Original Title: Flush With Cash, Tether Has Got Microsoft, Google, and Amazon in Its Crosshairs

Original Author: JOEL KHALILI, WIRED

Original text compilation: Deep Tide TechFlow

Under the leadership of the new CEO, Paolo Ardoino, this encryption company is making a major investment, trying to enter the artificial intelligence market dominated by the world's largest tech companies.

Paolo Ardoino, CEO of Tether Holdings, at the Paris Blockchain Week Summit in April 2024. Photo credit: NATHAN LAINE/BLOOMBERG; GETTY IMAGES

Paolo Ardoino, the new CEO, is facing a challenging but enviable question: how to best manage billions of dollars. Recently, Tether has abundant funds and is venturing into unfamiliar new areas, such as advancing AI. Ardoino's ambitious plan is to compete against Microsoft, Google, and Amazon.

Tether is registered in the British Virgin Islands and is one of the world's largest encryption enterprises. Most of its revenue comes from its Stable Coin USDT, which is pegged to the US dollar through a reserve of a basket of cash and other assets.

This mode is relatively simple: Tether charges dollars in exchange for Tokens that customers can freely trade in the encryption market. It reserves some dollars as cash, uses most of them to purchase interest-bearing securities, and lends some of them. If a customer wants to exchange USDT Tokens for corresponding dollars, Tether will withdraw from the reserves, but at the same time, it generates income from the assets held.

Tether's reserves are mainly composed of short-term US Treasury bonds, and its income is linked to the current interest rate, which means that as central banks increase interest rates due to inflation, the company's profitability also continues to improve. Tether recently reported a profit of $5.2 billion and total reserves of $118.5 billion in the first half of 2024.

Under Ardoino's leadership, he took over as CEO last December after serving as CTO for six years. Tether is looking for ways to dominate these idle funds. Ardoino said that part of the funds is used to establish a buffer for USDT reserves, while the rest is invested in the company's new venture capital division, Tether Evo. The company has acquired a controlling stake in the neuroimplant technology startup Blackrock Neurotech and invested in data center operator Northern Data Group, whose infrastructure is used to train artificial intelligence models.

Tether has also been controversial. In 2021, the company reached a $41 million settlement with US regulators, who accused it of making misleading statements about its reserves. In 2023, Tether was accused of using fraudulent means to obtain banking services in its early history. Additionally, the United Nations and blockchain analysis companies claim that USDT has become a tool for money laundering, terrorist financing, and other illegal activities, although Tether disputes this characterization.

Ardoino said the company is often misunderstood. He said Tether's most pressing concern is to promote the Decentralization encryption concept - that is, power should be in the hands of the majority, not the minority - to the artificial intelligence industry and other emerging technology fields. 'It will be very important to have a company that is independent of traditional participants,' he said.

Ardoino earlier this month had a phone conversation with WIRED. The following interview has been edited for brevity and clarity.

WIRED: This year, Tether is pushing for a diversified business model and venturing into venture capital. Please tell me the reason behind it.

Ardoino: Thanks to the rise in interest rates, Tether has become extremely profitable in the past two years. When Tether was launched, the reserve yield was 0.2%, and now it can reach 5.5%. Of course, this situation may be temporary—we heard that interest rates may be lowered—but even with inflation at 3% or 4%, it is difficult to return to the scenario of 0.2%.

In the past 24 months, Tether has accumulated approximately $1.19 billion in profits. We could have distributed all of this money to the shareholders to make everyone happy. Instead, a portion of it was added to reserves to further support the stablecoin, and the rest was essentially retained in the investment department.

What is your theory of risk investment? It looks like you are surpassing the encryption industry.

**Ardoino：**We come from BTC - deep down we are BTC supporters. Maybe we are not perfect in being human, but we strive to carry the concept of BTC in every investment, that is financial freedom, freedom of speech, and access to technology.

The concept of Decentralization can be applied to different fields, such as artificial intelligence. We have seen that AI has been heavily politicized. We believe that having a role independent from traditional participants such as Amazon, Microsoft, and Google will be very important.

Another important technology is brain-computer interfaces (BCI). This will become very important in the future. Building a brain-computer interface that respects individual privacy - ensuring that data stays local and is not collected by the same company operating the social media platform - will be very important.

We're not a traditional venture capital firm. We don't just invest in companies to find unicorns that can give us 100x returns. That would be nice, but it has to align with our vision. Interdependence, resilience, and decentralization - these terms are very important to us.

How much capital will Tether invest in venture capital?

Ardoino: We will always prioritize stablecoin business because Risk Management is very important. Now, we have a good buffer in reserves, but if USDT continues to expand, we will expand proportionally.

