The Rise of Private Currency: Tether, Bitcoin, and the Genius Act

Note: On August 8, 2025, Ark Invest's podcast "Bitcoin Brainstorm" featured an in-depth conversation with ARK Invest founder Cathie Wood, Tether CEO Paolo Ardoino, Dr. Arthur Laffer, an American economist and student of Nobel Prize-winning economist Ed Mundell, and ARK Invest's Director of Digital Asset Research, Lorenzo Valente. Golden Finance compiled and edited the conversation. Key Points: 1. The Birth and Development of USDT: USDT was created in 2014 as the first stablecoin to address inter-exchange fund transfer challenges. USDT's rapid growth stemmed from the 2020 COVID-19 pandemic, as users in emerging markets used it as a hedge against currency devaluation. USDT's market capitalization has grown from $4-6 billion in 2020 to $160 billion today. It has also gradually expanded into areas such as commodity trading. 2. The Historical Connection Between Stablecoins and Monetary Systems: Dr. Laffer pointed out that from 1790 to 1913, the United States had a private monetary system, which maintained price stability. After the establishment of the Federal Reserve in 1913, it gradually established a monetary monopoly, deviating from the gold peg and leading to inflation, with prices rising 32-fold. Stablecoins fill the gap left by currencies like Bitcoin, lacking a value stability mechanism, and are similar to key elements of historical private monetary systems. 3. Tether Issuance Mechanism and Reserves: After registering and completing the KYC/AML process, users can wire funds to Tether to receive an equivalent amount of USDT. Upon redemption, funds can be redeemed by transferring the USDT back to a designated Tether address. In terms of reserves, 80% consists of cash and US Treasuries (over $130 billion, mostly short-term, making it the 16th largest holder of US Treasury bonds), along with gold, Bitcoin, and other assets. Total reserves exceed circulating USDT by $6 billion, with a collateral ratio of 103%-104%. The company also publishes quarterly audit reports. 4. USDT Regulation and Future Plans: Tether is registered and regulated in El Salvador. Following the passage of the US Genius Act, the regulatory environment has improved. Tether is collateralizing USDT with law enforcement agencies in multiple countries, leveraging blockchain and related company tools to track transactions. The company plans to convert 100% of its reserves into US Treasuries in the future, creating new practical products for users in developed countries and addressing competition. 5. Reasons for the Success of the US Dollar Stablecoin: A stablecoin's success outside of its native currency is as great as its success abroad. USDT is essentially a digital dollar, and its success stems from the fact that everyone knows what the dollar is. Everyone outside the United States trusts the dollar. The dollar is the best product the United States has ever created. Full text follows: Cathie Wood: Dr. Laffer is a monetary scholar. His mentor is Robert Mundell, who won the Nobel Prize for his work on monetary theory. Dr. Laffer also served in the Nixon administration. He was present when the US closed the gold window in 1971, but he did not support it at the time. In fact, he has been trying to find an answer ever since then. We collaborated with Laffer when we published our first white paper on Bitcoin in 2015. After reading the white paper, he said, "This is what I've been waiting for since the gold window closed in 1971." Now we're entering the second phase, with stablecoins and the regulatory and legislative clarity emerging in the US and around the world. When Laffer and I discussed stablecoins, he said, "Wait a minute, this is private money. We're returning to private money. This is so exciting." He was already excited about Bitcoin as a new global monetary system, and the idea of stablecoins as an onramp to DeFi services and private money reignited his enthusiasm. Dr. Laffer is excited about this new world of stablecoins, as well as USDT and USDC. He wants to learn more and asks some very important questions. Our podcast is called "Bitcoin Brainstorm," and for years, most people who have listened have been Bitcoin-centric. But now, Tether, USDT, and USDC are truly growing and helping the DeFi ecosystem, primarily on Ethereum. A huge thank you to Tether CEO Paolo Ardoino for agreeing to be on this podcast. Perhaps we can start with Ardoino describing USDT and what it is. The Birth and Growth of USDT Paolo Ardoino: Ether is a company founded in 2014. USDT was created to provide the ability to transfer digital dollars between exchanges with the same speed and low friction as Bitcoin. 2014 was a very different era for exchanges, cryptocurrencies, and Bitcoin. There were four or five exchanges at the time—Bitfinex, Kraken, Coinbase, and others—each international or foreign to the others. Therefore, arbitrageurs had a difficult time moving funds between exchanges. Arbitrageurs sold Bitcoin on one exchange with a higher price and bought it back on another with a lower price. Transferring Bitcoin from one exchange to another was easy, taking only 10 minutes. However, transferring US dollars to a foreign country could take anywhere from a day to seven days, or even a weekend, and was very costly. For arbitrageurs, a day felt like an eternity. Due to price fluctuations, an opportunity that existed an hour ago might no longer exist. So, as the first stablecoin, USDT had a "simple" idea: Why not leverage the brilliant technology Bitcoin created and put a dollar on Bitcoin? The idea was incredibly simple. Thus, USDT was born. Stablecoins currently primarily run on Ethereum, but the first version of USDT was actually on the Omni Layer. So, Tether actually launched USDT on Bitcoin, then known as Mastercoin, because Ethereum didn't exist at the time. The Ethereum ICO was in early 2015. That's how USDT was born. For the first few years, no one cared about USDT. In 