The Bitcoin Standard Podcast

120. The Future of Stablecoins with Paolo Ardoino

July 04, 2022 Dr. Saifedean Ammous
The Bitcoin Standard Podcast
120. The Future of Stablecoins with Paolo Ardoino
Show Notes Transcript

Has Saifedean changed his mind on stablecoins? After handling $7b of redemptions in 48 hours, has USDT proven its resilience? Could regulated fiat banks handle this level of redemption? What happens to stablecoins if their adoption continues to grow? Can they replace foreign central banks as dollar providers to the world? Will they become major holders of US Treasuries? How will central banks deal with stablecoins? Are stablecoins a gateway to bitcoin? Can USDT be built on top of bitcoin's lightning network? This seminar hosts one of the leaders in the industry: Paolo Ardoino, CTO of Bitfinex and Tether to discuss these questions and a lot more on why Bitfinex positions itself as a "bitcoin first" exchange, its goals in Latin America, their work shaping El Salvador's new securities law, and their bitcoin education efforts.


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Saifedean Ammous: [00:02:51] Hello and welcome to another episode of The Bitcoin Standard Podcast seminar! Our guest today is Paolo Ardoino, who is the Chief Technical Officer of Bitfinex and Tether. We're going to be discussing with Paolo Tether, stablecoins, and recent development in the space, and where he sees this industry going. Paolo thank you so much for joining us today!

Paolo Ardoino: Thank you for having me, it's a pleasure. 

Saifedean Ammous: Thanks! So to begin with, tell us a little bit first about your own background, how you got into this industry, what brought you in here, and how long you've been here, and what you've done. 

Paolo Ardoino: So I have been a developer since my entire life. I started coding at eight, nine years old.

And then, I was living in a small town in Italy, nothing to do, and [00:03:51] my father bought one of the first computers. And then the passion grew, I graduated in university in Genoa, I became a researcher there. My specialization was in distributor application parallel computing. And then as often happens in Italy, you don't get paid much. So I started looking around, and I took a job as a developer for financial applications in Switzerland to build portfolio management applications. And there I learned about a lot about finance trading and order matching and so on.

I then eventually understood that I could leverage this knowledge and I created my own startup in London that was providing financial services to hedge funds and and family offices, and so on. It was quite boring. The majority of my time was dedicated to trying to fix the [00:04:51] issues of all the data coming from all the different counterparties.

You were dealing with custodians, with banks, with trading platforms. All the data was dirty. So I had to spend my time to try to create algorithms to clean that data. And then eventually in 2013 I came across The Bitcoin White Paper. And at that time, I cannot claim to have seen the potential of Bitcoin as a technology first, I actually looked at the blockchain aspects first.

And the things that struck me as really interesting was the fact that blockchain had different features. One of those features was consistency of data - that was quite important, and the resilience of data. So you could imagine that from a guy that was battling all day to get a sense of all the data that was provided by different parties in different formats and so on, be living in the world where everyone was looking at very same data, [00:05:51] with a synchronized node of course, was extremely promising.

So I thought that this technology could actually help the traditional financial work to reduce the effort in maintaining with rubber bands all their updated infrastructure. And then after a few months it struck me also the currency aspect of Bitcoin actually, and I've been involved in projects related to privacy, white hacking for almost, well good part of my youth.

That aspect also started growing me a lot. And then 2014, I came across Bitfinex, I was lucky enough to be thrown into Bitfinex as they had a huge issue with with some lag in the matching engine, so I was asked to give my expertise to help them to improve the matching engine.

And I still had a start [00:06:51] up at that time, so one hour per day became two hours per day, 3, 4, 5, and then I decided to shut down my startup and then dedicate full time to Bitfinex, and then eventually Tether.

Saifedean Ammous: Nice. Yeah, it's an interesting path if you happen to be technically competent in a field that is related to Bitcoin, and then you end up getting introduced to it early.

It's a very good thing. I'm sure it's worked out very nicely for you over the years. So then what brought you to Bitfinex and what did you guys do when you joined Bitfinex? 

Paolo Ardoino: Bitfinex was one of the OG exchanges born in 2012. And it was one of the first platforms in, if not the first platform offer margin trading.

So you could leverage and go long and short, Bitcoin was quite new. At the beginning 2012, 2011, but until 2014, 2015, I felt that the exchanges were more [00:07:51] ecommerces for Bitcoin rather than actual trading platforms. They were slow, they couldn't cope with the load and it was quite visible and annoying for the users, especially for Bitfinex.

You could imagine that the price swings were really heavy already. If you remember, I believe it was the end of 2013 was the first time Bitcoin passed the $1,000 mark and then fell down quite a lot. And if you are margin platform, if you offer leverage, of course you want your matching engine to be as fast as possible to be able to handle liquidation.

So when I joined, basically the matching engine - that is the core part of a trading platform, that takes all the orders of the users and match them one against the other, was doing 50 orders per second. Over the years I've been the the main developer of the matching engine, so that is still my passion, my core [00:08:51] part in Bitfinex, leading the team.

Now we pass from 50 orders per second to 1 million order per second, of course, with the growth of the industry and so on and so forth. That is my quick journey in Bitfinex, I can remember that the interface, one of the key part of the interface of an exchange is the order book, so that you have the bid side and the sales side. And the order book was updating between five and 30 seconds. So it was, you have to keep refreshing the page or you have to wait a long time to get new bids announced. Feels like 200 years ago, although it's just few years ago.

Saifedean Ammous: Yes. Now I'll make a little bit of a confession here. If I were to fix something in The Bitcoin Standard, and recently I did issue a new addition of The Bitcoin Standard, but I kept it as it is. I didn't change in the content. I [00:09:51] made small linguistic edits and small obvious errors here and there, but I thought I'm gonna just keep the book as it was published in 2018, minus the small little really tangential and consequential mistakes in grammar and language and some numbers. 

But if you ask me - what is the one thing that was wrong in The Bitcoin Standard? I would say in the last chapter I said the only useful application of blockchain technology is Bitcoin, and everything else is practically vaporware. I grudgingly must admit over the last year, I've come around to see that stablecoins, in particular Tether seems to be a legitimate application of blockchain technology. And I was extremely skeptical that they could work. I thought there's so many ways in which they could fail technically, and so many ways in which they could be stopped by [00:10:51] authorities.

But I just did not imagine that they would grow to the size that they have grown and that they would have the real uses that we have. And I think the important moment for me was traveling around in Lebanon, and in Jordan, in the middle east. People there actually use Tether and rely on it because it's much more reliable than any other way of moving US dollars around. 

