges where waiting

pre-confirmations it's a hell of time. So they wanted to have faster fetters. So we started out in theory and then eventually Tron and what we have seen with Tron has been great interesting. So Tron Community and Justin's son. started pushing really hard on marketing and I believe that is a really interesting thing to see right because you see this space also and and blockchains also being treated as normal businesses and he was really good in bringing a lot of

pension a lot of traders and exchanges deciding to use Tether Tron. At the same time, Ethereum became a bit polluted because of, because it's still the majority of transfers that happened on Ethereum that happened on daily basis in the Tether. So, you know, that the fact that that Tron became a bit more popular in the Tether ecosystem allowed Ethereum to be a bit subject, a bit less subject to the, to the to the bloating from the header. So you don't want really to have one, also for technical reasons,

you don't want to have one single blockchain. Let's say that for any reason, the theorem fees goes through the rules. You really want to offer other options to your user. So adding more and more blockchains allow resilience. Of course, the way we choose blockchains is they have to have a big, community, the scrutiny needs to be at top level.

We have our list of requirements that includes, of course, multi-sig and hardware wallet support for multi-segan burns. And at the same time, we get back a lot of interest, a lot of support from all these components. We did that from, you can see on liquid, they are really excited to have cattle, because you can then do atomic swaps on liquid. the human community is really supportive.

Well, we have seen now a few E55 projects really pushing a lot on the better. And then, Sean, it's really easy to see the support that we are getting and with the same videos and Algrant and the others, right? So I believe that it has been probably the wisest that we could do to maintain the hedge and exploit all these different communities that populate our industry. What do you make of the comments from some in the Ethereum community that Tether is like clogging the chain?

I think Tether is consistently the biggest consumer of gas on Ethereum. And that's been part of the fee crisis there. Well, maybe crisis is a strong word, although there's, of course, certain Ponzi's, which I we're also using a lot of gas on Ethereum right now. You know, there's kind of two sides of this argument. You could say, well, on the one hand, it's forcing out, it's forcing up prices to transact, which is potentially bad for the native unit for ether. And it's also maybe displacing ether to some degree in terms of being the transactional medium.

But on the other hand, it's also a source of fee pressure for Ethereum, which many would say is good, because having fee-driven security means that you don't have to have as much issuance-driven security. So have you been following this debate at all? Yes. First of all, I believe that the fact that Kether exists on Ethereum makes miners quite happy. I mean, now that the Ethereum is still a group of work, blockchain. change. Also, you know, the fact that still Petter exists on Ethereum, I believe this is important, right? My understanding of the theory is that Ether is the, you pay gas in Ether, and that

is fine, but in theory, Ethereum should enable hundreds, thousands, millions of projects like tether to run. So first of all, tether just made a bit more evident the fact that Ethereum needs to scale a bit more. So this would be the reason of ether 2.0. And imagine maybe if there wasn't a better, maybe ether 2.0 were probably the necessity of the pace they're trying to achieve ether 2.0, if it would have been slower. So I think that realizing the fact that one single project that is successful, like Tether,

and can close the blockchain, it's not a bad thing. I mean, we are, technology is the key, it's the king in our industry, right? So the fact that one project can go out the blockchain is definitely not going to be there. So no one should be angry at the header saying, okay, you are called in blockchain. First of all, we are giving many other options. And secondly, we are just, I mean, you should focus and you should think that you should work harder to make the upgrade coming sooner rather than later.

So I mean, I believe that the majority of the majority of the project. people are happy that we are on we are on Ethereum and with the theorem 2.0 is likely that the problem will go away completely or at least a good part and and again Ethereum is supposed to power hundreds of thousands of projects like Ketter to run along chain so I mean eventually that that's no so I don't see any problem in us being the first and biggest use case and showing and showing the path to others. Yeah, and you know, there's always the point that Tether is what forces people that transact in Tether to acquire ETH to pay transaction fees. Sure.

So there's certainly some pressure from that. So on another topic, you also have Tether Gold, which is pretty interesting, because it's like gold, but you actually have a claim on physical gold. So can you tell us a little bit about how that works and how you have it set up? Yes. So I mean that this was one of the most exciting projects I've been participating this year.

So title gold is different from what the competition is offering, in the sense that we decided to find a company in Switzerland that could offer us a safe gold and the best security that you could find at the same time giving the ability to enter and all the gold in the vault. So that is really important because it removes one step between or one layer between the end user and the gold itself. So if you use a bank, it is definitely another layer, because I could not imagine that one of our competitors could go in the boat and actually see the gold and touch the gold.

