90 billion in 9 years: Money printing machine Tether wants to build a large model

Author: Daniel Kuhn@Consensus Magazine; Compiled by: Qin Jin Carbon Chain Value

After a brilliant year that is expected to earn US$4.5 billion, the new The promoted Tether CEO is looking to diversify the company’s investments.

The "sensible view" of educated or influential elites in the cryptocurrency industry is that Tether, the manufacturer behind the world's largest stablecoin USDT, has been unfairly treated of defamation, but may ultimately fail. USDT is not only the most successful stablecoin (a blockchain-based asset designed to maintain a stable value), but it is arguably the most successful crypto product to date. USDT may not have the same market capitalization as BTC or ETH, the two largest free-floating cryptocurrencies, but it crushes them in trading volume. Therefore, if USDT collapses as some expect, it will fall badly.

People use Tether. It is used for trading, hedging, transfers, payments, bridging, exchange, valuation and accounting. In other words, Tether is like a currency. Used in the same way as US dollars. In fact, that's the whole point - Tether's creation of USDT brings dollars on-chain, and now they can be spent anytime, anywhere around the world because they're on an always-running and globally accessible blockchain.

What's all the fuss about? Ask so-called Tether truthers (i.e., those who believe the company is being maligned) and they will likely point to other uses for Tether. Tether is sometimes used for bribery, sanctions violations and money laundering. Some say Tether is also being used to prop up inflated valuations across the cryptocurrency market. Skeptics of Tether often just repeat various claims Tether has made since its inception in 2014 to show inconsistencies.

The narrative about how Tether anchors equivalents has changed over time — first to the U.S. dollar and now to U.S. dollar equivalents — prompting questions about why, Questioning of means and meaning. In many ways, Tether's business structure is simple: absorb funds and issue USDT. It operates no differently than a bank or money market fund in traditional financial markets. The biggest concern about the largest stablecoin maker is equally simple: Does it really hold the collateralized funds it should?

Paolo promotion

All these concerns and Tether’s huge The influence is now all handled by Paolo Ardoino, who was promoted to CEO of Tether this year. Ardorno is a company employee. For years, he has been the public face of the company, which has at times been criticized for a lack of communication and clear management. Prior to his promotion, Ardorno was the chief technology officer of Tether and its subsidiary cryptocurrency exchange Bitfinex (he is still the chief technology officer of Bitfinex). He has been with both companies since their inception, starting as a senior software developer.

There is compelling evidence that Aldorno is the hardest-working person in the cryptocurrency space. Check out his GitHub. His code contributions this year were 3,275 (for a full-time engineer, 2-3 per day is considered average), and in 2017, he had 37,720 commits. In addition to running Tether and writing the code for Bitfinex (which was at one time the largest exchange), Ardorno founded and serves as chief strategy officer of Holepunch, a peer-to-peer communications platform he conceived with friends five years ago.

He said in an interview, "I have no other hobbies except what I am doing." He mentioned martial arts training, which can make He doesn't have to log into the computer all day. "I really have no other hobbies."

Some people work to live, and some people live to work. Adorno belongs to the latter. Since being promoted to CEO this year, he has been working hard to abide by the rules, keep his hands and mind active, and keep writing code. Adorno leads a moonshot-like department within Tether, which has about 25-30 engineers and is responsible for developing and researching tools that he believes will one day make banks and the world a better place. The team has already produced something, namely Keet, a decentralized video calling application running on Holepunch.

"Becoming CEO of Tether is a process. We have been openly discussing this transition with the board and other management for several months. For some time , I have always considered myself to be more than just a developer," Adorno said in an emailed statement. "I enjoy managing teams, planning company and product strategies, and implementing them."

The department does not have an official name, but can be compared with some past corporate research parks Compare that to, say, the telecommunications subsidiary formerly known as Bell Labs (which housed many famous engineers and helped build the modern Internet) or Google's X innovation division. Only Ardorno envisioned his division not just as a profit-making unit, but also as one that benefited other businesses. The team looks at Bitcoin node infrastructure and artificial intelligence, as well as other technologies with commercialization potential.

"This is a carefully considered approach on our part," he said, mentioning that the company invests about 10% of its cash in research and development. While some of Aldorno's other business initiatives are almost "philanthropic" in nature, Tether expects its Bitcoin mining operations to "be profitable." We're trying to put ourselves in a position where we won't be able to do evil in the future because we're building technology that everyone can use, he said. He mentioned Google's now-famous slogan "Don't Be Evil."

