'Is Tether's USDT Safe?' - Paolo Ardoino. Ep. 545

Transcript

the HCK was one of the the pivotal moments of bit Phenix that was incredible I think by by in s months I think by by April 2017 all the outstanding bfx tokens were either you know converted redeemed or or converted in in in equity the really simple idea around T was okay let's reuse the incredible technology that Bitcoin created called blockchain let's just put the US dollar because it's the most used currency in the world I always say that before 2022 we never had even a marketing team for tedar so tedar usdt has

becoming really important for hundreds of millions of people across the board especially in emerging markets and developing countries welcome to EP Center the show which talks about the technology projects and people driving decentralization and the blockchain revolution I'm Brian Crane and I'm today here with frederique Ernst today we're speaking with Paulo ardoo who is the CEO and co-founder of tedar and CTO of bitfinex and also working on another new thing called hole punch which we'll talk about so of course some enormously influential projects in the crypto space most important most of this T so really excited to get to get into this just before we talk with po a few words from our sponsors this episode is brought to you

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in crypto and what triggered your imagination so 2024 is my 10th year in business in crypto you know I discovered Bitcoin in 2013 so I've been a developer all my life now I'm focusing more on business and um strategy but uh I was born as a developer since I was 8 years old I was coding you know I was living in a really small town outside of the city and um didn't have many friends around so you know I I spent almost all of my afternoons with a computer so fast forward went to the university in genua in Italy and studied math applied to

computer science um and um my I'm also a big sci-fi fan so my dream and my interest in technology was all about building things building technological solutions that would be resisting to apocalypse right so you know in the how sci-fi you there are always problems for the word you know things getting for uh going for the worst you have either Wars or you have aliens or you have to abandon the Earth and go somewhere else and so on so that that's that thing in in always uh was sticking to my mind on how you know whatever we do whatever we build should

not be built for the best case scenario but should be built for the worst case scenary and so you know I I started as soon as I graduated with from the University I got one of the most interesting jobs uh ever as a researcher in at the University so I was building resilient uh telecommunication systems for distressed situations like battlefields and um you know that taught me how to be you can build um really resilient networks that are you know really critical and crucial in certain moments then as most of the time happens in Italy you don't pay you don't get paid too much um so you know the that's the unfortunately situation of um of

Italy so I decided to move to a field that I I thought was more rewarding at least in economical pay that was Finance so I got my first job in finance in uh in actually in Switzerland and then I decided to move in L to London to open my startup to build the financial software so in 2012 I opened the startup and in 2013 I I was uh already really annoyed by the outdated technology that the financial system was relying on if you haven't worked with banks or hedge funds and so you know that every time they trade anytime a Trader trades for an institution for a hedge fund at the

end of the day you have to reconcile all the positions all the trades all the cash balances across multiple trading Vues across multiple Banks and custodians and all that is speaking tens of different protocols is kept together by Rubber and Bs is all really outdated feels like it's all still written in Cobble 40 years ago so in 2013 I got the chance to learn about Bitcoin and um the first thing that I thought about Bitcoin was okay this is really cool this is uh not not just I didn't get immediately honestly the humanitarian and social implications but I got the technology

aspect and I thought that Bitcoin could be um the solution for the financial board in terms of having a common settlement Network across all the institutions across all the governments the beautiful thing about Bitcoin as a blockchain is that you can everyone had that has a sync node sees the same thing right so you you cannot have errors in reconciliation and so on so it's beautiful prevents double spending and and and so on so I was really excited about it and then at the end of 2013 I thought really I was really deep in the rabbit hole and so I started understanding more how Bitcoin is actually Game Changer as a currency for

and its social impact could be incredible so long story short in 2014 I got the chance of um of working for bitfinex so bitfinex was one of the first trading platforms was really one of probably the only and the first trading platform that at the time was offering margin trading on bitcoin and so the CFO jasini of bit fin contacted me through common friend and we he asked my uh help in in making sure that bitfinex could scale with a demand right 2014 is not 2024 of course we are seeing today that the huge demand of of Bitcoin um you

know brought by by ETFs and so on but in 2014 still there was uh an increasing demand for uh for for accessing Bitcoin trading and so most of the exchanges in 2014 where built by amateur is not the right term is is is not about you know being but we're more mostly almost e-commerce is for Bitcoin rather than high performance trading platforms today we are used to have super low latency high frequency trading and so on but back in time was kind of different so I brought my expertise in in building in building the you know the bitfinex platform um and setting up a team in 2016 I became the CTO B phex and uh in

2017 I became the C CTO of also tedar and then uh from there I started working also on the stable coin side um for teder and um more recently I started to care more about um long-term strategy uh vision and uh growth of the teams and execution of um the strategy for for T while still I'm am the CTO for bit so I take care of the Tech platform and all the trading tools built around bitfinex so this is just me in5 minutes probably more but yeah no no thank you so much for uh for that I'm curious like going a little bit into sort of the story of

bitfix what do you think it was that helped bitfix um succeed and and actually there's maybe one episode I'd really be curious to if he go to talk but I think some people will still remember it right cuz once you guys had this massive hack and then you had this very interesting way of like dealing with the hack that I think ended up working out really well but I'd also love if you could sort of talk through that episode and what happened then I think that's right I think the hack was one of the the pivotal moments of bit Phoenix uh remember that um the word was coming well the Bitcoin word was coming

from um a big Hack That was the mono hack right so at that time when bitk phix was hacked it was uh personally a devastating moment uh also for of course for the company for for our customers but look we had two choices either let it go and let uh bit Phoenix potentially die or we could roll up our sleeves and make sure that our customers would get whole right so at the time when bit bitex was haed was um the 2nd of August 20 16 uh Bitcoin was around