2017, Binance and other exchanges emerged, but they didn't have bank accounts. So, they started using USDT as the dollar, and all crypto-token trading pairs were done in USDT. In 2018, the cryptocurrency market crashed. That's when USDT reached a $1 billion market cap for the first time. Fast forward to 2020, and USDT's market cap was around $4-6 billion at the beginning of that year, exceeding $40 billion by the end of the year. The reason for this tremendous growth, which continues to reach its current market capitalization of $163 billion, is the COVID-19 pandemic in early 2020. We are humbled and enthusiastic to understand that USDT usage has shifted from pure crypto trading to real-world applications. From 2017 to 2020, younger generations in developing countries in emerging markets saw cryptocurrency as a way to make money and speculate. Young people are the most willing to learn new technologies. Emerging markets have larger birthrates and therefore a larger population of young people. When COVID-19 hit in 2020, as always, emerging markets were more threatened. Even in the US and Europe, some people lost their jobs, which is fine. But in emerging markets, the situation is even more severe. Consider Argentina, Brazil, and Turkey; their currencies have depreciated even faster against the US dollar. The Argentine peso has depreciated by over 90% against the US dollar over the past decade, and the Turkish lira has depreciated by 80%. This situation has been accelerated by the COVID-19 pandemic, because if you're no longer producing or working, the situation is much worse. The craziest thing is that before 2020, many parents were used to going to the black market on the street to buy US dollars in cash. With the pandemic, going out became even more difficult, even more dangerous, because everyone was panicking about the virus. So kids told their parents not to go out. There was no need to go out and buy US dollars in cash, because I have US dollars in my smartphone. I learned how to use cryptocurrencies. Now you can have US dollars in your smartphone. If you look at the growth chart of USDT after March 2020, you'll see a huge upward curve. Tether didn't have a marketing team until 2022, but by 2022, Tether's market capitalization had already reached $80 billion. We tried to understand why all this was happening in 2020-2021, and we sent people to all these countries, all the poorest countries, to understand how USDT was being used. Sometimes you start a company, and it takes years before you understand why and how it happened. History of the U.S. Monetary System Cathie Wood: This is the beginning of a very big story. When I started talking to you about stablecoins, you compared it to another moment in history. So maybe you could give us a history lesson, Dr. Laffer. Laffer: Let's look back at 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. It defined what the dollar was: one dollar was one-twelfth of an ounce of gold and one ounce of silver. 2. The government minted coins, but many others did too. You brought in gold and silver ingots, and numerous mints across the country would mint them for you at the correct purity for a commission of around 3%. 3. Auditing each bank's balance sheet. This was crucial before the Federal Reserve. Back then, U.S. currency consisted of banknotes issued by individual banks, which published their balance sheets, profit and loss statements, and so on. This allowed people to know their leverage. These banknotes were sometimes sold at a slight discount or premium. This was a private banking system that existed for approximately 120 years, from 1790 to 1913. While there were bubbles and price increases and decreases, the price level was stable, and there was no inflation for 123 years. Then, in 1913, the Federal Reserve was established and began to take over private currency, establishing a monopoly. In 1933, it devalued the dollar from $20.67 to $35 per ounce. Then came the interest equalization tax, the voluntary foreign credit restraint program, the Smithsonian Agreement, and then we severed all ties to gold or anything backing the dollar. The dollar became a paper currency with no basis. That's where we are today. Look at inflation; prices have increased 32-fold from 1913 to today. In our 2015 podcast and paper, Woods and I argued that the existence of Bitcoin and the dramatic rise in gold prices were the result of private markets deciding they no longer wanted to hold government money. They were trying to replace it with other currencies. At the time, I said there was one thing missing from the monetary system. Gold is an asset, and many people have made a lot of money investing in it. But for it to be money, you have to have something to stabilize its value, so that we can use it as a contract to know what it will be worth in five, ten, or twenty years. This allows us to develop a capital market where we know the value of the unit of account that will exist. What Bitcoin lacks is anything to stabilize the value of this currency. What does the Bank of England do every morning, noon, and night? At the close of trading, they check whether the UK banking system is buying pounds with gold or buying gold with pounds, and then run their monetary operations based on this. For example, if people are exchanging gold for pounds, it means there aren't enough pounds in circulation, so they implement monetary policy and open market operations to increase the number of pounds in circulation to stabilize the value. If people are exchanging pounds for gold, it means there are too many pounds, so they sell gold in the market, withdrawing pounds and stabilizing the value. They do this for a long time. This is what is needed to bring Bitcoin or gold back into the private sector as a monetary system to replace government currencies. Stablecoins are exactly what we said was missing when we published our paper in 2015. Products like USDT and USDC seem to fill that missing link.