Humble origins

Ardono came from northern Italy. A country town, he had piercing blue eyes reminiscent of Frank Sinatra. Specifically, he said, Genoa is the home of "pesto and focaccia." He fell in love with computers early on. He still remembers his first computer: an Olivetti 386 from around 1991, with 4MB of memory and a 3.5-inch floppy disk port. It runs MS-DOS system. He said, I remember my father telling me that this computer cost him several months of salary. He was told to use it with caution.

I was very excited and told all my friends in school. Aldorno said: I remember my math teacher listened to me and responded that computers were just a waste of money and time and would never be useful to people. He lives far away from his friends and likes to spend his afternoons on the computer. He was bored with existing applications like Microsoft Word and Paint. He taught himself to code so he could make his own games.

"I have no other hobbies except what I am doing"

He is an early Linux user. He drew inspiration from the work of Linus Torvalds, the founder of the open source operating system, who released the software for free online and invited people to try to improve it. This idea resonated with Aldorno because it was a game where everyone could win. He also read Richard Stallman's GNU Manifesto (which remains a foundational document of the free software movement) and Eric Raymond's Cathedral "The Cathedral and the Bazaar" (The Cathedral and the Bazaar), which believes that code should be bottom-up, open, and freely accessible (like a bazaar), rather than top-down and closed (like a cathedral). Asimov was his favorite author.

He said: From the outside, the market may look chaotic and noisy - not poetic at all, but if you are in it and look carefully, the market is Extremely efficient. You can take some away from the bazaar, he said, but the bazaar is still a bazaar, it is flexible and elastic, while the cathedral is the "monolith." Bitcoin, which came out a decade after Raymond wrote, is bazaar software.

Ardono stayed close to home while attending college at the University of Genoa. He studied computer science and applied mathematics. He joined some student groups, hoping to work in Linux, and became interested in distributed computing, parallel computing and peer-to-peer systems.

He said: BitTorrent is really precious to me. He remembers the launch of the software the same way he remembers the launch of many peer-to-peer applications. He can recall the specs of file-sharing software, from Gnutella to Napster, to BitTorrent, Kazaa and Limewire, like some people recall the king and queen of England.

Towards the end of his college career, he participated in a three-person research project to study "elastic networks", that is, people can perform even in the worst situations. comminicate. He loved the job but hated the pay. He said: As an Italian, your salary is not high. So I started looking for other opportunities.

He said that he studied finance and economics by himself. In 2011, he got his first job at a hedge fund, designing and calibrating trading systems. In 2013, he came to London, the regional financial center, to run his own start-up company, developing trading software products for hedge funds. According to LinkedIn information, the company is called Fincluster. He said: It's a small start-up but we're doing really well.

His team

Tether’s leadership is a A tight-knit team. Aldono met former plastic surgeon Giancarlo Devasini in London in 2014. Devasini, who is now Tether’s chief financial officer and had been running Bitfinex at the time, offered Aldorno a job. Stuart Hoegner, a Canadian known as @bitcoinlawyer on Twitter, has served as Bitfinex’s general counsel since 2014. Former CEO Jean-Louis van der Velde also worked at Bitfinex from the beginning and remains a Bitfinex advisor and CEO.

This is the team that is bringing Tether to market, although the idea for the project was originally conceived by entrepreneur, aspiring politician and former child actor Bullock- The Mastercoin team led by Brock Pierce was hatched under the name Realcoin. Pierce's founding team included William Quigley, Reeve Collins and Craig Sellars, who exited the project early on. In a sense, the original idea of ​​Tether was to provide a stopgap solution for the many companies in "Bitcoin 2.0" (as the cryptocurrency industry was called at the time) who were struggling to access banking services.

Tether is deposited into banks and provides users with private dollar equivalents. It initially committed to retaining a corresponding amount of fiat currency reserves to match the number of tokens in circulation. Many of its early banking relationships are thought to have been with banks in Taiwan that used Wells Fargo’s agency services (in 2017, Tether filed a lawsuit with Wells Fargo after the bank cut off its access). Tether was accused of falsifying invoices and contracts to obtain and maintain banking relationships, and New York regulators found the company would use accounts linked to its executives and "friends of Bitfinex."

