Note: On August 8, 2025, the podcast "Bitcoin Brainstorm" from Ark Invest invited Cathie Wood, Tether CEO Paolo Ardoino, economist Arthur Laffer (a student of Nobel laureate Mondel), and ARK Invest's Digital Assets Research Director Lorenzo Valente for an in-depth dialogue, which was compiled and translated by Jinse Finance.
Key Points:
1. The Birth and Development of USDT: To solve the problem of fund transfers between exchanges, USDT was born in 2014 as the first stablecoin. USDT's rapid growth was due to the COVID-19 pandemic in 2020, as emerging market users used it as a tool to avoid local currency depreciation. USDT's market value grew from $4-6 billion in 2020 to $160 billion today, gradually expanding into commodity trading and other fields.
2. Historical Connection between Stablecoins and Monetary Systems: Dr. Laffer pointed out that from 1790-1913, the US had a private monetary system with stable prices. After the Federal Reserve was established in 1913 and monopolized currency, detaching from the gold standard led to inflation, with prices rising 32 times. Stablecoins fill the gap in the lack of value stability mechanisms for currencies like Bitcoin, similar to key elements of historical private monetary systems.
3. Tether's Issuance Mechanism and Reserves: After registering through KYC/AML, users can obtain equivalent USDT by wire transfer to Tether. Redemption involves transferring USDT back to Tether's designated address. Reserves are 80% cash and US Treasury bonds (over $130 billion, mostly short-term, making it the 16th largest US Treasury bond holder), with gold, Bitcoin, and other assets. Total reserves exceed circulating USDT by $6 billion, with a 103%-104% collateralization ratio, and quarterly audit reports are published.
4. USDT Regulation and Future Plans: Tether is registered and regulated in El Salvador. With the passage of the Genius Act, the regulatory environment has improved. They collaborate with law enforcement agencies and use blockchain and related company tools to track transactions. Future plans include converting reserves to 100% US Treasury bonds, creating new utility products for developed country users, and addressing competition.
5. Reasons for US Dollar Stablecoin Success: A stablecoin's success outside its home country is the same as its home currency's success abroad. USDT is essentially digital dollars, successful because everyone knows what the dollar is. Everyone outside the US trusts the dollar. The dollar is America's best-created product.
Full text follows:
[The rest of the translation continues in the same manner, maintaining the original structure and translating all text while preserving the <> tags.]Laffer: Reviewing the history of the U.S. monetary system. From 1790 to 1913, the United States had a private monetary system. The government did three things. 1. Define what a dollar is: one dollar is one-twelfth of an ounce of gold, one ounce of silver. 2. The government minted coins, but many others also minted. You could bring gold and silver bullion, and many mints across the country would mint coins for you with the correct purity, charging around 3% commission. 3. Audit each bank's balance sheet. This was crucial before the Federal Reserve. At that time, U.S. currency was bank notes issued by various banks, and they would publish their balance sheets, income statements, etc. This way, people knew their leverage. These bank notes would sometimes be sold at a slight discount or premium.
This was a private banking system from 1790 to 1913, approximately 120 years. Although there were bubbles, ups and downs, the price level was stable, with no inflation for 123 years. Then the Federal Reserve was established in 1913 and began to take over private currency with a monopoly position. It devalued the dollar in 1933, from $20.67 per ounce to $35. Subsequently, there were interest equalization tax, voluntary foreign credit restraint program, Smithsonian Agreement (an agreement reached by the Group of Ten after the breakdown of the Bretton Woods system in December 1971), after which we completely severed all connections with gold or anything supporting the dollar. The dollar became a paper currency without foundation. This is where we are today. Look at inflation, prices have risen 32 times from 1913 to now.
In a 2015 podcast and paper, Woods and I argued that the existence of Bitcoin and the sharp rise in gold prices indicate that the private market decided they no longer want to hold government currency. They are trying to replace it with other currencies.
At the time, I said something was indeed missing from the monetary system. Gold is an asset, and many people have made a lot of money investing in gold. But to make it a currency, you must have something to stabilize its value, so we can use gold for contracts and know its value five, ten, or twenty years later. This would allow us to develop a capital market where we know the value of the accounting unit. What Bitcoin lacks is anything that can stabilize the value of this currency. How does the Bank of England do it every morning, noon, and evening? At closing, they look at whether the UK banking system is buying pounds with gold or gold with pounds, and then run their monetary operations accordingly. For example, if people are exchanging pounds for gold, it means there are not enough pounds in circulation, so they will implement monetary policy and open market operations to increase the number of pounds in circulation to stabilize value. If people are exchanging gold for pounds, it means there are too many pounds, they will sell gold in the market, withdraw pounds and stabilize it. They did this for a long time. This is necessary to bring Bitcoin or gold back into the private sector as a monetary system to replace government currency. Stablecoins are exactly what we said was missing in our 2015 paper. USDT and USDC seem to perfectly fill that missing link.
Detailed Explanation of USDT Issuance and Redemption Mechanism
Laffer: I want to know how you operate the stablecoin business. What do you buy? How do you do it? Where did your initial funds come from? Do you intervene like the Bank of England to stabilize it?