$600 so the total loss of um of bitfinex was around $72 million around 119,000 Bitcoin so we decided so I remember those days really well because after the first day or so of assessment of what happened how it could have happened so on we uh decided to come up with a plan to resume trading and make everyone hold the way that um we used was um actually new and um I think was um extremely intelligent and U Forward Thinking so um we dollarized the $72 million and we issued um the the so-called bfx tokens

and we distributed the the bfx tokens across um proat across the the users and so also we open a market for these bfx tokens so that people could um trade their um their um basically these IUS the interesting thing is that these tokens had multiple functions right so people could take these tokens and convert them into Equity if they believe that bitfinex would be successful in long term they could trade them on the market um so sell them for example and they could would uh also wait for the Redemption so we uh committed to redeeming those tokens at $1 uh face value with the revenues of the

exchange so as soon as the market started so after one week so it took one week to bring back the platform up and running I remember that probably slpt two hours in a week uh I was completely destroyed after after 7 days but you know we we had to make it we had to put every every everything we had to to to start trading again because if you wait too much you don't have you know people will will just disappear will go away and uh you know there is no chance of success anymore so we knew that we had to restart trading within one week so when as soon as we started trading the bfx token people started selling their bfx tokens and the price went from one to 20 cents you know that they thought

well these guys will never make it but after the first days we had the first days we had a huge outflow of of Bitcoin from the platform you know customers of course were withdrawing in panic but um after a few days after 10 days 15 days we were back the first exchange by trading volume so at the end of June at the end of August we were the first again the biggest exchange by trading volume and so by the end of September we redeemed the first bfx tokens so people were were were like oie C These Guys these guys are making money they are buying back the tokens and so the price on the secondary market for this cbfx token started to go up and so

then October came November came we we we kept making more money because also that coincided with the bullan right the start at Bull Run by the end of 2016 going to 2017 that was one of the most incredible years for for Bitcoin and the crypto system so we were making really good profits buying back the bfx tokens so more and more people start to convert their bfx tokens into Equity so that's how basically we got almost 300 shareholders for for for iphix and um that was incredible I think by by in seven months I think by by April 2017 all the outstanding bfx tokens were either you know converted redeemed or or

converted in in in equity so it's I really like and love to think about the that part of the story because I think that in in these moments of weakness is how you really assess the team and I must say that no one in our team left the company everyone was focused on make sure that the platform would be profitable to make everyone B yeah to this day it's one of the biggest comebacks uh in in crypto history and I also really appreciated um the story of the bfx token and how kind of you use cryptoeconomics to kind of to make it well for you guys so yeah uh tipping my head uh to you guys so you you talked about uh kind of you know

switching out the financial raids and kind of settling things on blockchain because it makes sense and I concur 100% so kind of we have recently started building um Financial um infrastructure that kind of crosses the chasm from uh blockchain to uh Legacy Finance um with nosis pay and other such Integrations and I was absolutely flabbergasted at the stack that kind of like the financial world runs on it it's unbelievable so you guys in that vein you guys started um a decentralized Exchange in 2017 back when these were kind of um still fairly marginal so um it was eth finex and it

later rebranded to diversify and then now rify how do you juggle this so basically in in terms of trust lessness and so on obviously having um a DEX is preferable to having a calized Exchange in some sense because kind of like everything is transparent kind of the spirit is there so how do you see the coexistence of both of these bran branches so I think that the beauty of of bitfinex and this group that is always you know there is this meme of being in for for the tech right so then you know you have people with big uh gold chains and and so but we have been always really in in this field for for the tech right we always try to push the

boundaries of of tech even when uh dexes were not a thing we thought how we could make sure that people if people are not comfortable leaving their tokens and their money on the exchanges how we can make the The Experience their user experience great in a sense that centralized exchanges have the advant percentage of being extremely fast in execution because the think about the fact that now the average latency of an order on bitfix is around um in the internal system is around 10 microc between 10 and 20 micros seconds right so that's how you

scale you can handle any sort of volume the and so and you can only do that through uh a centralized platform because even the fastest blockchains like Sana they have a time of our under milliseconds so that is incredibly incredibly longer is like an eternity compared to the latency that you have in a ciz system but you know the problem there is just something in physics called the speed of light right the information goes at to the speed of light and so you cannot move information if you have multiple nodes that have to concur to the same information they have to agree they have to exchange information that speed is the speed of light and uh so as fast as it can be if you have to have

to different uh do different round trips around the world because you one node could be Tokyo One could be Switzerland the other one could be in the US then you know you get to 400 500 milliseconds of a minimum time that is needed for a blockchain and so for Dex to in terms of latency now so the way we approach this is what are the pros and cons of a DEX compared to a centralized exchange and for us the most important part was the having the ability of keeping it your own custody while trading so being able to uh trade as fast as fast as you can with the normal uh centralized user experience but at the same time keeping

control over your customy I think that is the Holy Grail of uh of Finance if I have to think it through of course the the other important part is uh the transparency right so you want to make sure that people don't front new and so on but I think that the transparency can be on one side of course on the daxes you have transparency but you have a normous latency so you can also we there were also cases in which people were front run um because uh you know they you looking at the men pool looking at um you know the you know have even the um the the validators for example C can front run people because they receive

transaction a little bit shoter so there are also problems like that in in Dex right so to me the holy grail and the big advantage of a Dax is the ability of of letting people control their own funds so that's why we started FX in that way as of today I think you know the there is another um or there was another interesting kind of advantage of um daxes versus centralized exchanges that is privacy or anonymity if if you want if you will right so with taxes you usually log in you with your metamask and so you know or whatever other wallet you have and then you you can start

trading immediately you don't have to go through kyc ML and so on but uh my opinion as of today seen also MAA and the other regulations that part that advantage of daxes will come to an end I think is you know Regulators make it made it abundantly clear that if you trade against uh someone else and that someone else is uh a person that is sanctioned the fact that you are using a DEX is not going to save you or create a justification for you so basically what will end up in my opinion from what I gather being the only advantage of daxis that is still a great Advantage is the

ability of keeping your own custody of the funds and not being subject to potential exchange hacks so we'll see the future is um will will tell us who you know how thing these things will develop I wanted to I wanted to ask another question that sort of relate in a bit to the sort of bitfinex Journey but also like more generally it's your journey like as an entrepreneur I mean you mentioned sort of like how the team sort of made it through all of that and and like you mentioned also like how you you have to focus on Tech I'm curious like how do you think about you know building an organization and like company culture