In the case of Lebanon, the banking system is practically collapsed, and so if you want to send US dollars abroad, it's a big problem because the banks are in default to their correspondence banks, and they don't have dollars, and the central bank doesn't have dollars, and so even if you have a solvent profitable business, and you have suppliers and importers and exporters that you need to pay in dollars, because your local monopoly banking mafia is insolvent - you are unable to use [00:11:51] dollars. 

And of course you can't take large sums of dollars with you on an airplane and travel halfway around the world and pay people. And these become pretty useful. And so people are using them, and it's remarkable how much they've grown. So I'm looking to hear from you, first of all, how did this come about?

What was the idea, did you expect it to succeed? How have you not been shut down yet, and what your expectations are of the future? 

Paolo Ardoino: So this is, there is a lot of to unpack there, right? 

Saifedean Ammous: Yeah. 

Paolo Ardoino: First of all, Tether is the first stablecoin. It invented the stablecoin concept.

It was born in 2014, and used Omni layer as the first transport layer. Omni layer is is a solution built on top of Bitcoin to move basically tokens. To create the tokens experience. [00:12:51] The reason to create Tether was simple. Tether was created by the bright minds behind Bitfinex.

I cannot claim, unfortunately, that at that time I was one of them. The reason to create Tether was that in 2013, when the Bitcoin price went to $1,000 for the first time, it was a moment where the spreads across exchanges were insane, $200, $100. Because in order to do a simple activity that is called arbitraging, so the arbitrageur is a type of trader that sells Bitcoin on exchange where the price is higher and buy Bitcoin on the exchange where the price is lower. In order to do that, you have to send Bitcoins on the exchange with the price is higher, wait 10 minutes for a block, on average, and then on the other side, you need to be able to move dollars back on the exchange with the price is lower. [00:13:51] 

But imagine you are a new technology that is already hated by the banks, and you have to move dollars quickly from one bank to another international. If you were lucky it could take one day, but most of the time it would take five days or the wire was rejected, so then you leave. And the arbitrageur trading is a perfectly legitimate profession. It is normal is actually a sign of the maturing of a new financial industry, the ability of having tight spreads and the ability of moving funds around really quickly across the platforms.

So Tether was really a simple, stupid idea. Let's use the brilliant technology that is powering Bitcoin, but let's put the dollar on top of it. So in that way we could, since Bitcoin has a 10 minutes block time, [00:14:51] also Tether using Omni layer had a 10 minutes block time. You could move the two legs of a pair, a trading pair like BTC/USD at the same speed. That is by the way one of the most important things that you need to be able to do when you want to do the arbitrage. You cannot wait forever for one side. 

Tether actually didn't grow so fast initially, although the idea that was there was interesting, was still quite slow, growing until 2016. In 2016 Poloniex was the first exchange that was the leading exchange at that time, if you remember that. And Poloniex adopted Tether, all the new pairs that Poloniex was listing were traded against USDT. And then 2017 as you all know and remember, there was the [00:15:51] ICO boom. 

So all these new projects were created and listed against Tether. Because at that time in 2017, was the time when Binance was born. And then [?] didn't have dollars, they didn't add US dollars, but they only added Tether - USDT, and then OkCoin added USDT and basically all the Asian markets started to add USDT, and then eventually Kraken and so on and so forth.

So in the end, all the exchanges that wanted to be part of the really fast market making opportunities had to use USDT. Because initially not all the exchanges, especially the exchanges that had dollar, I think Bit-something, Kraken and then eventually Coinbase, didn't support USDT because they said - we have all already the dollar, why do we need another dollar? 

It eventually became clear that there [00:16:51] was much more volume and there is still much more volume nowadays on USDT rather than the dollar, just because of the speed of transfer. So in 2018, 19 Tether kept growing. He bypassed a $2, $4 billion mark, and then it grew astronomically in 2020, 2021.

So I think I fully agree with you. I really want to see, maybe for the future generations I wish that there could be a future where everyone would use the Bitcoin standard. People should start pricing their services in Satoshi's.

That is the holy grail, that is the end goal. So the reason why Tether I believe is important though, is that first of all, not everyone has the education to [00:17:51] understand Bitcoin from the get go. So they need to be brought to know Bitcoin and the blockchain is a technology, step by step.

So it's easier to explain USDT to my father, rather than explain Bitcoin, but he will get to Bitcoin. That is the, one of the most interesting stories that I hear a lot is this path forward Bitcoin where you get to your parents, you show them a wallet that is in their phone is like having just a debit card, so they understand that really easy. 

So they see that they wake up in the morning, the balance didn't change, right? So they have $100 the day before, the day after they still have $100. And then they see that you can pay for things around you.

You can pay, for example your phone card and your credit card, and so on. And then [00:18:51] eventually they start understanding that this brilliant, amazing thing that they start asking about, was actually born through Bitcoin. And then Bitcoin is basically the end of the journey where you bring them, the more they acquire knowledge, it's like a quest for me. The more they acquire knowledge, they get to it. And that is something that both with Tether and Bitfinex, we always trying to push towards. Because we believe that Tether is a great product, it's really helpful. As you mention, in emerging markets, in developing countries, Tether is almost ubiquitous.

You find grocery shops, barber shops, they accept Tether. In Argentina or in Turkey, I have the experience of Turkey that Tether USDT's is enormous part of the market because the Turkish Lira dropped 70% against dollar on [00:19:51] a a year by year basis. And I was talking to a guy, he was telling me, he has children, and he was telling me - I have the dream to send my children to study abroad.

But if I keep saving in Turkish Lira it's really hard for me because now it keeps dropping in value. So I will never be able to afford the cost of the schools, maybe in Europe. I save in Tether in order to be able to accrue enough money to be able to send my children abroad. And that is a really interesting story.

I believe that is a common story, or similar stories I hear them a lot, mostly in Latin America. But myself personally, but also the entire company always said - Tether is a centralized token. So it's centralized because it's using the banking [00:20:51] rails. So for Tether it's important to respect all the conditions that the banks and regulators that are regulating the banks, and are regulating well, not in full, but could regulate stablecoins, are giving us.

Tether is no Bitcoin. There is only one Bitcoin and people should learn about it, should learn about it in a good way, not in the speculative way. We are trying definitely our best to not push Tether down the throat of everyone. But actually making sure that people understand that's a kind of passage to a greater knowledge in this industry.

Saifedean Ammous: Yeah. I think I agree with you that the usage in the developing world is taking off. Hypothetically, I was skeptical that there would be an area where you could get regulatory clearance where you can [00:21:51] operate and still manage to be centralized, but it seems to be working.