Paolo Ardoino: Let's start with the mechanism. USDT is a digital dollar. If a company wants to apply for USDT issuance from Tether, it first registers on Tether's primary market. You can find it on tether.to, with a registration process involving KYC/AML. We want to ensure we know who we're talking to and the legality of that company or individual. Once this process is established, the company has the right to apply for USDT issuance. This means they must wire transfer, for example, $100,000 to a Tether bank account. After Tether receives the wire transfer, they will request a blockchain address to which Tether will send $100,000 worth of USDT. The company will use these USDT for trading or other purposes. At some point, they will return to Tether with the USDT. They will say, "I want to redeem." Now they send these USDT to the address Tether displays on the primary market platform. They send USDT, Tether receives USDT, and then Tether wires the money back.
(Continued in next response due to character limit)Tether is a company with 11 years of history. Tether collaborates with over 250 law enforcement agencies from more than 50 countries.
The beauty of blockchain technology is that it makes everything very transparent. Tether has collaborated with many companies like Chainalysis and TRM Labs, establishing highly efficient and precise internal tools to track transactions over the past 10 years.
What to do when USD stablecoin meets USD inflation
Laffer: Do you guarantee the value of your stablecoin?
Paolo Ardoino: We have never failed a redemption. Every dollar has always been redeemed at one dollar, with a redemption fee of 10 basis points.
Laffer: The US dollar has inflation and is a bad currency. Is there a good mechanism to make USDT's value rise with the inflation rate?
Paolo Ardoino: I think inflation will never disappear, at least not in the short term. There are several solutions, one is a tokenized money market fund, but this is tricky because it would become a security. It's difficult to tokenize a money market fund and then have 1.4 billion Africans use it. The US SEC would take a very hard stance on this.
There are two attempts in stablecoins. One is to share returns with holders, and some stablecoins are doing this, but they again face risks from the US SEC. The second is to start from one dollar and retain the accumulated value inside. The token will appreciate and will no longer be one dollar. Some have tried this, but the problem is poor user experience. Because unfortunately, people are used to thinking in dollars, and you need to constantly do arithmetic in your head.
I think there's a better way. We created a product called Alloy. Essentially, Alloy is minted using Tether Gold, a stablecoin backed by gold, as collateral. You can go long on gold, technically shorting the dollar. Decentralized lending platforms in cryptocurrency, lending dollars using Bitcoin and Ethereum as collateral. We can do the same with gold, putting Tether Gold into a smart contract. You own that gold, lock it as collateral to borrow, with a collateralization rate of 80%. This way, you have a dollar-priced value that can be used in daily life while still going long on gold. You mentioned that the dollar has actually depreciated by 99% since 1913. That's why we thought of a product that goes long on gold and can borrow digital dollars to counter it. Of course, there's a liquidation risk if the collateral value drops.
Emerging markets love USDT
Laffer: I hear you describing two markets. One is the African market, where people are willing to use USD stablecoins; the other is the developed country market, where we don't need USD.
Paolo Ardoino: Although the dollar is not perfect and cannot compare to Bitcoin and gold, it is good enough for people in countries like Turkey, Argentina, Brazil, Africa, Nigeria, all African countries, and Southeast Asia. If you're a father in a Turkish family working from January to December and end up poorer at the year's end. I've spoken with many Turks, even people in the government, and they're happy with USDT because their inflation rate was 50% last year and 70% the year before. That's why digital dollars still have a huge impact for these people. Bitcoin is better, gold is better, but even just owning dollars is an investment for them.
If I'm not mistaken, the number of individuals with USDT accounts as savings accounts has reached its peak. But we're starting to see a shift, mainly driven by commodity traders. Commodity traders are realizing that stablecoins are the best way to complete commodity transactions. If you have a ship somewhere in the Middle East waiting to load some oil and waiting for wire transfer clearance, switching to stablecoins can greatly improve the capital efficiency of these commodity trading companies. This is what we're seeing today. Tether announced in October and November 2024 that we're starting to facilitate such transactions, and now the demand for USDT from commodity traders is enormous. Why? Because if you have a stablecoin, you can send it to somewhere in Africa, pay wages with stablecoins, buy houses and equipment. That's why all commodity traders prefer to use USDT, because on the sell side, typically in emerging markets, USDT is basically king.
Developed countries need new stablecoin utility
Paolo Ardoino: USDT is the perfect product for all emerging markets. It will bring huge changes to emerging markets, like Nigeria's financial system efficiency of only 10%, which stablecoins can raise to 50%. While the US financial system is 90% sophisticated, stablecoins might only improve it to 95%.
I've always been very open and outspoken that Europe and the US don't need USD stablecoins as much. In the US, perhaps only a small percentage of people are unbanked. Actually, almost everyone has a credit card, debit card, bank account, Cash App, etc. So we need to create something different to bring new utility to developed country users. We will create a comprehensive plan, not just a product. But I don't want to spoil it.
(Translation continues in the same manner for the rest of the text)Paolo Ardoino: The success of a stablecoin outside its home currency is the same as the success of its home currency abroad.
If you go outside the United States and stop 10,000 people on the street asking whether they prefer their local currency or the US dollar, 9,999 people would say they want the US dollar. If you go outside Europe, such as in Africa, and ask them if they prefer the euro or their local currency? Many would ask, "What is the euro?"
So, the success of the US dollar stablecoin is because everyone knows what the US dollar is; it is in everyone's mind. Everyone born outside the United States trusts the US dollar. The US dollar is the best product created by the United States. This is why the US dollar stablecoin is effective.
Of course, an Argentine peso stablecoin can be issued, which might work, but people would still sell it to exchange for US dollars. An Argentine peso stablecoin does not add much utility.