So also these allow us to deliver to the user that own at least 130 ounces of gold, their gold bar or their gold bars in any location in Switzerland. So the Volt is in Switzerland and Tethergold users can redeem their Tethergoles for gold bars. So the minimum limit is 430 tetar goals because each gold bar varies from 390 to 400 and 1520 ounces. So in order to be on the safe side, we said if you have more than 430, we can definitely find full-filled your requirement on having a pool bar. And that will be very address in Switzerland. And from there, it's up to you to take it anywhere. The reason why we can ship internationally is that there are different restrictions, there are different rules.

So it is up to you to understand how you can get your gold at home. But we are happy to deliver them whenever, wherever you want, to switch synonymous in the safest way possible. And when you own some tether gold, do you own, do you have a claim on a specific bar or is it a pro rata share of the gold in the vaults? So you have, you have your tethered gold. that you have in the Ethereum wallet are linked to a specific goal bar. So there is a website that is called gulf.taddle.com.

You can go there and put your Ethereum address and you can see which gold bar or gold bars your target goals are linked to. So you can actually claim and receive if you want to redeem a specific goal bar. you can do that. So that is pretty cool, right? You know which goal bar you have. There is a serial code that is a zero code that is carved into the gold bar.

And that is what you get. That is what you have in your wallet. And if you transfer those other gold on chain, the gold bar ID will follow the transfer. Of course, if you split those, you start splitting your goal bar. So you might eventually have multiple, your cattle goal will be referring to multiple gold bars. But there will be a consolidation process that will allow us to trying to reduce the pollution in the spreading of gold bars in order for everyone to be able to have the least number of

gold bar ID is possible in the world. In a sense, this is like coming full circle because I'm sure you remember some of the pre-Bitcoin digital cash projects were based on gold. Like e-gold was a popular one in the late 90s to the early 2000s. And it was kind of the same idea. There were vaults with gold bars and claims on those bars could circulate online, which was really innovative at that time. the only difference is there was no blockchain involved so there was kind of more trust involved it's kind of like PayPal with gold as the backing and you know we've we've come all the way back around to gold backed digital cash tokens effectively so it's kind of funny to see that that full

circle yeah you know we had that i agree uh that really reminds me of that time and it's uh i think that especially in this moment, gold seems like an interesting asset for people to hold. You know, we decided to start this enterprise because we got a massive request from users. You can see that title gold really surpassed in really a short time in the competition in terms of market cap. because I mean we we only do and invest if time to do this this type of enterprise only if there is actual demand and and I believe that the one interesting part is that we are seeing users holding Catergold rather than trading because they in my understanding when I talk to them they tell me look Paul this I can't keep gold and keep better gold because in because I can use it as collateral I can I can use it I mean my portfolio will be a bit more solid so the volatility in gold usually is a

slight lower than than volatility on stocks right so and or probably Bitcoin as well so it is considered at least a good differentiation into having portfolio. So, and we have seen this clearly with the adoption that we got as soon as we issued it. So for the Tether system as a whole, obviously one side of it is obtaining resilience on various crypto blockchains. You're up to six now, I think. In terms of being able to scale up, obviously, of the banking side of things, are there, how does the scale? scaling work exactly if you were to go from roughly $9 billion on Tether today to,

let's say, 100 billion. Is that possible seamlessly or what are the roadblocks there? So this is really interesting question because when people think about stable coins, they have to think that it's not complex to go from zero to well, it's right at all. relatively not complex to go from zero to 200 million. But then if you surpass half a billion and more, then it becomes more complex to deal with banks. Because the more you grow, the more you represent a big component in the band partnership.

So you have the way that you have the way The way we are resilient is that we are using multiple banks. So we between Bitfinex and Tagger, we have from I think six or seven banks that we are using now. And I think that, you know, it's important to keep growing the number of banks that use, especially now that we are at the 9 billion. We have of course DELTEC and we have a few other banks that are really helping us and they're really solid. I believe that if we have to go to one one hundred billion dollars, then it would require

probably a top tier, a tier one bank to help us in the enterprise. So yeah, you know, the more you grow, the more you need diversification. and the more you need to step up the game also dealing with much better benefits each time. So on that topic, you told me before the call that you guys try and do a little bit of analysis to determine the usage of Tether. Can you tell us a little bit about your ability to evaluate how users are using Tether and whether that's something you really try and stay abreast of? So, yes, so recently we started, well, not recently, but we recently announced we started quite some time ago to use chain analysis that allow Tether to follow and keep track of the major use cases of the stable coin.