And I think the reality of it is, I've come to see, is that even with all of the inefficiencies and redundancies of running a blockchain, it still ends up being a much more efficient way of delivering US dollars to people all over the world than 1940s central banking technology, which is the other way that they get it.

Because I think Tether is essentially bringing the dollar to people in non dollar countries. In countries that don't use the dollar. Countries that have usually highly inflationary currencies. Usually the only way that you live in those countries, the only way that you can access the dollar is through your banking system.

So you get a US dollar bank account in your local bank and that's backed by the dollars that are held by the central bank. And that's essentially a good recipe for getting robbed because the central bank is not gonna take good [00:22:51] care of your dollars. And they're gonna print more of the local currency and then they're gonna need to use the dollars to settle the foreign trade.

And so eventually, if in developing countries governments allowed people to just access US dollars, I think it would likely destroy most emerging currencies because nobody would have an incentive to hold a Turkish Lira if you could just hold the US dollar in your bank account.

So the business model of the central bank relies on essentially establishing a monopoly domestically in dollars. Because ultimately the world currency is the dollar. The local currency is only good domestically, you need the dollar to trade with the rest of the world, everybody trades with the rest of the world.

And so they have a monopoly on it and they abuse that monopoly to finance government spending, and Tether is essentially competing with that monopoly. It's providing people anywhere in the world, a much more reliable way of getting the US dollar. And for all of its [00:23:51] faults, for all of its problems, a lot of people still need to use the US dollar.

And I think it's it's entirely unrealistic to expect a lot of people today to not use the dollar at all. Particularly, if your local currency is being destroyed, the value of being able to keep some of your money in dollars, I think is enormous. And this is why these things are are continuing to be popular.

Paolo Ardoino: Yeah, I completely agree. That's that's something that we, you know I was lucky and I'm about to be invited to the Oslo Freedom Forum, Alex Gladstein organized that. I was asked to participate with panel, but that is probably the best conference I was part of, because for once it was not, first of all, there were no boots. No one was trying to sell you anything. But actually [00:24:51] the reason to go there is more than talking and talking about Tether for example, it's actually listening. So there were activists from all around the world that were discussing how they were using Bitcoin and Tether actually to escape the aggressivity of their governments.

And that is a lesson that I believe us as Bitcoiners should learn. And it's one of the things that I tried, I live in between Italy and Switzerland, in Europe in general. And I always try to teach that while certain European countries, you may not feel the urge to own Bitcoin or you don't see the purpose of Tether. You should open your ears and listen to people that actually live in Nigeria, live in Argentina. In Argentina you can actually buy some dollars [00:25:51] through your bank account, but you are limited to $200 per per month. 

And the issue that you'll always have, the issue that Argentinas will never be able to compete internationally because they are constricted by their own government and country. You hear all these stories and you realize how the education is really the only thing that matters here.

Because there is so (much) misconception on both Bitcoin and Tether and its usage and its importance in these regions. I was proud when I knew that Tether was adopted as a legal currency from the parallel government of Myanmar. The NUG that is trying to get back in control of the country.

There are so [00:26:51] many good purposes basically to it. And nothing comparable to Bitcoin still, but that is the type of stories that I love hear, and I love to try to contribute and participate.

Saifedean Ammous: Yeah. Now I'm wondering, what can you tell us about the reliability of Tether?

So obviously I'm sure everybody listening must have heard a lot said at certain points that Tether is a Ponzi, Tether is going to fall apart. Realistically, the impression of somebody who's not involved in this, has no horse in this race is, you could run something like Tether properly, and you could run it like a Ponzi. Like there's nothing inherent about the structure of how it's done that makes it good or bad. I think what you guys are doing is essentially a money market mutual fund. You hold assets and then you sell digital [00:27:51] claims on those assets.

And so if you are well capitalized, backing up your digital Tether, then there is no problem. But if you over-leverage then it could be a problem. And I think it was absolutely stunning for me to hear you say on Twitter that you guys redeemed, I think it was $7 billion in 24 hours last month when there was a run on stablecoins because of the collapse of Luna USD, was that correct. 

Paolo Ardoino: So 7 billion in 48 hours. 

Saifedean Ammous: 48 hours, okay. Yeah, which is incredible. And I think you make a very good point, which is what would happen to any kind of regular financial institution if they had to redeem $7 billion in cash in 24 hours.

Have you looked into this, is there some comparison about, can JP Morgan deliver $7 billion in cash if you asked them [00:28:51] for it today? 

Paolo Ardoino: So the $7 billion is a really big number, astonishing number. Put in context, was representing 10% of our reserves. So we did a little bit of the diligence and the history of bank runs.

So in the recent history of the tradition of financial work, in 2008 there was this bank called Washington Mutual. They basically had a bank run between 10 and 12% of their assets in 10 days, and they went bankrupt. They couldn't cope with the demand and they went bankrupt.

And that is the biggest case of a bank run in the recent history. So on the other side, you have Tether that in 48 hours possessed $7 billion. That was 10% of our assets. And in one month we [00:29:51] processed $16 billion reduction that was 19% of our total assets and we can keep going.

Although people think that actually everything went to our competitors. If you look at it, if you look at the numbers, the majority went out of the crypto industry because everyone is scared. So there are different components to this. 

So everyone is scared. All the big holders and the big funds are waiting on the sidelines. And since the interest rates on the dollar went up quite a lot, makes more sense to keep the money into your bank account that you might get 30% per year, rather than keeping it in Tether or in the crypto industry on the sideline just to do nothing. 

Because if you keep dollars on an exchange, even just not even Tether, but dollar exchange, they will not get you anything. They will not generate a heal for you unless, so the only thing you can do is to take [00:30:51] out the dollars on your bank account, invest in US treasuries and so on. So that happened. 

If you see the numbers, the majority of this money flew outside of the crypto industry. It might reenter at some point, so I'm not saying that it's lost forever, but it's definitely capital that is not buying power now. But when I get asked what happened with Tether and those redemptions, I see it as a positive factor.

So we have attestations that are in this industry standard, all the stable coins have attestations, not audits. But attestations are third party companies that look at the numbers and they say yes, okay you are fully backed. But also banks have audits, and they have full audits.

And yet there are not many banks [00:31:51] that can resist to a 34% imminent redemption. Even more so at 10%, or even more so at 19% in one month. For me, I could start saying, instead of saying - yes look we have attestations, now I can say - look guys, we are basically the only stablecoin, but most probably the only institution that has been tested with fire with 19% redemption.

