Tether’s USDT may have started as a cryptocurrency, but today the largest stablecoin by market value is the most used digital dollar in the world, Tether CEO Paolo Ardoino said in an interview with Bullish CEO Tom Farley.
Bullish is the owner of CoinDesk and a significant holder of USDT.
Stablecoins, cryptocurrencies whose value is pegged to a real-world asset, form the backbone of crypto trading. They provide a way to store value within the cryptocurrency market without worrying about the fluctuations of cryptocurrencies like bitcoin (BTC). Most are linked 1:1 to the U.S. dollar, though some reflect other currencies and assets such as gold.
But there’s more to USDT than crypto markets, Ardoino said. In countries like Argentina and Turkey, the stablecoin provides a lifeline as an alternative to volatile national currencies. Before the widespread adoption of USDT, people in inflation-stricken countries had to resort to the black market to get dollars.
“USDT works much better outside of the U.S.,” he said. “In the U.S., there are 15 different transport layers for the U.S. dollar. You have banks, credit cards, debit cards. You have Venmo, PayPal, Cash App, and many others … But who needs a dollar?”
That might help explain why USDT is not only the largest stablecoin, with a market cap of almost $120 billion, it’s the third-largest cryptocurrency overall. Only bitcoin (BTC) and ether (ETH) are larger. And it’s more than three times the size of its nearest rival, Circle’s $35.6 billion USDC.
More than half of USDT – $61 billion – is issued on the Tron blockchain, with $54.3 billion on Ethereum, the blockchain most widely associated with decentralized finance (DeFi). That’s because it’s significantly cheaper to conduct transactions on Tron, Ardoino said.
According to Etherscan, the transaction costs known as gas fees for a simple swap on Ethereum average around $14.60. On Tron, it’s closer to 20 cents.
“Imagine someone living in Haiti that earns $1.34 per day. How can they pay $5 for transaction fees?” he said. “These markets cannot afford to pay five, six dollars per transaction on Ethereum or some other chain.”
Ardoino also discussed another angle where stablecoins and geopolitics intersect: Treasury bills. The debt provides backing for the cryptocurrency, easily switchable into dollars if USDT holders want to cash out. And, in the meantime, the interest payments roll into Tether’s coffers.
While the Beijing government, the second-largest holder of U.S. government debt, continues to trim China’s holdings of U.S. Treasury bills, stablecoin issuers like Tether have had a voracious appetite for them, scooping up just over $100 billion worth as the People’s Bank of China dumps them.
If Tether were a country, data shows, it would have holdings equivalent to Germany and would be closing in on South Korea.
“We added resiliency to the ownership of the U.S. dollar, so now you don’t have one single country, one single decision maker that can sell hundreds of billions of T-bills at once,” Ardoino said. “USDT and Tether are the best friends for the U.S. dollar.”
Cantor has most of Tether’s reserves
For most of its history, the state of Tether’s reserves has been a big question mark, and for good reason.
During its early days the company was repeatedly de-banked and was a bit of a vagabond, having to open and close accounts around the world from Qatar to China, Taiwan and Canada.
When USDT’s backing was unclear, CoinDesk fought to have the full details of Tether’s banking relationships released by the New York State Attorney General, which had obtained them during an investigation. The stablecoin is banned in New York as part of a settlement). Initially, the NYAG opposed CoinDesk’s Freedom of Information Law (FOIL) request for details about the reserves, but a judge dismissed their case.
Now, things have changed and the relationship is more simple: Most of the money is managed by financial services firm Cantor Fitzgerald with the bank’s CEO, Howard Lutnick, regularly vouching for the stablecoin issuer.
Ardoino said that Lutnick would have a perfect line of sight into the reserves backing USDT, and Tether completes the same style of attestation by a large accounting firm as its competitors.
“Whoever believes in these conspiracy theories should get out from their mother’s basement,” he said, referring to speculation the company doesn’t have sufficient backing for USDT.
The market doesn’t seem to.
A Polymarket contract gives a 4% chance that Tether will declare insolvency in 2024, which is lower than the market’s belief that a nuclear weapon will be used this year, which comes in at 9%.