and like what are sort of the main learnings you've had in that regard so far between bit Fenix and teder we had a really really really low number of uh defections I think in I don't know in in in 10 years we could count it less than you know two 3% people stick here um I think the reason is the culture the culture is um really about openness um kind kindness We There is a first rule that we have so myself and um and a couple other people in the in the chief positions we do every single final

interview right so we still do all the final interviews although we are growing the number one rule is never hire don't hire a toxic person so you sometimes have amazing talent but behaviorally could be challenging for the team right you don't if you hire the wrong person that person will affect 10 time 10 people around them right so the ability you sometimes you know and as I said I've been a developer sometimes you see developers that get all cocky because you know they are right and everyone else is wrong or because they have you know the they they are all the

only ones that uh that have the truth on how things should be architect right and so we are really careful in in hiring people that understand the value of collaboration within the teams and that's something that uh so far over time allowed bit to remain uh one of the top Platforms in the crypto um ecosystem while having probably on10th to 1 fifth of the um the head count of of other platforms so that's that's something about uh you know creating and healthy team healthy UH responsibilities and chain of responsibilities people really committed to the success of the company

and um so I I think you know the the biggest um takeaway from from my career is focus on the team focus on the people and you will have success no I really appreciate you Shing that let's talk about teder like how how did teder get started teder started in 2014 as um really simple product a simple idea in 2014 there were just few exchanges right you could count you know the exchange the cryptocurrency exchanges on the on the uh fingers of of two hands there was bitfinex of course bitstamp Kraken coinbase there was OK coin and

btcc not not many others at least not many relevant others and so there was um in at the end of 2013 was also the first moment in history that Bitcoin broke $1,000 price and uh across multiple trading venues right so you had maybe 1 Point $2,000 at any point in time there was a huge Spread spread across exchanges up to 20% right so some exchang were at 1.2k others were at 9950 others were at 1,000 the reason is that by then the work of um the arbitragers was not possible the

arbitragers are those kind of traders that sell Bitcoin where on the exchange where the price is higher they sell it for dollars they take the dollars they move the dollars on the exchange where the price is lower they use these dollars to buy Bitcoin and then send the Bitcoin on the exchange where the price is higher and so on and so forth they do it in the loop so that this the the spread across these exchanges will go down and they all get aligned in order to do this you have to you need to be able to move Bitcoin from One exch exchange to other but also you need to be able to move dollars from One exchange to another but um moving do moving Bitcoin takes 10 minutes right deep average block down

Bitcoin is the minutes but moving dollars is extremely more difficult sometimes you know International wires might take one days two days three days seven days and there there is the weekend so your trading opportunity your Arbitrage opportunity is long gone if you wait so much so the really simple idea around tatter was okay let's reuse the incredible technology that Bitcoin created called blockchain let's just put the us doar because it's the most used currency in the world simple as that back back in in at that time you know there was no etherum yet so the way to do it the only platform that allowed

that was called only layer that is a color coin system um that is based on bitcoin so T was born on Omni layer fast for many years and you know tar started as a simple project to allow our to make more efficient crypto trading but in 209 2020 with the pandemic something changed you know with the economies of the world especially in Emerging Market to developing countries they they started to have big issues where in Argentina turkey Vietnam Venezuela so many others you know all these naal currencies are re devaluating against the dollar really really quickly

in some cases I think the Argentina pesos lost 98% against the US dollar in five years and uh more than 80% was lost by the Turkish leader so all the people people living in those countries where you know the these people need needed solution needed a way out needed a way to save their wealth right who is not about speculation here is about a of a family that works the entire year to earn for example Turkish leas at the end of the year is poorer compared to the beginning of the year just because its naal his National currency went down the bean and so people have a survival Instinct and so they started to look at

Solutions and usdt was already the most used solution uh that uh that could help them so USD became basically this uh this this currency that the world started to use and to um to build on all the in all the merging markets now if you go in Argentina and Buenos Iris you have find ton of places where you can you can pay USD same happens in Venezuela in so many other countries and I must say we didn't Envision that we didn't think about it when we created tatter was really a simple idea and so we are humbled by the success of of usdt I always say that before 2022 we never

had even a marketing team for T and so you know people start to using our product in the way they sold more fit and in the way that was more helpful to them so that that is really exciting can you give us an idea of how it's used today so kind of in in percentage kind of like what what percentage is kind of like what I would call normi use so kind of like the the Turkish father or the Argentinian family mother who kind of keeps uh their salary in tether in order to spend it as efficiently a couple of months later so it it's really just to say it's really hard to pinpoint the exact

figures because you know the we are living in a decentralized world and so information is scattered but um as of today I think that at least 50% of of the tar in circulation the usdt in culations in circulation are kept as a savings and not necessarily used for trading so that is a great achievement because I think it change it it happened in in four years right in four years people had this uh incredible bad situation of suffering Financial suffering and I always say um that um we are kind of in a weird Weir weird

situation at T because we we see that if we have more success means that the world is going towards a worse place right because you know the that's the the reason for all these countries to look at the dollar is because something is not working their own country and the easiest way to have access to the dollar is usdt so in one way someone could see it of course is a success for a company but is is um is sing to see that you know to understand that success is also determined by imparting competency uh from from um you know financial management for of many countries and uh non you know um the

inability to preserve preserve wealth from government in these countries that led people to fly towards a more a safer currency you've moved um stack or you have kind of added Stacks over um the last couple of years so as you said kind of you guys started out on Omni um and then you added ethereum and now B see uh usct is natively issued on a number of networks how do you determine which chains to um to issue natively on so basic basically if you if you look at payments on chain tether on Tron is kind of where it's at at the moment so H H how how how do you kind of see these movements how do they happen um do you

plan them uh yeah so when we listen to communities and every time we deploy USD on the Chain we do enormous amount of deligence that goes from the security of of the blockchain so how is you know the um the Technologies built to the interest of a real community and the actual ecosystem around such blockchain right is pointless to list to add usct to a chain that doesn't have users or interest because then you know we we expose ourselves to risks while not you know getting any benefit in terms of adoption so the interesting