So there is no one that can claim that. So it's pretty exciting if you think about it. And the job of a stable coin is to receive money and issue a token, and on the other side receive the token and give back the money to people. So we don't see it as a defeat. So also you have to know that Tether business model, the reason why Tether exists is not to be the dollar for the banks, to be the dollar for Wall Street. I believe personally, that [00:32:51] Wall Street has already the best banking rails in the world. It's what we said before, the reason Tether exists is to fulfill the need of dollars in the emerging markets and developing countries.

So those people that cannot get easily access to the dollar in any other way. So for me, what happened, it was definitely interesting to see. It was positive proof that Tether has, and it's really hard to replicate from anyone else as history teaches us. I see the glass half full! 

Saifedean Ammous: I agree with you. Because for me, far more significant than any kind of statement that you could get from an auditor or any attestation is the test of the market. As you said, you tested by fire and the ability to redeem this amount of money is something that is just unheard of in the traditional banking system.

There are no banks, I think that can [00:33:51] sustain something like this. And I find it hilarious. Absolutely hilarious how the fiat economist, the central bank mouthpieces, the people that are paid by central bank like Nouriel Roubini and all of those essentially completely interchangeable, utterly insignificant fiat people that are constantly going on about Tether being fractionally reserved.

It's absolutely hilarious. Have you looked at JP Morgan? Have you looked at Citibank? Suddenly these people turn into 100% full reserve banking Austrian fundamentalist gold bugs, and they require Tether to operate according to 19th century gold standards specifications for how much reserves it keeps on hand.

Meanwhile, Citibank is basically printing money out of thin air every day. And all of these economists are getting paid consultations by these banks and those central banks. Have you looked at your central banks balance sheet? Have you even tried to maybe audit Fort Knox and see how much gold [00:34:51] is actually left there? Might that be a more interesting use of your time than this digital project that manages to redeem $20 billion in a month?

I find it absolutely hilarious! 

Paolo Ardoino: Yeah. But everything is driven by money, right? So the interest on this stuff is imense, as you know. There is a lot of stake, and not just with, maybe I'm going to be biased a little bit here, but I see many attacks to Tether as attacks. The biggest critics on Tether, they are also big critics of Bitcoin. And not saying this to defend myself, but to me it feels like - okay yes, Tether will never be Bitcoin, as I said, many times, but feels like it's a good proxy to attack Bitcoin.

So we went through [00:35:51] accusations that we are claiming that Tether was pumping Bitcoin price. There is nothing more stupid than this is. 

Saifedean Ammous: It's insane. It's so dumb. 

Paolo Ardoino: It's like saying Bitcoin has a value just because there is Tether. That is not true.

Bitcoin has a value for hundreds of different reasons. And the Tether is none of these reasons. It's really hard to fight against people that actually are paid so much money to try to demolish probably the best innovation that was created in the financial history that is Bitcoin. 

And, I might be blunt, when I get attacked, I think okay, yes, I get attacked for Tether for a few reasons, but definitely my job is to defend both Tether and Bitcoin as much as I can. 

Saifedean Ammous: Yeah. Now one very interesting [00:36:51] idea. I heard somebody mention on Twitter, a guy called Preston Byrne, he said right now it seems that Tether is switching, obviously I don't expect you to give me detail, but it seems like you're switching towards holding more and more treasury bonds. And I think I looked at the numbers right now, if you were to hold $60 billion of treasury bonds, this would make you as big as roughly the 20th biggest central bank in the world, in your treasury bond holdings. 

At 40 billion, you are like the 30th biggest central bank in the world. And when I look at all these central banks, the others that are holding the bonds, they have all kinds of other problems pressing to them and their fiscal position is nowhere near as healthy as yours.

They have enormous amounts of liabilities. They're running enormously inefficient governments, which you guys don't have to run. You just, you're running the currency efficiently, whereas they're using the currency [00:37:51] as a way to operate an entire government for all kinds of purposes.

Realistically, this might sound crazy, but realistically, you can't see them doing a 10 X, but you could see Tether doing a 10 X. It's entirely conceivable that we get currency crises all over the developing world and Tether takes off significantly.

And maybe you become the biggest holder of, if you do a 10 X you become the third biggest holder of treasury bonds. Which I think is enormously significant. And I wonder if you think perhaps this, for the US government, this just becomes a good tool of monetary policy. Which is instead of handing out dollars to corrupt central banks so that they can allow their citizens access to the global monetary system, we [00:38:51] sell our treasuries to Tether, and Tether gives people all over the world dollars on their phone. Do you think this is realistic? Do you think that there's a possibility this might happen? 

Paolo Ardoino: So that is a tricky one. I believe that there will be always a balance, right? So we are hearing about CBDCs a lot.

So in a way, what Tether invented now is taken by central banks to try to create their own version of Tether, and there are of course issues that could arise from that. So I saw also from the US Congress, a bill to try to stop governments to issue their own CBDCs because they could be used and as an instrument of control.

I think that Tether is the perfect solution to spread dollars around from in the emerging markets. [00:39:51] It's much easier to hold than a bank note. It gives actually to the dollar more power in a way, it's actually attracting liquidity from foreign currencies into the dollar.

I think if you think about that in this perspective it's helping the hyper dollarization in that sense. We'll see what governments will decide. In a way it's not that easy to make 10 X. Although also I thought that we couldn't easily make 10 X when we were 8 billion, and then we became an 80 billion thing. 

I don't know what the future will hold for us, but on our on our side we decided, we have been really transparent here. We have been criticized for part of our holdings. And so [00:40:51] we committed 10 months ago to drop the famous commercial paper exposure.

And we passed from a situation where it was $45 billion in commercial paper and commercial papers are short term loans. And we only held the, A1 and A2 rated ones. And then we started letting them expire so that we could, the more they were expiring, we could reinvest in US treasuries. And also in order to be safer and more liquid we decided to skew the entire investment base and in treasuries to the 30 months.

Before we had a portion in 0-3 months maturity, portion in 3-6 months and a portion from 6-9 months. And now basically, if you see our last attestation, we took everything, basically almost everything [00:41:51] and we put it to 0-3 months. I expect stablecoins to be held to a higher standard than the bank.

I believe that what the banks, the first transaction of Bitcoin was referring to the financial crisis of 2008. So we shouldn't go back to the hyper leverage that was in the financial market. And probably I'm saying this too late, because of course we in the crypto industry, we decided that was instead of a great idea.

And we copied it, where we have seen in the last months traders taking ton of leverage and getting loans without collateral. Exactly as the international financial industry made it big for so long time. And we had our small 2008 effect just in the last 2-3 [00:42:51] weeks.