Bitfinex is owned by Hong Kong-based Ifinex, while Tether is owned by Singapore-based DigiFinex. A Tether spokesperson clarified that these are different entities that share some common shareholders but operate independently. "This distinction is critical to transparently and accurately reflecting our corporate structure," the spokesperson said in an email.

"For us, this is true, we know that we are lucky," Ardono said in an interview. We are simple people and we make a lot of money in the company. It hasn't all been smooth sailing though.

Basically, Tether has been plagued by redemption issues since the project was founded. In a 2021 episode of Odd Lots, convicted fraudster Sam Bankman-Fried (who owned Alameda Research, a hedge fund that was known to be a major user of Tether at the time ) described the redemption process as straightforward, although there were occasional hiccups.

The company has struggled to maintain access to banks -- sometimes using Noble Bank, which is linked to Pierce, and sometimes using the Bank of Montreal, which is reportedly Hoegner’s bank), and a “shadow bank” called Crypto Capital Corp – although its current relationship with Deltec in the Bahamas has been going on for several years.

Ardorno said that one of the most stressful moments in his career came shortly after the collapse of the Terra/LUNA algorithmic stablecoin project founded by Do Kwon. At the time, hedge fund Fir Tree Capital Management was heavily shorting Tether, publicly betting that the company would fail. The collapse of Tether's decentralized rival UST triggered contagion elsewhere, with withdrawals surging.

Adorno said: I think we are in a good situation. The company processed approximately $7 billion worth of withdrawals within 48 hours, and more than $20 billion in withdrawals over the next 20 days, accounting for approximately 25% of the company's total holdings at the time. "It was a very interesting moment. I actually loved that moment," he mused. It forces us to prove to the world that we can indeed be relied upon.

Money to spend

Tether is available at least this year Money to spend. With a market capitalization of just under $90 billion, an all-time high, it is estimated that nearly $90 billion can be deposited in high-yielding bank accounts and invested prudently. Today, that means investing primarily in U.S. Treasury bonds, which are largely considered risk-free. But it also invests in slightly riskier asset classes such as repurchase agreements, money market funds and corporate bonds with higher expected returns. This year, the company invested more than 1% of its holdings directly in Bitcoin, a first for the company.

Tether once invested in commercial paper of Chinese companies, but later stopped.

Ardorno said: We have a little money to invest. In the first quarter of this year, Tether reported a net profit of $700 million in a voluntary certification. Second quarter: $850 million. Q3: Over $1 billion. Ardorno said that as interest rates rise, the stablecoin business has never been more profitable.

As the largest stable currency, Tether’s status has never been replaced. However, this time last year, tether was losing market dominance compared to competitors like Circle’s USDC, Binance’s BUSD, and MakerDAO’s DAI (although tether has never been as dominant in the DeFi market as DAI is) status). This is partly due to regulatory pushback and a controversial reputation.

In 2021, the New York Attorney General found that Tether did not consistently and "honestly" disclose its reserve assets. Tether paid a fine of $18.5 million for this. That same year, the U.S. Commodity Futures Trading Commission made the same accusations and fined the company $41 million for misrepresenting its support and bank accounts.

In October this year, Tether said it had $3.2 billion in excess reserves - enough to satisfy every customer when Tether withdraws every dollar from the platform. The amount that must be paid.

Tether also charges a handling fee of $1,000 per withdrawal (minimum $100,000). Ardono said he is actively involved in projects that determine how the company allocates its reserves and invests them.

Investing in infrastructure

Under Ardorno’s leadership Next, Tether positions itself as an infrastructure provider. The company has made significant investments in Bitcoin mining, the construction of hydroelectric facilities in Uruguay and the construction of geothermal facilities in El Salvador, which are designed to provide power for Bitcoin mining.

He said that his "Skunkworks" team is developing a Bitcoin node communication channel using the P2P protocol Keet, which will help "coordinate and manage miners , containers and energy production”. The system is called Moria (an allusion to The Lord of the Rings, Adorno is a fan), and its positioning is a combination of Bitcoin mining and the “Internet of Things.”

"If you think about the mining aspect, that's an interesting aspect because you have tens of thousands of miners and hundreds of thousands of sensors -- temperature Sensors, oil temperature sensors, wind sensors, light sensors. Everything is a sensor. And the containers. They all generate data and contribute to the stability of the system," he said.