and I get this question a lot the interesting thing about Tron is that you know we launched first etherum well first there was a Tet Omni then um there was USD was launched on ethereum and then was launched on on Tron people choose whatever they want right so people choose the transport layer of USD they want we just to be clear we are centralized stable coin so all our features and capabilities are shared across the different blockchains for example we can freeze assets it's it's public right we can freeze wallets working for working with law enforcement that is something that applies to all the different blockchains and so people just choose the transport layers so the

blockchain for usdt that is more fitting to them and 99% of of the people people would always choose something that is faster and something that is cheaper let's think about how what I said before so tedar usdt has becoming really important for hundreds of millions of people across the board especially in the mergin markets in developing countries you know we we don't support us customers and I don't think Europeans need stable coin c that is that is my take so the vast majority of tedar users is all in emerging markets in developing countries countries that we as we said they you

know their National currencies losing really quickly against the dollar and where you know one every dollar or transaction fee is extremely important we have we have seen after 2018 2017 how many times the ethereum gas fees they grew through you know from uh $2 to $50 to $100 and every time there is some excitement the gas fees goes go crazy high and so Tron had really low cast fees for for a long time right Tron had this um is more centralized as this system of validators and for a long time had um you know proof of stake compared to proof of work

ethereum moved from proof of work to proof of stake more recently so you know the thron was a simplified approach to evm that was extremely effectful because you know all these in think about Africa and South America and Central America certain countries of Asia you know even 50 cents of transaction fees are really high right so maybe they earn $50 to $200 in a month and if they have to spend $5 every time they send a transaction that is not a product for them the interesting is sometimes you know the the Ethereal Community criticize uh us a little bit because you know the Tron is still heavily used the

reality uh is that ethereum had to for ethereum took four years to be to come up with layer two solutions that would bring down the the fees to a varable uh value right for the vast majority of the users of blockchain and so for if you give to a competitor that would be TR in this case four years of first mover advantage of course it's really hard to take it back espe especially when also all these layer Sol two solutions built on ethereum are completely are anyway competing with each other as well it's like you know the Simpson meme where you know with the Scots where basically um in the end everyone ate each other and the the the

reality is that we um we are seeing you know we we think that is is really important for usct to be more Diversified on different blockchains is important that although these blockchains will start to grow an ecosystem will keep transaction fees low and will keep the transaction Speed high in order to fulfill the interest and the need of um of Emerging Markets populations um TR transaction fees um have moved up significantly though right so we see uh trc20 transfer Curren is around a $150 so it's it should be impacting the people that are served

best by by tether yes exactly and that's why we are seeing um opportunities on launching Lether chains recently we launched on Soo um well two days ago we launched on Soo that has lower transaction fees is BM compatible and um we are also looking at polygon and other uh layer tools what I'm saying is that now that hundreds well actually tens of thousands of integrators like Merchants Payment Solutions have adoped Tron is really hard for the layer two solutions on ethereum to compete right you they had four years of first mover Advantage so you started you started

kind of right focusing on this Arbitrage use case and now there's you know kind of tedor has like branched out and there's a lot of this you know payments use cases or people using it as a store of value I heard in some interview you you talked about uh tedar as a sort of over collateralized bank account I'm curious if you think of like the long-term vision for teder like where do you see it going so T evolved a lot I mean we we wear the black sheep of of crypto maybe we still are and I'm not realizing it but um we were the the the

black sheep of crypto for a long time um you know I think the the mistake we made uh is that we we thought that uh keeping your head down and you know not being not entering not entering in public disputes and not being you know uh present on Twitter and so on would um would work for us um you know is like okay if I if I keep my head down and do a good job people will be okay with me we will be happy and we realize that we are good people and then you know that that didn't work well and you know we started to understand that people needed um heavy quantities of transparency and

I think you know it's is rightful to to ask for that and um so we changed I think heavily in the last years the amount of information that we publish the way we managed our services much more public we came up we were the first ones to to to come up with an attestation with a breakdown of the reserve showing how much we have in different things we were subject to many critics that we took well and we applied to the company so that we could improve all our serves you know I'm sure you remember the commercial paper part you know although there were a lot of nonsense like we had ever Grande and you know all the Chinese papers and so on

that was uh really stupid but anyway um we we proved that we could convert everything or almost everything in US T bills as of today so the community was asking us to do changes and we always listen to the community we made these changes um as of today I think we have well as the 31st of December 2023 we had 80.3 billion doll C us treasury bills that would put us at the 20th as the 20th country in the world as own owners of us de and um when it comes I think to the three months treasury bills owners we are the third one as in terms of the

Holdings so our the majority of our T BS are all short terms like within 90 days and so now nowadays in the last attestation we published um other numbers like we have we had 5.2 billion on top of the the 100% reserves that are covering all the issued usdt tokens so means meaning that we had T is making good money right in a quarter we made almost $3 billion dollar and um we could have dividend any other company any other normal company imagine a bank that would make $3 billion in profits oh my God they would distribute these profits left and right to all the shareholders

up to the last scent but um no with tedar we decided to keep the vast major aity of these profits within the company up to 5.2 billion as the last quarter so that r t end up in being 5.2 billion over collateralized so of course banks are upset because you know banks are landing out 90% of their portfolio and their balance sheet and uh ter instead is doing the opposite is actually acre more money and keeping it to show that um you can build something that's is safe you can build Financial tool that is uh that is safe and doesn't need to lend out people's money and so that's um

that's what I uh what I like about t right dis ability of of revolutionizing how you know some certain things in finance are not so um the yield on uh US Treasury builds has gone up enormously over the last year so have you ever thought about kind of um making usct in some form yield bearing and letting people who actually use it and hold it participate in that windfall so that is really interesting one right so I get this a lot as well the reason why there are two different reasons why we cannot do it and doesn't

make sense for us to do it is the first one is that if you start uh giving out interest and sharing interest that becomes a financial product that then becomes a security so that's something that is I don't think is is is a good approach so I think that many of the products that uh are the stable coins that are trying to do a stable coin that provides an interest are going to end up in having some issues with the with the US regulators and other Regulators but also you know I'm um I consider myself a scientific person and uh when I create a product I always