So I think that when I see a stablecoin, I see something that should be stable, should hold liquid reserves. And for me the only other thing that needs to exist is Bitcoin. 

Saifedean Ammous: Yeah, I agree. Now I think the one major issue with the operation of stable coins remains the issue of transaction fees.

So I think the thing that has prevented them, for instance, in Lebanon, from taking off completely is that you still need to pay sometimes half a dollar, sometimes a dollar, sometimes $5, $10 as a transaction fee in order to move your USDT. Some people are now talking about building Tether on Lightning.

What are your thoughts on that? Do you think that's likely? 

Paolo Ardoino: It's quite interesting because personally, so I was Malta in 2019 I met John Carvalho. There was Adam Back [00:43:51] there and Giacomo Zucco and a few others. We started talking about RGB. RGB was a protocol, it was built initially by Peter Todd and advised by Giacomo Zucco.

Immediately when I came back, I pushed this this idea internally where Biten would fund the RGB development. We provided a good amount of funding to the project to at least start up. And then other solutions came by. Omni bolt, that is basically similar to RGB, but I would say less elegant, much less elegant than RGB.

And then we had then now there is Taro, that is a solution proposed by Lightning Labs that instead have some differences with RGB where you actually, so all the routing, the middle, the nodes, part of the routing will not touch the dollar part, but will just [00:44:51] provide an effects rate in order to make the, so the two hand part is the two poles to actually switch US dollars around.

I see that as actually the holy grail of stable coins, because there is, when I see the layer ones for me, the layer ones that we have today apart Bitcoin, right? Bitcoin, the only job of Bitcoin has to be secure. So that's it. You want the layer one to be as secure as possible even if the block time is 10 minutes, who cares?

You can build, Lightning network proved that you could build a really fast layer two solution and all the current layer two solutions that I see. So the layer ones, so you have two types of layer ones, excluding Bitcoin, you have two types of air ones. One is that, and interrupt me if I'm becoming too maximalist here, but you have you, you have [00:45:51] basically.

The layer ones that wants to be as fast as possible, right? You want to say, you want to basically argue that you can solve all the problems of money transfers. Oh. And data transfers all the world, just with the layer one. You can go to 10,000, 50,000 transaction per second. But I come from the cipher bank background way of life.

And I believe that outside of the industry, you have outside of our industry, there are many other good industries that are growing. There is the artificial intelligence and there is the internet of things that are growing as fast as our industry. So now you have light bulbs that are buying their own electricity and paying for their own electricity.

You have fridges that are ordering stuff for you. If they see that you don't have [00:46:51] milk anymore, you have robots that are getting smarter and smarter, if you see Boston dynamics. So I see like a Johnny Mnemonic or an I Robot future happening actually. And you need to expect machine to machine payments to be a really big thing.

So we cannot be so naive to think that the 10 or 20 or 30,000 transactions per second will be sufficient. And even if you get to 500,000 transaction per second, doesn't matter. The future will hold probably 10, 30 million transaction per second. So you can see that to beat that, to achieve that limit you would need to defeat relativity basically.

And it's of course impossible, right? One of the main obvious ways of layer one is to trying to push the number of transaction higher, is to try to reduce the block time. But the problem with the reducing the [00:47:51] block time is that if you go subsecond, especially if you are 500 millisecond block time or 400 millisecond block time, you still have the issue where the speed of light is not sufficiently fast enough to reach a global consensus, because if you send, I'm in Switzerland, if you send a message from Switzerland to Tokyo, it might take 150 milliseconds to 200 milliseconds, depending on the network that you are passing through. 

So 200 milliseconds is just one message one way, but even imagine 150 milliseconds, then the message have to go back or at least have to reach other points in the area. So in order to reach a consensus, 400 milliseconds are really little amount of time in order to make sure that your message is spreading all around.

So what happens is that you need to start concentrating the servers, because if you cannot have a fully diverse geographically diverse network, where as a layer one, if you reduce the block time, you have to concentrate [00:48:51] the server so that you get faster, the messaging gets faster. So of course, then you have the problem that, but if you do that, you have the problem of security, centralization and so on and so forth.

And that is the first type of layer ones. The second type of layer one is the ones that are saying - yes, we are going to be faster than Bitcoin, not as fast as the others layer ones that trying to be subsecond, but we are fine to have layer twos, but the majority of layer two solutions that you see nowadays are centralized solutions and/or they have a token that is creating an economy around the layer two.

And many times I've been asked - okay, when we are going to have Lightning tokens? So when can USDT be on Lightning? But the reality is that it's really hard. So Bitfinex and Tether are part just of a few group of companies that are actually pouring money in [00:49:51] Lightning support, and why is that?

Because on the other side, you have all these layer two solutions that have a token that can get money from BC's for a 100x return. On Lightning, you have only Bitcoin. You cannot make 100X on Bitcoin. So the amount of money, the amount of funding that gets into the Lightning token protocols will be always lower because the return will be always lower.

So on the Bitfinex entire side, we are trying to subsidize that. So sorry if I mix the different aspects, but I think it's really important to understand the limits of the other solutions because they are centralized. They are, they have a token. Their blockchain won't scale any way to, for the next 10 years needs of humanity and machines And on instead lightning and lightning tokens you have an [00:50:51] actual peer-to-peer network, right?

So if your breach is buy buying the milk for you, why the hell I should care, right? Why I should care that you are you end up with no milk in your fridge. So that is basically, and that is what layer one, the current layer one's and layer two solutions we talk about are doing, they are making sure that everyone knows or sees all the transactions.

So they try, always to reach, almost always to reach global consensus. Instead with Lightning, you have two peers that exchange the information among themselves because they are the only two peers that are caring about it in that moment in time. 

Saifedean Ammous: Yeah, no, I agree entirely. I think you're correct with, we see this with shitcoins continuously.

They first present themselves as the solution to the first layer scaling problem of Bitcoin. We're gonna be faster, stronger, better. We can do it all on chain. And then when people start actually using the chain for [00:51:51] defi Ponzi or whatever they realize - oh no, guess what, we're gonna have to have a second layer.

And of course at each level they're introducing a new token and that's really what's driving it. But of course the limitation is that for for all of the hype about scaling all of these blockchains, as soon as some kind of momentum develops for the use of any of these stable coins on these blockchains and the transaction fees spike.

And so people are constantly shifting from one blockchain to another in order to move their transactions, trying to see where the fees are lower. But I think I agree with you on on this being the holy grail, I think what's gonna drive it with lightning is not gonna be that there are VCs, the short term thing is, yeah, VCs are pumping this because they wanna make a token and then dump it on retail.