Although Aldono doesn’t have time to micromanage the team, he is still hands-on when it comes to research and development. He said he wrote the first version of Moria himself. "I think it's important to show people what you want rather than tell them. I like to be on the front line. I like to guide and show my experience," he said.

Obviously, he also has many ideas about how to apply this communication technology. Ardono discussed the assumptions behind building alternatives to chat apps like Telegram and WhatsApp. Keet can cost-effectively meet the infrastructure and scalability needs of these companies, he said. "The cost per Telegram user per year is about 90 cents," he said, doing a rough calculation of server costs.

He said, "Even if Keet has 1 billion users...BitTorrent has proven this. Keet with hundreds of millions of users will not generate any cost." It's peer-to-peer. Keet doesn't bring in revenue yet. But Ardorno seems willing to bear the cost for now, saying that only 20 people are currently working on the software, which means the annual cost is around $4 million, at least for Tether.

Tether AI

In fact, the server is probably Ardorno is considering the issue because Tether recently invested in EU data company Northern Data. Northern Data is a company with a bad reputation in the Bitcoin mining world. When we asked about this, Aldono smiled and said: "We are the most criticized company in the world, who am I to make irresponsible remarks?"

Ardorno said the decision was also driven by genuine business considerations, including Northern's deal with Nvidia, which puts it on track to become the largest provider of artificial intelligence infrastructure in Europe "if Google, Amazon and Microsoft are removed. business".

He said that Northern Data will provide services to every European company. Every car manufacturer in Europe is trying to compete with Tesla, every shipping company in Europe is trying to optimize routes, etc. Everyone is begging for AI infrastructure.

Tether also has a small department with less than 5 employees that is researching artificial intelligence to see if there are applications that would be useful to the company and if it can be built Its own cost-effective large-scale language model, known as LLM (the technology behind contemporary artificial intelligence). Ardorno said that Bitfinex and Tether have employees in 60 different countries, and he is particularly interested in whether artificial intelligence can help meet the company's translation needs.

Ardorno said: We are just starting this process... We want to really understand it before we scale it up. Of course, AI infrastructure is very expensive to operate, and even a company like Tether, which is on track to earn more than $4 billion this year, may quickly find itself struggling to survive (or raising funds from Microsoft).

Ardoino is a fan of Azimov, known for his utopian visions of artificial intelligence, which he says has the potential to cause " The greatest social turmoil faced by mankind since the Industrial Revolution."

It could enrich a few businesses at the expense of the many, undermine privacy as a human right and lead to mass layoffs.

Although Aldono was critical of the Italian way of life, he still retained some European humanist ideas. He said Tether would not lay off employees just because "artificial intelligence improves work efficiency." He said that everyone has a family and "finances are not the only important thing."

Stop soon?

Ardorno has only been at the helm of the company for a few months, and he doesn't seem to be planning to stop anytime soon. However, Tether faces greater regulatory headwinds than most cryptocurrency companies, so this may not be an option for him. Several sitting U.S. senators have singled out the company as a potential threat to national security. The U.S. Treasury Department has signaled it is also eyeing the business.

Of course, this is nothing new. Tether has experienced regulatory scrutiny before, but only received two slaps. Of course, the company was smaller at the time, but had more baggage to deal with. Tether did lie to the public when it promised to hold all reserves in U.S. dollars, but now it does not. And if it was once operating on a fractional reserve basis (i.e., reserves are less than deposits), it probably no longer is.

Ardono did not respond to questions about potential regulatory action or whether the company still intends to complete the audit.

"I don't plan to stop working today. Throughout my life, I have always loved technology and science. I saw what I could do on my own, and Seeing the wonderful projects completed with the team. Even in the challenging moments, I wake up with joy. I feel blessed that I have this opportunity. It allows me to plan and build many ideas that I have only dreamed of. Also There is a lot to do," Ardono wrote in an email.

Whether Tether is halted due to market risks or global regulators, one thing is clear. Ardono may well be in need of a break after nearly a decade without a proper break.

"I have never been to Japan. Japan is the country that created the first consoles and video games. They have an amazing culture. I think Exploring and experiencing other cultures is one of life's most enriching opportunities," he said.