think how for whom this product is created for and who should who is going to use this product if you live in Argentina where the intraday volatility of the the um the Argentina PES is higher than four to 5% does it really matter that at the end of the year you get 4% and on the other side if we get that 4% we can create a really incredible stable product that can that is helping hundreds of millions of people so that's why I think you know if you are in the US you have already the best banking rails you have already the US dollar so if you put money in a stable coin you

expect to receive an interest right because that's a concept of a saving account and a checking account on a saving account you want to have an interest but everywhere else outside the UN for all the people outside the UN the interest is in especially the ones living in the merchant markets and developing countries that are the actual users of a stable coin then that 4% is not really meaningful because what they care about is to have something that protect themselves from a much worse situation so I I totally understand uh that reasoning of course one thing that did happen a few years ago that sort of

like along these lines right is that a lot of the usage of tther of usdt was that people hold it on exchanges right the trade and and then I think you know binance created their BD and you know I think it was because they say like well all these people holding you know USD there and of course the sort of profits of that um you recuit with tedar and they were like okay let's if we can Swap this out with our own stable coin right we can we can capture that so I'm curious do you think that might be a path for basically usdt would incentivize like some of these large platforms where massive amounts of uh usdt get held or do you see that as a

sort of competitive threat well I know that some our our biggest competitors are kind of doing that right so you know I know that uh from um that some more comp iors are paying big institutions and exchanges to hold their stable com again to me and uh to you know many legal teams that we talk to that ends up in you are giving interest to someone else hence can become or can be considered security so the point is that teor today is a $12 billion do in Market cup Maybe will go down maybe someone

else will create a better solution but we are not look again we are he for the attack we are ke for the Innovation if we become the second biggest stable coin or third biggest stable coin as long as it's safe as long as it follows our ethos that's fine we are happy with it right so we don't we don't have to be forever the first we need what we like is to leave a sign in terms of innovation a utility and how with our technology with our passion we can we can change the world and if someone will create something better that's fine but I believe that creating trying to you know be com to compete and trying to reduce the

security also in this case from a the legal side right so if you if you start doing more and more things if you can if you keep adding flavors to the stable coin and you start doing this and that because you are scared to become the second or the third or losing Market cup or losing market share look I mean that's not us right so we we believe that the simpler it it is the safer it is so if you start adding all these nuances eventually you will fall in an issue and that could endanger the stable coin so again teder has more than 300 million users across the the world and so the only thing we do care about is that is safe

your main um USD sa coin competitors usdc um H how how do you see the differences between usct and USC well they are focusing mostly and historically they have been focusing a lot on the US to me and and in Europe now to me is um if you look at the US and if you look at Europe or Switzerland everyone has two credit cards in or debit cards in their pocket ET have cash have two bank accounts you know there is no need to me I always describe like trying to sell an ice cream to an eses right so there is no point when you

create a product again you have to create it for for for the people that really need it you know and those are the ones that don't have access to a bank account the there are billions of people in the world they don't have access to a bank account there are billions of people that that are they are not bad people there are really good people they are nice people but they are not really interesting for the banking system because for the banking system if you are not profitable enough as a human being they will you will not not be on board right if you not put in all your salary and if your salary is not enough is not big enough to justify you know their outdated you know Financial uh

infrastructure then they will never accept you as a customer for all those people there is USD we were clear you know when we saw the pandemic and all these Emerging Markets issues happening we were clear that is our crowd that is the people we want to serve we see our competitors always trying to play the game of Wall Street and be want to be you know um the stable coin of Institutions but institutions have already the best banking rails so I think there is a big so the biggest difference in I think is strategy so we want to be the last the stable coin the dollar for The Last Mile right for for the for the normal people um we think that bers had already too

much what are your thoughts on decentralized um staes so basically uh things like uh dye Rye I mean so basically there's different flavors right like fully collateralized collateralized with acids that may be difficult to get a price feed for under collateralized algorithmic and so on do you see those gaining ground in any way because kind of the way that centralized stab coins work is you leverage heavily the existing Financial in infrastructure and kind of are exposed to financial infrastructure risk that kind of pertains to the to to to the Legacy system H how do you see that play out in the

future let's go with a little bit of History right so while we think about algorithm stable coin we think about terraluna we all know how it ended up right so I was quite vocal in the months before um saying to many people look teruna is is going to be going to blow up and many answer me well you are only to say that because teruna is going to eat up all tedar market share and um the but the the interesting part is that it's easy to create a stable coin that is you know 1 billion in market cap 2 billion 3 billion 5 billion if you get to 10 billion or I

think 17 to 18 billion was terraluna at the peak every the liquidity has to be there right you have to be able to pay out immediately you have to be able to redeem in um in 2022 was April May when teruna blew up there was you could see the difference between an algorithm is stable coin that was uh that was made through some um you know weird incentivization mechanisms and teder so teruna fell because they couldn't sustain have

redemptions so everything started blow out re after after teruna blew up h a publicly a group of hedge funds started to short usdt on the secondary markets so you could see and recently I think dcg came out or there were some um some disclosures during a class action showing that also dcg shorted uh during those times usdt for $400 million and uh but there are other hedge funds like fear Tre and and and others that they they shorted billions of dollars in all together across all these groups in few days of usdt they kept the

price of usdt below $1 on the secondary markets why they did that of course they did that because they wanted to cause a bankr that is was what basically happen on on teruna so they wanted to cause a bankr where people you know if you keep the price of usdt below the dollar or a stable cor below L what happens is that market makers are coming in in on the secondary markets and buying the stable coin for cheap going to the stable coin isure I.E in this case tener redeeming for $1 getting the dollar going moving the dollar back on the exchange buying cheap stable coin going to the stable coin ISS redeem it and so on and so

forth that c that is in the banking world the start of a bank run so what happened with tedar in 2022 in May was that tedar was able to pay out in 48 hours $7 billion that was 10% of our reserves and in 20 days we paid around 20 to$ 25 billion of redemptions so that was 25% of of our market capup so there are few banks in in in the history that have been subject to bankr Washington mutell 2008 10% Redemption they went B up Silicon Valley Bank cure silvergate all these guys didn't survive to bankr