But with Lightning, once we get to the point where you can move USDT for a cent or a fraction of a cent, I think it's going to be the WhatsApp moment where people [00:52:51] in Lebanon and Turkey and Venezuela are just gonna start using it for their day to day transactions, and then just skip their local national currency.

And I think then, the that's when it's really gonna be the gateway drug to Bitcoin. So they're gonna see how they've upgraded from their local currency to the dollar. And the dollar is better because it's harder because they're not printing it as much as our local currency.

And then they're gonna see the same relationship between the dollar and Bitcoin. Oh, Bitcoin is even harder than the dollar, and then it's gonna be a simple transition, I think. Alright, we've spoken a lot about Tether, but I wanted to know a little bit more about Bitfinex. So tell us a little bit more about how the exchanges evolved over the years and what your projects are moving forward.

Paolo Ardoino: I think that the Bitfinex exchange started to be one of those exchanges that gained a lot of traction [00:53:51] until 2018. Then we were the first chain to decide to drop support for the US. And we decided to focus on the rest of the world. I believe that is really hard for an organization, to focus on every single country in the world. 

We realized that, also with Bitfinex, that our strength was actually in the emerging markets and developing countries. Because those are actually the markets that really need more a financial rail that is not driven by banks. 

At the cost of being boring, so there are nire than 2 billion unbanked people in the world. They don't have easy access to the bank. Even basic financial services. The reason is the banking industry has been surviving through a 30 [00:54:51] years, 40 years of software development.

That is one of the reasons, but one of the reason that I understand really well is that banks are relying on software that is 30, 40 years old. Building cobble and other rubber bands that have been put through all the recent history. If you go on a major bank website, they feel like they are still living in the year 2000, right?

So they are basically 15 years or 20 years behind the actual evolution of technology and with all the money that the major banks had. You would imagine that they should have the smoothest experience at all. I think that these, all these adds to the cost of the compliance software.

And the entire user experience, the entire software stack is outdated and is built on around institutions rather than [00:55:51] around the users. So now these add to the cost that people can in Nigeria or people in Venezuela cannot easily afford to have to really high fees to have a bank account.

So the result is that they are using other services, although these services are charging them still enormous amount of fees, but at least they don't have upfront cost, as some banks might have. To keep their bank account open, because a bank will never keep your bank account open if you keep having $200 in the bank. The bank has a running cost, and so you are not a good customer for them. Not because you are a bad people. The insane part is that you are too poor to have a bank account. So that's why Bitcoin is great, right. It's a portable bank account for everyone.

And so Bitfinex is the, actually the entire ethos around [00:56:51] Bitfinex is to try to still in a centralized form to try to bring financial services to people that, but these financial services should be built around the people rather than around the institutions. 

I think we are doing that pretty well. I think that over time we showed how you could be an exchange, but still give priority to Bitcoin. So we supported Liquid, that is a Bitcoin side chain created by block stream. We supported the SegWit before anyone else, and we supported Lightning and we see actually enormous amount demand for Lightning.

We passed from a situation where we had 500 transactions per month to now we have around 20,000 transactions per month, only on Lightning. [00:57:51] Bitfinex is proudly the exchange that had a really big channel, so we pushed the boundary to five Bitcoin per channel, when Bitcoin was $50k.

So was we wanted to create the use case for traders, not just to pay like a coffee, but also for traders to settle big Bitcoin transactions through Lightning. That was really that is still for me, really the holy grail of all this this thing. So how when Bitfinex started to supporting Lightning, you could hear so much fodder around saying - Lightning is not secure. 

That's not true. 

We suddenly had immediately the biggest Lightning nodes out there, and still do, across the two nodes we have around 700 Bitcoin. And we almost had from the beginning, proving that we were comfortable [00:58:51] running that infrastructure. We had big channels and nothing happened.

And it's there since two years. The thing that I enjoy most about Bitfinex might not be the exchange with the highest volume, although it's all real, but it's still an exchange that likes to experiment, that likes to push new technologies through to our users, the technologies that really support Bitcoin.

And then we grew with this realization and we came across another important missing part to our industry. And that is called security tokens. So the security tokens are a really interesting and again, the only grail of the token section. 

If you remember 2017 you had all the ICO boom, where everyone was trying to not look like a security. So every [00:59:51] token was a utility token. And that was almost ridiculous. Actually security tokens are quite interesting, right? They give you voting powers.

They can give you dividends. They have some interesting features, but of course they are heavily regulated. So you have to get the license. Some exchanges, even in the crypto sphere started to look at security tokens with the idea of tokenizing Apple shares, Google shares and so on.

But that for me is a kind of nonsense because again, you can trade Apple's and Google share shares almost everywhere in this world. Even on the less sophisticated banking interfaces. So I think that our big is actually to obtain a license for security tokens [01:00:51] that would allow us to offer an IPO market and secondary market.

So basically allowing companies to do capital raise and have healthy secondary markets with almost no intermediaries. So now if you are a company that and you want to do a capital raise, you have to go through work with a bank or do road shows. And there are so many institutions that want a cut of what you get.

And you can imagine that a great company that is in Venezuela or in an Argentina might have much and harder time to get listed on important liquid markets. Because of course, it's hard to get on NASDAQ, but is it's still hard to get on [?] stock exchange. Because it's really a closed aquarium, a closed circle to get there. So [01:01:51] our idea was create a platform that would allow companies from that have a market cap from $10 million to $500 million that are not in the class, these companies should come from the emerging markets and developing countries and they are of course in need to raise capital. 

So we give them a platform that has basically a technological platform. Where they can be the issuer, they can have a regulated product, they can raise capital for stocks, or they can raise capital for debt, so bonds, or they can, or we offer also we give the ability also to funds to create their own [?], and then they can have a secondary market and all these can happen on the exchange that is Bitfinex that has the highest liquidity in Bitcoin and Ethereum. So if you go on Coin Market Capital, we still have the biggest concentration of whales, so our liquidity is much higher than anywhere else. 

So [01:02:51] we want to be basically the home for the developing countries where they can actually raise capital, because you can imagine in Venezuela, we know that there are many companies that struggle to raise capital.

If you are in Nigeria and you won't raise $2 million, it's really hard. But if you will go in San Francisco, you go in Silicon valley. If you ask to raise $2 million, they will laugh at you because you need, it's so easy, that you need to raise 20-100. But $2 million in an emerging market can do wonders.