But in almost all other aspects - I would say more than 90% of the profits earned by Tether - we will seek to reinvest in things that are important to us and our community. We don't need to provide a large sum of money as dividends.

Some venture capital firms have done a terrible job in assessing the personality of encryption founders, some of whom (such as Sam Bankman-Fried) were later found to be fraudulent. How do you plan to ensure that Tether does not make the same mistake?

**Ardoino：**Carefully examining every detail and conducting the most thorough due diligence is the only way to protect your investment capital. Not every investment is perfect, but we will ensure the best results with our hearts and minds.

We work directly with management; if improvement is needed, we will provide assistance. Otherwise, we will be prepared to replace management. The technology itself is not flawed; if a company is not operating well, it is usually due to management issues. We take investment very seriously because we care deeply.

What do you think of the recent allegations against Northern Data? This is a company in our investment portfolio, accused of securities fraud.

This will be evaluated by the court. We have been working with Northern Data for quite some time. The company has huge potential; it can provide an independent perspective for the three major companies in the data center business. I am not in a position to comment on the accusations of a few dissatisfied former employees. Northern Data has strongly responded to these accusations, and we support our investment.

Let's talk about the current regulatory environment. It can be said that Tether operates like a bank: it accepts deposits, holds them as cash and securities or lends them. Why shouldn't Tether be subject to the same regulation as banks?

Bank loans account for 90% of their balance sheets, which means their collateral is only 10%. The current collateralization ratio of Tether is 105%. I think it is unfair to compare Tether with banks. It's like saying, 'The engine of a car and the engine of an airplane are the same, so we should regulate cars and airplanes in the same way.'

It is reported that Tether has not sought a license to operate in the European Union under the Market in Crypto-Assets (MiCA) regime. Does Tether plan to exit the European market?

We are formally developing a strategy for the European market. MiCA imposes daily issuance and volume limits on non-Euro Stable Coins, such as USDT. [Its purpose is to prevent US-dollar-denominated Stable Coins from replacing the Euro as the main medium of exchange within the European Union.] I agree with this because it does not harm anyone.

But another restriction is the reserve requirement. For stablecoins like USDT, under MiCA, a maximum of 60% of the reserve must exist in the form of cash deposits. If you have a stablecoin with a reserve of 10 billion euros, you need to deposit 6 billion euros into the bank. The bank can lend out up to 90% of the amount, leaving only 6 billion euros. Imagine if a customer requests to redeem 2 billion euros (in stablecoin value), but the bank only has 6 billion euros. Then you would face a situation where both the bank and the stablecoin are bankrupt. I don't think this is safe. In fact, it's a way to create additional systemic risk for stablecoins in Europe, rather than reducing risk.

The ongoing lack of comprehensive audit of Tether's reserves has raised speculation that USDT may not be or at least has not been one-to-one backed by its reserves in the past. Why is Tether unable to fulfill its commitment to provide a comprehensive audit?

Auditing remains our top priority. When it comes to stablecoins, US Senator Warren told the Big Four accounting firms to be cautious when accepting new encryption clients, especially after the FTX incident. [In March 2023, Senator Warren called for the establishment of an accounting regulatory agency to 'stop the false auditing of encryption companies.'] FTX didn't help at all. They used to be heroes in the mainstream media, but they messed up everything.

Did the four major accounting firms clearly reject Tether? Has Tether applied and been rejected?

We have had discussions with some of these firms.

What reasons did they give?

Basically, it's saying that now is not the right time. If you are one of the Big Four accounting firms and your thousands of clients are banks, they may not be happy if you have a Stable Coin as a client. This is my speculation, but Tether has created a digital dollar that allows people to have checking and savings accounts, so Stable Coin may be seen as a threat to the banking industry.

Not only Tether, but Circle (the company that issued USDC) has not been audited either—it has a certification. This has long been misunderstood and incorrectly reported by mainstream media. If other stablecoins are so sacred, why don't they get audited? Even though it is considered the world's most strictly regulated stablecoin.[USDC]There is also no audit. This is an industry problem.

[Circle is a customer of Deloitte, one of the four major accounting firms, which checks the accuracy of statements about the size and composition of USDC reserves every month, but has not released a comprehensive audit report since 2021.]

To be clear: Has Tether ever issued USDT Tokens without the support of US dollar reserves?

Tether has always been backed. In 2022, a short-term attack on Tether attempted to trigger a bank run, and we processed over $20 billion in redemptions within 20 days. I think Tether deserves some recognition.

At least until 2024, it should be acknowledged that the initial evaluation of Tether's credibility may not be entirely accurate. We don't need medals, but in our efforts to create the future of finance, we hope that there will be less criticism.

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