you know we are seeing recently um also another bank in these days had issues so the the difference between a stable coin that is backed by liquid and real world assets and an algorithm stable coin is enormous I don't think an algorithm stle coin makes sense that or can grow above a certain threshold because otherwise become too risky it's it becomes attackable by attackers they tried with us they couldn't make it and they lost enormous amount of money because in we we were backed and we were solid they they had and when they tried to attack terraluna

they succeeded it blew up really really fast so when it comes to the other types like collateralize like die I think they are really interesting Concepts the issue is how you grow the market cap with having extremely volatile Assets in your portfolio like if you have if you have um Bitcoin in ethereum as part of your collateral that becomes hard because we have seen how in the last four years uh Bitcoin ethereum lost 80% of their value right so is really really tricky so that push die in to my understanding to move towards TS as well but you know if you are have if you start using TS as part of your CL you

are no different than than tedar or or the other you know centralized table coins so I think in a way um D decided to decided that the model of of tedar was probably the right one and more more skillable one in in the long term yeah they they added usdc as as collateral fast so USD uh the Tas I think this is something that's kind of slowly ramping up but uh for for um some time uh 70% of die collateral was actually usdc and so it's just aoxy right so I think look the the the point is and the question that people should ask themselves is why you need a stable coin so what you want to get from a stable

coin because if you want to have an asset that is resistant to the wrath of God that no one can take away from you and so on that is Bitcoin right so you have already something that is digital that uh that is um unconfiscatable that is built to survive to you know all the crazy monetary policies that the that word is going is going into if you want a stable coin that qua like a dollar probably you know you are still bound to the Fiat W so you need for a specific use case a dollar so why you are forcing why you are why we are

trying to push all these crazy mechanisms to try to to recreate a dollar and not using you know if you want the dollar if you're trying to recreate the dollar it means you need the dollar for something and you need at some point to exchange that dollar for a dollar right for a real world dollar so if you are in that situation probably you just want something that has that is back by a dollar or backed by the closest proxy to a dollar that is USD bills so you know you you you why putting Bitcoin in ethereum to recreate the to recreate the dollar I mean and eventually that dollar that you created through Bitcoin in ethereum you have to sell it for a dollar that is backed by

the real dollars or by the US economy that would be T right you cannot cash out easily die you have to sell it for USD you cannot redeem it directly for US Dollars and so that's the point of a the stable coin is to be able to to have a link to the physical W or to the Fiat W so that's that's my small rant around the stable coins it's just it's not that we didn't think about how we can creat something better well we have some ideas that are quite interesting but the the reality is that nothing is really proven to to be able to become so big as usdt and maintain it stability no matter what that without using an heavy amount of the physical

assets so US dollars I mean especially in this crowd they are heavily criticized and kind of they're often made out to be something that could kind of could collapse any day now right so have you thought about adding an additional product that kind of doesn't just use US dollars or treasury bills as um as the underlying collateral but kind of having some sort of basket of currencies or kind of like special drawing rights and yeah so basically adding like the Swiss frank and the Euro and the Yen and so on to the mix so this is a great question and there's a lot of P the the thing is that

so again if you are scared about the the US dollar is probably you don't the reason why you should be scared is that eventually like in the vayar Republic you might be able to buy a Loof of bread with one billion dollars right but I can tell you and if the dollar gets to that point the euro is long gone and that's not about speak about the Japanese Yen well the Swiss TR is probably the only thing that will remain and Will Survive because Swiss people understand Finance better than anyone else but um there is no other basket the only thing that would make sense is gold what about the basket of kind of

like stocks and you know in principle I mean you would ask yourself where would the value go right and basically physical values would still be there so kind of wouldn't you want like shares in company iies and uh actual physical Goods like um Gold Silver and I mean there are representations of those on chain as well right well if the dollar goes Bast that is uh the entire NASDAQ and New York Stock Exchange and all these the American markets are the biggest ones so do you want really to have some um some stocks in the US market I I think if we are thinking and

I like the you know the fed right so about you know what will happen if something happens to the US dollar but that means that the entire world economy is going towards a reset and there are only two things that will save you Bitcoin and gold so every human Humanity go went through many resets and they will they always were done through gold never through fi currency now we have also Bitcoin as as a great alternative and gold asteroids but here's the thing right so USD has to represent a dollar so with one usdt you shouldn't be able to buy what more than $1 right so for us

the usdt is a representation of dollar that is a representation of the US economy if again with the dollar you can buy if with you know you need $1 billion dollars to buy a Loa of bread you will need 1 billion usdt to buy off a bread is not our business to make the dollar prettier and and more solid than the dollar itself right so it's just a representation of dollar if you really want something that is better then you should you might want to use Bitcoin or gold yeah I mean I I think a huge part of the value of you know something like QT is also well I mean let's say in crypto USD or usdc is used a lot right like let's say you invest in some

company or do something like that it's mostly done with stable coins and of course the nice thing is you will have a contract and in a contract it says oh $50,000 $70,000 something like that and you can just send 70,000 usct and there's no complexity no conversion accounting is simple so like I think even if you created some kind of other stable coin that you know let's say track inflation and it's it's from a practical perspective it would be less useful right than something that just mirrors the dollar I completely agree the point the question that people should always ask themselves is what I'm using this for so if you're using it to just to have a dollar then you should go

for the closest thing to a dollar that you can find and that will quack as a dollar and also in the accounting as you said so for the rest there is plenty of other options that uh that we created in the last many years cool well let's let's maybe move on to the last topic cuz I mean we've talked about bitfinex we've talked about tether so I mean you already are doing a lot but then I think you started another thing which is uh called whole punch which is focused on building uh peer to-peer applications can you talk a little bit about what is whole punch and and you know the kind of related things the whole punch and like what's the vision behind that sure so with tedar we we came from um this enormous learning

curve on how the word is going Bast and it's not not just us right so then one of the main reasons of crypto is that we think at least many of us think that um economy is uh the real world economy is going towards a direction where you know countries are more and more at War among themselves the economy is getting more unpredictable and uh so we created a solution or to to that that is you know Bitcoin or blockchain based product and so on but you know we have this concept in crypto that is called individual sovereignty where you should be of