And so that is our realization. That is what we want to do with Bitfinex and Bitfinex securities. 

Saifedean Ammous: Fantastic. And what are your plans on Latin America? So you're doing a big push for growth in Latin America. What are your plans there and what is the vision there? You're also involved with El Salvador's volcano bonds.

Paolo Ardoino: Yeah. Of course [01:03:51] we are following the El Salvador development really really closely. I think that the El Salvador was in unique position to do what they did, especially because they didn't have initial currency. You mentioned before that if government, especially one that has a weak currency, would offer the ability to all its citizens to have the dollar, they would use the dollar.

So they would declare the death of their national currency. But El Salvador didn't have a national currency. They were already using dollar as their main currency. So they didn't have any issue to offer the optionality of Bitcoin as another legal tender. And the president has been following Bitcoin development since quite a long time.

Has been driving this entire narrative since last year. So for me it's definitely interesting [01:04:51] as a platform that believes in the fact that Bitcoin can grow at the national level and international level. So I feel like we told each other in the Bitcoin community that Bitcoin was meant to become the reserve currency for the entire world.

So to me, the first country that that adopts Bitcoin as a legal tender should be supported. That's why personally, and as a company, we decided to be to help El Salvador providing securities as a technological platform, so for them to issue their own token. Because if there are initiatives like this it's important to give them some sort of support. And Latin America, we see they they suffer a lot by the devaluation of their national currency.

So again, feels a more normal than instead of focusing on the US [01:05:51] that has already the best dollar, has a great banking system, and so on and so forth, we focus on the places where this infrastructure is not present and that there is much more than we can do. 

Saifedean Ammous: Yes. You've also launched a Peso Tether now.

What is your idea there? Why do you see the need for other currencies other than the dollar and what other plans for expansion in that space do you have? 

Paolo Ardoino: So I think that would be interesting to recreate the effects market through Tether. So having a multiple Tether flavor. So we have the Euro as well.

We have the dollar, we have Mexican Peso and we also announced the British Pound because in the end also on the effects side, you can, so there are a lot of intermediaries that will get a nice hefty fee. So if you have open markets, transparent markets, you can actually [01:06:51] break down the barriers of the effects and provide much, much more transparent, efficient markets.

Almost everywhere in the world. And Mexico is a big country. It's one of those countries that really is invested in cryptocurrencies. So we believe that with the Mexican Peso could be a good driver for further expansion of Tether in the global industry, actually in the global effects industry.

Saifedean Ammous: And any plans for a gold Tether? 

Paolo Ardoino: We actually do have that. And he is, 

Saifedean Ammous: Oh, it's already operational. 

Paolo Ardoino: It's already operational. I believe that is one thing that I would like to talk about it is that I think that sometimes in the Bitcoin community, I feel like, and also due to Peter Schiff and others, I feel like gold is not in [01:07:51] opposition to Bitcoin in my opinion, at least.

So the reason why we created te gold, it was actually to compete with the dollar rather than Bitcoin. So Bitcoin has already won on gold. So there. There is no doubt about that. There's a more, much more efficient version of gold, although it share some properties in terms of is complexity to extract and limited supply and so on and so forth.

But at the same time it's of course transportable. With 24 words, you can bring your Bitcoin wherever. And this so has much, is much better version of gold still. The gold was used in the last 5,000 years as their monetary system. And just recently that we decided government that started that okay, they couldn't print enough money if there were still linked to the gold. 

So we decided that Tether gold is actually an interesting [01:08:51] product to have. So you can, if you sell for any reason your Bitcoin, my opinion is that is more long term thinking to sell them into gold rather than into dollar, because we all know that the dollar, so more than half of dollars were printed in the last 24 to 36 months.

So in the long term the valuation of dollar will be much faster than the inflation on the gold with the new gold mines. So gold is actually something that is natural first of all. Has been working for the end battle tester for the last 5,000 years. And to me is a better version of of the dollar and keep in mind that gold has been understood by generations and generations of people, right?

I'm Italian. And I know that I share with also all the [01:09:51] Mediterranean this thing where families were keeping a small stash of gold in their houses, In order, if they have to flee the country or flee the city. So it's something that people understand well, it's not just for the banks, it's actually something that was really rooted and is still really rooted in our in our families and trees and roots.


Saifedean Ammous: Yeah. I'm wondering though how is the uptake on the gold Tether? Do you see demand for it or do people still prefer the physical stuff? 

Paolo Ardoino: so actually we got it's now the market gap is around half a billion dollar. That is not that bad. And its been grow a lot since the start of war in between Russia and Ukraine because there is also speculation aspect there.

So because when there is geopolitical turmoil, gold is something that people understand well. [01:10:51] So actually we see a growing interest, especially in for example, in Turkey and ibn Latin America about Tether gold and the beauty of it is that compare. So the difference between Teter gold and the other tokenized gold products is that te gold does not use gold certificates.

So because if you would use gold futures or gold certificates, you would still be subject to trusting another party, right? So you have another level direction. So what Tether gold does is actually buys gold bars. The 12.5 kilos gold bars and stash them in Swiss based vaults.

So you can, if you have enough tokens to get the full redemption for one gold bar, that is still quite some money, is around $600,000. You can actually get the full gold bar delivered anywhere in Switzerland. So we [01:11:51] plan to reduce from to also start acquiring a St of smaller gold bars. So one kilo and half kilo to allow the redemption for smaller amounts.

And we already did some redemptions in Tether gold that gold, the, and the reason why we delivering only Switzerland is that the gold is, so the 85% of the production of gold is actually done in Switzerland. Production in terms of refinery and assembly of the ingot and then shipped internationally.

And also if the redemption happens, you, we cannot easily ship it internationally because, we need to ensure that there is the insurance, there are so many things, right? So it's easier. So international insurance of shipping gold from one point of the world to another is quite complex.

So we basically, of course, through all the KYC, AML [01:12:51] processes, we ensure that you can have a full redemption in Switzerland. And then for Switzerland, you take your gold bar and based on the jurisdiction where aou are going, or the taxes you have to pay yourself and whatever, you will take care of it.

But it happened already few times has been quite interesting to see. And I think that product is set to grow as well. 

Saifedean Ammous: That's fascinating. I did not know you had physical gold get, I think it's interesting for me because I had an idea like this before I'd heard about Bitcoin.

This was how I thought you could fix the world, by building a basically an app with physical gold in Switzerland, But yeah, clearly Bitcoin is a better way of doing this.

Paolo Ardoino: Yeah. Absolutely. 

Saifedean Ammous: Because you can't move the gold around as easy as you can move the Bitcoin, which makes things so much easier.