You know, it's important that Hatter is not, is monitored. Because you don't want a few better half-laws to ruin the game for everyone, right? So ensuring that when you talk to regulators, to law enforcement, you have always your answers ready. If something, if there are concerns, you have to be able to address them quickly. And the only way to do that is to be able to show that you are doing your best, track how your product is being used on chain. So, you know, what fraction of like the tether economy are you able to characterize? Because I presume that chain analysis doesn't really cover everything. It does not, right?

For example, there is a pattern liquid. Liquid has confidential consumption. So, channelists would not be able to track those. It's also true that, I believe that 95% of the use of pattern in probably more is still crypto trading. So you can easily see big conglomerates of cattle sitting on exchanges. So let's see that for the moment is still easy enough to ensure that, you know, everything is in control and it's easy enough to track how the category is in use because if you exclude the exchanges, the rest is it is not really big.

And you can, you can follow points. you can follow quite what you do. So one thing that people wonder about with stable coins is business models in a negative interest rate world where large depositors, effectively get charged fees for depositing money in the bank, which seems illogical, but I guess that's the world we're living in these days. Do you have plans for that in a situation where the net interest income might actually be negative? And would you be able to survive a situation like that? Tatter, for a default, about the situation. And I think that it will be definitely possible. From what I understand from the CFO and a CIO,

it will be definitely possible to at least break even in that situation. I probably do a bit better. still maintaining the capital in super safe investments. So I think that, you know, if you have, I think that it is harder if you have $500, $1 billion, but if you have $9 billion, it's definitely something that is achievable. And I guess the other thing is you do have a redemption creation fee, so that's an alternative. source of income too. That is correct.

So you're 0.1%. So I'm a true part of competition has done. But still that you can imagine with the recent growth of Tether, we were able to cash to get quite some interesting fees out with that. And you know, Tether is a super lean company. So the expenses are quite small. We don't have offices. We don't have crazy expenses.

And the account is quite low. So going break-even will be definitely easy. And definitely also making money, also in that situation, will be possible from what I got from the CFO and CIO. So before we wrap up, I want to ask you, you know, more personal questions. So you are effectively a public figurehead for Tether. You know, you comment on the whale alerts, tweets, to add context when they cover the issuance transactions. And of course, you get a lot of criticism being one of the few people that's consistently on the record about Tether. So, you know,

what is it like? How do you deal with all that critique? I mean, everybody gets some, but you certainly get a lot. You know, at the beginning, it was a slightly annoying. Eventually, you know, I think that I'm a guy with a nice sense of humor. I know that my life is being a coder and not being a public speaker. I try my best. I don't get angry if someone, if someone save them, I'm stupid, I'm more, I'm a bad person, I really don't care. I know that a header between X is made by people that have families. There is plenty of opportunities acting in the right way. I think that what I believe that being part of this family gives me the strength of supporting all the

things that have been said against me. Recently, I think that I've seen people acting much more nicer towards me, not sure just because Bitcoin is going up or whatever. But I don't know, I just, you know, I sit behind the keyboard, I code, I respond to Twitter, I get a laugh at least someone said something bad about me. I really don't care. you know you shouldn't it's it's important in life to to not take uh trolls too seriously the troll is like this is the perfect name right so you it's you if you can start taking them

too seriously you you you really live a really bad life so i became really good in that uh the fact that you know i can do whatever i enjoy all the time and i have this this opportunity to to to cold all the time, have a great team, and so it's so refreshing that everything has it here. And I bet you never thought that you would be administering a monetary system to the tune of $9 billion. No, definitely not. That is really interesting so far. I sleep a little just because I want, I'm a control freak just because of that.

So, last note, are there any kind of misconceptions around Bitfenex or Tether that you wanted to correct or any kind of lesser known facts that you wanted to shed light on before we go? I don't think so. I mean, there are plenty of things that have been said. Plenty of things that have been proven wrong by time. As Giancarlo, the Tatters is CFO. He always says, time is gentleman. So, I mean, we have ruined many times that we are good people and we know how to build businesses. So we know that what we build is pop with Tatter and Bittern

are keystones of our industry. We just wait and see. and see that the success speaks by itself. Well, Palo, you've been very forthcoming. This has been super, super interesting, and I really appreciate you coming on and sharing your thoughts with us. Thank you very much, Nick, for having me.

It was a great pleasure to me.