course we all live in a society but you should have Financial Freedom so you need to you you you want to have the the right to interact with whoever you want but the individual sovereignty that through Financial Freedom is incomplete you need also freedom of speech to achieve that because if you have individual sovereignty but you cannot say anything to anyone because otherwise you get censored or or or go in jail that doesn't matter much right um and vice versa if you have freedom of speech but then you don't have Financial Freedom whatever you say can be used to seize your funds or or make sure that you you are not really free to use your

own money so five six years ago myself and Matias Bo the you know both developers both really enoy enjoying the the concept peer-to-peer Communications as we are enjoying the concept of Bitcoin as peer-to-peer money um we both came through from a background of um uh file sharing system like the torrent you know and all the predecessors and we know there is an interesting aspect of f sharing systems that I think is really was comparable and is comparable to um blockchains and uh and uh money systems so you might be familiar with

knobster the first file sharing system you know went past closed and now through different iterations uh developers try to create different solutions to make file sharing more decentralized exactly as we are TR we try to do with money so all different attempts right from um you had line wire you have Kazam you have a donkey you have a mule and then you finally you have bit torrent the difference across all these different approaches is that all the different approaches before bit torrent they had a centralization point they had you know if you were using Kazam or or lme wire you wanted to look

for a movie you had to connect to a centralized index like a or certain servers that had all the list of all the files so you can find download the files right and all these centralized servers were shut down right so then people jump to a next version trying to decentralize f a bit more and so on and so forth so that was this history of I sharing arrived to the point where with bit torrent everything was really decentralized from the indexes so the list of all the files were desized through a system called distributed hash table DHT you know the file sharing itself the exchange of the files was completed peerto peer and then

so on and so forth now with um Matias myself really were fan of of big torent and so we thought what if we took the very same technology around bit torrent but we improve it we make it available for not only for fire Shar but for real real time streams in the world almost everything is a real time stream this chat on Riverside Riverside is a realtime stream right so we have tens of streams audio video when we browse this uh on the Internet is a realtime stream and so we thought if we can take those protocols and and we can create a new set of protocols that are free that are open source that are private so we took also all the learnings from blockchain

to create a identity to use that encryption that we learn from blockchain to make it more secure than bit was and and is right so we we spend five years to recreate the basic protocol technology to create a better layer for internet I I think personally you know when you know the I'm a technologist and I think that um one something that really annoys me is the fact that um internet changed from the beginning from the real purpose it was born for when internet was born was born to allow people to talk to each other and share information to each with each other every computer had an IP address and

still today has an IP address so that every computer could directly interact with the others but more and more after the year 2000 centralized system were born B so Google of course then email super centralize and then you know WhatsApp telegram all all these communication systems are incredibly centralized they are going actually against and all the cloud providers are incredibly centralized now 70% of the entire traffic internet is provided by service that are running on the top three Cloud providers AWS Microsoft Google so is that

really the future that we want so what happens is and now we go back to the beginning of this this this chart we we we are building internet for the best case scenario where everyone is friendly to each other what if tomorrow and you we should learn from history what if tomorrow Italy and France will not be friend with each other or I don't know Germany and Spain or I don't know the US and another country so what if and we we build and you know the reality is that all these Solutions like WhatsApp are built by a specific company single company and is using data centers in specific locations in specific

geographical locations so you might see a future where data will be held hostage and used against other countries if you if you in Europe you use WhatsApp if you live in Rome you know if um use WhatsApp every single time you send a small message it we go through frankurt and go back to Rome right so 90% of the people for 90% of their time are talking to people that are within you know 2 kilometers from where they live yet every time we chat data travels thousands and thousands of miles just to go back you know to our neighbor or to be to go back to to be 2 kilomet from mons is that

intelligent not of course imagine how much governments are spending in Internet infrastructure just to create beefier lines bigger internet lines for people that are talking for most of the time with their neighbors or with their families that are living in the same area that is really utterly stupid sorry to say that but it it is and so this is done because centralized companies and big Tech providers are needed that amount of information every day to milk that information to make money to sustain additional growth and new data centers is like you know a circle that that goes around and keep growing it's like um and it's feeding it itself

without us sharing more information more photos daily you know they they will never survive the the cost of maintaining their infrastructure will crush them and so this long story to say that we the reason why we created whole punching Kat is to Showcase that you know this this interview could have been done through kit completed peer-to-peer without any Central server if HP punch the company that is building kit Would Die Tomorrow kit will keep working imagine if you are in a country right so kit is serverless allows you to do chats we have we created a Bitcoin chat on kit with there are 1.5 th000 people today there is no Central server they are

talking real time they're sharing files you can share any size of file you want because there is no limit it's just your bandwidth you are interacting with each other you don't need if you share a file on Zoom you are limited to 100 megabyte because otherwise if everyone was sharing two big files then you you would crash you know telegram or Zoom or whatever right but with peer-to peer you don't have those limitations so what we wanted to create with K and Vol punch is we want to wanted to prove to the word that to all the developers that you can build peer-to-peer applications with a great user experience without having to have Cal servers and so kitl is being used by by many people have much better

qu video quality much better audio quality just because if you if you are talking to a person with living in the same area it feels like you have that person in front of you because the latency is the smallest it can ever be because the message is the data packets will find the shortest path between you and that person and that between of course you the two devices it's not magic it internet was built in that way but there was never an incentive by anyone to build it to use it in that way because the companies that had the most money had the incentive to make it centralized and all the rest all the