USDT Issuance and Redemption Mechanisms in Detail

Laffer: I'd like to know how you run your stablecoin business. What do you buy? How do you do it? Where does your initial funding come from? Do you intervene to stabilize it, like the Bank of England does?

Paolo Ardoino: Let's start with the mechanics. USDT is a digital dollar. If a company wants to apply to issue USDT from Tether, it first registers on Tether's main market. You can find it at tether.to. Registration involves a KYC/AML process. We want to make sure we know who we're talking to and the legitimacy of the company or individual. Once this process is established, the company is authorized to apply to issue USDT. This means they must wire, for example, $100,000 to a Tether bank account. Once Tether receives the wire, it asks for a blockchain address to which it will send $100,000 in USDT. This company will use these USDT for transactions or other purposes. At some point, they'll come back to Tether with the USDT. They'll say, "I want to redeem it." Now they send these USDT to the address Tether displays on the main market platform. They send the USDT, Tether receives the USDT, and then Tether sends the money back. Tether's Reserves: Laffer: What did Tether do with the $100,000 during this interim period of, let's say, six months? Paolo Ardoino: Tether invests its reserves in different assets. Historically, we have invested in a variety of assets. Before the end of 2021, the reserves were primarily invested in A1 and A2 rated commercial paper. We've never taken any risk and have never had any defaults. But in 2022, Tether committed to the community to begin moving the majority of its reserves into U.S. Treasuries. So today, Tether holds over $130 billion in U.S. Treasuries, mostly short-term, with maturities of less than 90 days. The average maturity is 81 days. Tether's reserves are 80% in cash and cash equivalents in the form of U.S. Treasury bonds, with gold and Bitcoin also forming part of its reserves. Tether holds over 90 tons of gold and over 100,000 bitcoins. The total reserves backing USDT exceed $6 billion in all USDT tokens in circulation, so it's essentially collateralized at a rate of 103% to 104%. Tether has been working to increase its holdings of U.S. Treasury bonds. Therefore, all newly issued USDT has essentially gone into U.S. Treasuries. Tether's holdings of U.S. Treasury bonds may be less than $100 billion at the beginning of 2025, but they are steadily increasing. Tether has pledged to continue purchasing U.S. Treasury bonds. According to recent statistics, Tether is now the 16th largest holder of U.S. Treasury bonds, exceeding South Korea, Germany, the UAE, Spain, and Australia. Tether was the fifth largest purchaser of U.S. Treasury bonds in 2024. USDT currently has 450 million users, with 30 million new users added each quarter in emerging and developing markets. Laffer: Why don't you create two separate stablecoins, one backed by gold and one backed by dollars? Why mix them together? Paolo Ardoino: Tether actually has a gold-backed stablecoin called Tether Gold, which currently has a market capitalization of $1.2 billion. We have reasons to hold some gold in our reserves. But in the long term, we will hold 100% in U.S. Treasuries. Tether Audits, Transparency, and Regulation Laffer: Are your financial statements public? Are you regulated by anyone? Are there any regulators who can inspect you? Paolo Ardoino: Tether publishes quarterly audit reports, which are independent audits conducted by BDO. BDO is a top-five auditing firm, and it provides independent confirmation of the reserves. They have direct contact with the institutions where Tether holds its reserves. Tether's Treasuries, by the way, are held at Cantor Fitzgerald. In early 2024, Cantor Fitzgerald Chairman Howard Lutnick (now the US Secretary of Commerce) stated very publicly on Bloomberg TV: "I saw the reserves. They have reserves. I spent a lot of time doing due diligence on their reserves." Despite this, we are conducting quarterly audits. This is published on the transparency page on the tether.to website. The previous US administration launched Operation Stranglehold 2.0, which made it difficult for the top Big Four accounting firms to participate in any cryptocurrency-related matters. Things are changing. The new administration is very supportive of cryptocurrencies, and of course, stablecoins. Now the Genius Act has been passed, which is a great move because it makes audits easier. Transparency is very important to us. Laffer: How is Tether regulated now? Paolo Ardoino: The US Genius Act has been passed, but the US Treasury still needs to provide detailed procedures. Tether is registered in El