Nerds let's say like us they never had the money money to build you know um highly successful applications to prove that internet can be become server free in a way for or at least most of it can become server free and so that long story short T found recently as we chatted a little bit about it with um an important profitability so since we are as I said we are in for the technology we wanted to create the freest free as in Freedom uh chat solution that is Unstoppable that is private and doesn't need doesn't

need any Central server super cool so I get key this kind of like uh basically decentralized P2P in alternative to like sort of WhatsApp and telegram do you see the same protocol also as a foundation for you know very different types of applications sure you on on the same protocols you can build um peer-to-peer Uber one of the scariest things is like imagine that um you know this baby comes where uh that you you monitor your children you know the they are all the data passed through a central server that you don't own how scary is that you

you should be able to connect directly from your phone to your home device without crazy config needing crazy configur ation all that is possible through whole bunch and uh you can build you know peer-to-peer mapping you can whatever you think is built today you can build a whole punch you don't know how many when I talk to other developers I I tell them I showcase whole punch you can I showcase how you can build you know interaction between two devices without any middle server providing you know one device provides some services to other device without both phones maybe without any Central server and even developers are

mindblowing and that tells a lot about our education so as developers when we go to the university we are told that the client server model is the only model model existing you always need a server for for many clients that's not true and we wanted to prove it and we are going to invest a lot of money to make sure that education will pick up this new pattern because we want an horde of developers to build peer-to-peer applications that decentralize applications to reduce the dominance of the elit big tech companies I I hear on of that and I'm a big fan I I will definitely check out

whole punch the the one thing that kind of always got me about these peer-to-peer platforms like uh bitorrent was that that there was an incentive layer missing so kind of people it basically was very sensitive to kind of people who would explo who would exploit it by kind of downloading and not seeding so in principle kind of like on any crypto infrastructure you can kind of build in um an incentive layer is that happening with ho punch as well no not really so I mean whole punch is space protocols he doesn't have a token will never have a token because I that is a simple protocol that can well

it's quite complex but is a protocol that can be taken by everyone and you can build whatever you want on it now I agree that there were with bit torrent most of the people wanted only to download but never give up their upload penwidth this completely true but let's think about the other side right if you are building like a peer-to-peer chat and you you want to use a chat your incentive is to talk to people so there is no actual cost for you is not that you are running a node that allow people to run their traffic through you so the difference between uh whole punch and a blockchain is that in a blockchain you have a global share state

so if you run a note you will receive all the traffic you will receive you know the men poool data and so on with the whole punch you only choose to De to talk and to connect to the people you want to because you are creating a network with them so h is not a huge big network but is a protocol to create your own small network with only the people you want to talk to because you are interactive in them without any Central server that's the only way to make something scalable blockchains are need to use a global share State because you need to make sure that no one is double spending right but uh you don't need that you don't need in in if you are creating a communication system you don't want to receive messages from

someone from the other side of the world to Route them somewhere else right so it doesn't matter you shouldn't be a server yourself there is now this other program project called Noster they use you know they use relays centralized relays I always make the comparison between Noster and then and kit as in with Noster you have relays and so you need to provide incentives to people to run relays otherwise nothing will work well with the whole punch you don't need relays so hence you have a simpler more simplified Network and you don't have to have incentives because the incentive of people is already talking to each other for example now you are in imagine that you were in UAE in Dubai you cannot use telegram or WhatsApp to call your

friends and family because you know the telegram and WhatsApp are blocked you can use kit to talk to anyone and from from from there and to there because that's um because the beauty of Kit is because it's peerto peer in order to block P kit you will need to block the entire internet because it's not predictable where you connect to Super interesting so is is the underlying Technologies it some sort of whisper Network or how does it work it's used the same concept of bit torrent in order to find each other we use the same concept of Bor called DHD the distributed hash table so that um you the distributed hash table is u in in B

torant are to 10 million nodes in size at a peak right so you have all these 10 million nodes that are acting as uh um not connection points but are temporary databas temporary databases is basically they are key value stores that are storing part of the global index in a really resilient way so if U if you shut down a part of the network even 1 million nodes the network will keep surviving and will adapt to the new set of nodes so it's really the most sophisticated resilient uh distributed database ever created and we used it in order to allow people to find each other through for Kit because

if we added a centralized index to kit that would be centralized the the point was centralization is that you cannot just add just a little bit of centralization right so either you are centralized or not there is no there's no in between because the moment you are a bit centralized then you are centralized I'm curious so what one of of the things one of the projects I've been pretty deeply involved in for quite a while is a thing called herbit which uh sort of you know envisions basically a different architecture for like Computing and an alternative to the internet where basically all of the computers work in a kind of Pew top way where you know applications run locally have you looked at herbit do you

have any thoughts on the sort of tradeoffs between the whole punch approach versus that so I really like orbit I mean I I play with it I think in 2017 2018 I I don't remember when but uh I think is a really not old project in the sense of old but is around since a long time and um the concept is great I think and uh the way these designs also I really love it I think whole bunch is creating protocols for the real word right doesn't doesn't trying to change the word completely starting from scratch we already have

internet we have we have immediate needs that are creating a layer on top of Internet that is secure that is U that give sovereignty to people and we are doing in the most simple way in a most modular way because with with orbit you had it is kind of the way I felt it is is a monolitic approach you have to take it all and everything should run on orbit otherwise it would you know would wouldn't work but with whole punches we have more than 100 GitHub projects and libraries you can take bit and pieces and use it and craft it for and integr it in your real application your existing application already right so we

are taking a different approach in order to change internet that is giving you the tools to do small steps towards the centralization rather than forcing everyone in a new completely different ecosystem yeah no absolutely I absolutely I think that's a fair description uh in terms of the the differences do you see ke becoming some kind of business down the line or is it just a sort of public service that you guys want to develop I think it will remain Public Service I mean the point of Kit is not making money you know is this uh I'm sorry making many references to to memes

but well you know the from Batman Joker is not that he said it's not about um uh the money it's about sending a message and for us keit is that right so we make good money with tedar is not that we have to make money every single time we do something sometimes is important to send a message and there is the pun intended because kid sends messages I think this is a fantastic place to end because it is it is such an iconic you know message to go out on I will definitely explore ke in whole punch more I think uh the entire interview was super fascinating but

somehow the whole punch part got me most as kind of like a peer-to-peer and decentralization Maxi if people kind of want to learn more about whole punch or indeed bfx or tether where can they go to where can we send them so um on Ax there is um until we replace a with something built on whole punch so just disclaimer so you could go on um _ or beat Phenix or at all punch to or _ iio or at Pao Arduino so name is your name to find all my memes and something about everything that I

do cool thanks so much for coming on Paulo really enjoyed the conversation thank you guys it was super fun