Salvador and is regulated under El Salvador's stablecoin regulatory regime. Before the Genius Act, virtually no jurisdictions, or almost no jurisdictions, had stablecoin regulatory regimes, though some had sandboxes. After the Genius Act, all other countries will begin copying it, potentially taking two years, until everyone is subject to roughly the same regulations. Tether is an 11-year-old company. Tether cooperates with over 250 law enforcement agencies in over 50 countries. The beauty of blockchain technology is that it makes everything incredibly transparent. Tether has partnered with many companies, including Chainalysis and TRM Labs, over the past decade to build these highly efficient and precise internal tools to track transactions. What happens to US dollar stablecoins in the face of dollar inflation? Laffer: Do you guarantee the value of your stablecoins? Paolo Ardoino: We have never had a redemption failure. Every dollar is always redeemable for one dollar, with a 10 basis point redemption fee. Laffer: The dollar is inflationary and a terrible currency. Is there a good mechanism for USDT to increase in value with inflation? Paolo Ardoino: I don't think inflation will ever go away, at least not in the short term. There are several solutions. One is a tokenized money market fund, but this is a bit tricky because it would become a security. It's difficult to tokenize a money market fund and then have 1.4 billion people in Africa use it. The SEC would take a very strong stance on this. There are two approaches to stablecoins. One is to share profits with holders, which some stablecoins are doing, but they again face risks with the SEC. The second is to retain the accumulated value starting with one dollar. The token will appreciate in value, and it won't be worth one dollar anymore. Some people have tried to do this, but the problem is the user experience is terrible. Unfortunately, people are used to thinking in dollars, and you have to constantly do math in your head. I thought there was a better way. We created this product called Alloy. Alloy essentially mints Alloy using Tether Gold, a gold-backed stablecoin, as collateral. You can go long gold, which technically means you're short the dollar. Decentralized lending platforms for cryptocurrencies use Bitcoin and Ethereum as collateral to lend dollars. We can do the same thing with gold by putting Tether Gold into a smart contract. You own that gold, lock it up, and borrow against it at 80% collateralization. This way you have a dollar-denominated value that you can use in your daily life, but you're still long gold. You mentioned that the dollar has actually depreciated by 99% since 1913. That's why we came up with a product that allows you to both go long gold and borrow digital dollars to counter this. Of course, if the value of the collateral drops, there's a risk of liquidation. Emerging markets love USDT. Laffer: I hear you describing two markets. One is the African market, where people are willing to use dollar-denominated stablecoins; the other is the developed world market, where we don't need the dollar. Paolo Ardoino: While the dollar isn't perfect, and it can't compare to Bitcoin or gold, it's good enough for people in places like Turkey, Argentina, Brazil, Africa, Nigeria, all of Africa, and Southeast Asia. If you're a father in a Turkish family, working from January to December, and ending the year poorer than you were at the beginning, I've spoken to many people in Turkey, even in the government, who are thrilled with USDT because their inflation rate was 50% last year and 70% the year before. That's why a digital dollar would still have a huge impact on these people. Bitcoin is better, gold is better, but even just owning dollars is an investment for them. If I remember correctly, the number of individuals using USDT as a savings account has peaked. But we're starting to see a shift, primarily driven by commodity traders. Commodity traders are realizing that stablecoins are the best way to trade commodities. If you have a ship somewhere in the Middle East, waiting to load some crude oil and waiting for a wire transfer to clear, using a stablecoin can significantly improve capital efficiency for these commodity trading firms. This is what we're seeing today. Tether announced in October or November 2024 that we would begin facilitating some of these transactions, and now there's tremendous demand for USDT from commodity traders. Why? Because if you have a stablecoin, you can potentially send it to somewhere in Africa, where you can use it to pay salaries, buy houses, or buy equipment. This is why all commodity traders prefer using USDT because on the sell side, typically in emerging markets, USDT is essentially king. Developed countries need new utility from stablecoins. Paolo Ardoino: USDT is the perfect product for all emerging markets. It will bring huge changes to them. For example, Nigeria's financial system is only 10% efficient, and stablecoins can bring it to 50%. The US financial system is 90% efficient, and stablecoins will only bring it to 95%. I've been very public and outspoken about the lack of need for dollar stablecoins in Europe and the US. In the US, perhaps only a small percentage of people are unbanked. Virtually everyone has a credit card, debit card, bank account, Cash App, and so on. So we need to create something different to bring new utility to users in developed countries. We're going to create a package, not just a product. But I don't want to spoil the story. Laffer: If you don't do this, you're going to be very competitive with other companies. Tether issues USDT, which pays no interest, while holding interest-paying Treasury bonds, which gives you a very large profit. Paolo Ardoino: I'm very proud of this because a few of us Italians made history by getting the world's most powerful government to sign a law. Tether earned approximately $13.7 billion in profits in 2024, and it's likely to exceed that figure in 2025. So, I understand why everyone is very interested in getting a piece of the action. The Genius Act certainly opens the door for essentially all banks and institutions to issue stablecoins. USDT is just a digital dollar. Woods: This raises the question: our banking system is a fractional reserve system. When dollars leave the banking system and enter stablecoins, they leave the banking system. Does this affect the velocity of U.S. money? What are the economic implications of the migration to stablecoins? You just asked whether competition will push the stablecoin world toward something more like a fractional reserve system? Paolo Ardoino: Stablecoins shouldn't be fractional reserves; they need full reserves to ensure stability. The first part of the word "stablecoin" is "stable," which means they'll remain stable no matter what happens. The cryptocurrency industry has experimented with algorithms to try to guarantee the stability of stablecoins, but the Terra/Luna incident in 2022 didn't end well. People should ask themselves why they use stablecoins. What are stablecoins? People sometimes tell me that Tether can freeze USDT or do something with it. Yes, Tether can. USDT is just a digital dollar, and it's subject to the same AML/KYC requirements that banks are subject to. So if you want an asset that's unstoppable and has no owner, it's Bitcoin. If you want a stablecoin, it means you want dollars, and you want some kind of guarantee that at any given time you can get the exact same amount of dollars back in the stablecoin. So it's really about the use case and utility of stablecoins. Stablecoins aren't like a versatile Swiss Army knife. Woods: When people ask me what the biggest surprise in crypto over the past 10 years has been, my answer is stablecoins. We weren't talking about it back then. I knew Tether existed, but we weren't talking about it, and I didn't understand it back then. Paolo Ardoino: If you'd asked me in 2014 or 2015 what USDT's market cap would be in 10 years, I would have been very bold and said $1 billion, because it was designed to facilitate arbitrage between exchanges. But I could never have predicted the explosive growth that would follow after 2020. We didn't have everything figured out from the start. The success of US dollar stablecoins lies in the dollar itself. Lorenzo: Essentially 99% of the stablecoin market is based on the dollar. Do you think there's room for local currency stablecoins like the yen stablecoin? In which markets might local currencies or local stablecoins make sense? Paolo Ardoino: A stablecoin's success outside its native currency is only as great as its success abroad. If you go outside the US and stop 10,000 people on the street and ask them if they'd rather hold their local currency or the dollar, 9,999 people will say they want the dollar. If you go outside Europe, say to Africa, and ask them if they prefer the euro or their local currency, many will ask, "What is the euro?" So, the success of US dollar stablecoins is because everyone knows what the dollar is; it's on everyone's mind. Everyone outside the United States was born trusting the dollar. The dollar is the best product the United States has ever created. That's why a dollar-denominated stablecoin works. You could certainly issue an Argentine peso stablecoin, and it might work, but people would still sell it for dollars. An Argentine peso stablecoin wouldn't add much utility.