That's what it [01:13:51] comes down to. Tell us a little bit about how your performance, how Bitfinex has performed over the years from a technical perspective. I remember you guys had a hack at some point, and then you introduced the token and you basically made the people who were hacked whole again, you managed to pay them off from your profits, and since then you've not had any major hacks or any major security breaches, right?

Paolo Ardoino: Yes. But no, we didn't have anything. And so yeah, so in 2016 was the 2nd of August. 2016, Bitfinex was subject to a hack. At that time we were using an external custodian for our Bitcoins and then learned that not your keys, not your coins. That was the time after the hack, I became the CTO of the company to bring [01:14:51] all these changes to the security stock and infrastructure and so on and so forth to the company.

And since then we kept just growing in assets and we didn't have any other security incident. You are right that after the hack we issued two tokens. One is called BFX. That was there were 72 million BFX tokens available that were representing the entire loss in us dollar terms.

And within seven months, through the redemptions of these BFX tokens and through the holders converting Bitfinex shares, we were able to make everyone whole. And on the other side, we had another token called RRT's recovery right token. That stayed almost silent for many years, but this year, of course, with the big news of [01:15:51] 90 plus thousand Bitcoin being retrieved by the department justice in collaboration with the FBI and with of course our support and so on, that they became more active on the markets.

And this is probably one of the most interesting stories that will be ever told. First of all, speaks, I believe really highly about the commitment of our team, right? We, everyone I was talking to were saying was saying, you'll never get those coins back anymore. They're gone.

So leave it. And we never lost faith. We kept working with all institutions around the world. We not just with the US institutions. Then the ones that that got the coins, but then we kept going and it after six years the beauty of Bitcoin is that it's all there, [01:16:51] it's a public ledger. You see the information is public and the more so the more transactions and more, the time it passes is you actually get more information, you get more insights. It's really hard with this amount of money, right? Because of course over time, the price went quite hard.

So over time the it's, the more the money the more it is in terms of monetary value the harder it gets to keep it hidden. And Again, this is an interesting story of collaboration between Bitfinex and regulators and law enforcement for so many years.

I'm sure that we'll see some TV series about it. 

Saifedean Ammous: Yeah, it is quite quite a gripping story. [01:17:51] I remember when it happened, the sun was much smaller than what it is right now. It's it's worth a lot more. But yeah, I think this incident was quite, I think it was maybe a shifting point in people beginning to finally get the idea that just because journalists put all of these photos of criminals on, covering their head and using a computer, doesn't make Bitcoin. Bitcoin, isn't some magic box of privacy where you just take the money and then, oh, it's cypherpunk, it's dark money, and then nobody will find out. No. There's a digital trail and that those points will stay with you.

And I think the really interesting thing about this case is that it a, as you said, as time goes by, it gets harder and harder to hide the coins because each time you move them, each transaction you do is potentially [01:18:51] giving away more information about you. What are your thoughts on this in the long run?

Do you think Bitcoin is going to become harder to steal because it's harder to move around or do you think privacy technology is gonna find a way around us? Because the reality is more and more coins are now linked to KYC'd entities, both individuals and institutions. And so it's becoming harder and harder to hide your coins or to have a liquid market in which you can get rid of stolen coins.

Paolo Ardoino: Yeah. I think that especially after, February this year, when the news of the retrieval of those coins was announced, it became more and more clear that there is also risk in providing liquidity for swapping coins on and the, and especially stolen coins.[01:19:51] 

I'm a big advocate of privacy, first of all. So I believe that people should have the right to keep their wealth private. So for example, we, I live in Europe. I don't, I personally don't like very much an offset wallet issue that European government is is creating. So at the same time, of course, is I like the fact that Bitcoin now has in a certain way what was saying of Tether, when was saying that Tether has had that now can claim that he's solid and was doing redemptions with so many zeros then Bitcoin has this thing where actually we proved. With time, there is enough technology already to retrieve the coins and law enforcement is able to use that technology.[01:20:51] 

I think that actually it'll become harder to keep to avoid KYC at all costs. So there could be still a parallel or like an underground usage of Bitcoins, but eventually you might have layer layer two, or like network based hubs that will allow you to be part of a Lightning network.

Of of peers that will move Bitcoins without KYC that can still happen. And is much harder to stop because then you don't have a public ledger for it. So it's a group of peers that decide to create a hub and maybe use the same node or 2, 3, 4, 5 nodes. And they want to create their own economy, and their own underground economy. That can still happen.

It's quite given that peer tope nature of this is quite difficult to stop that. The main chain is [01:21:51] getting harder and harder because now the governments are taking more and more interest in between. And there is this travel rule that we have seen play more and more, a bigger role in all the compliance teams of all the exchanges, where in the end, as an enterprise, as a centralized exchange, you will be forced to sent to let's say that the customer.

Of yours wants to initiate a withdrawal from, let's Bitfinex to Coinbase. We ASEN will need to provide your KC information to Coinbase and vice versa. Coinbase will. If we receive a deposit, we can from Coinbase, we cannot credit the deposit until Coinbase will send your information on, on, on your information to verify that you are you, and you are the same person that sent coins.

So this is done to to basically to try to bring Bitcoin [01:22:51] at the same level of disclosures that you can find in traditional financial industry. So for example, if you send a wire from one of your bank accounts to another bank account of yours still in your name is super smooth. But if you start paying people under a different name, so if you start sending money from your bank account to people in to other people that are not you, eventually the bank will call you out and wil start asking what you are doing.

So because they have these the, their KYC protocols, we'll make sure that if you are moving money, just because you want for yourself is fine, but if you're moving money to our people, they have to apply all the different anti money lender rules that the regulators will require. And basically what the travel rule for Bitcoin is trying to do exactly this, trying to make sure that if you are sending money for yourself, from when exchange to [01:23:51] another is no problem, but if you are start sending money around to other people then is getting more problematic.

I think that many people will keep using centralized exchanges because they will end up to be all KYC'd as they're in their normal life. And there will be also an underground usage of Bitcoin through Lightning.

And let's set up a more private node. 

Saifedean Ammous: Yeah. I think I agree with you. I think the way that I seem to lean toward how it's gonna develop is that it's going to be possible for you to stay anonymous on chain. If you have Bitcoin that you've acquired without KYC and you can continue to transact with people that are not reporting your information, it is possible, but I think it's gonna get harder to hide if you have [01:24:51] somebody else's coin. If you've stolen coins, if it's the criminal proceeds of coins, that's what's very difficult to hide on Bitcoin.

And I think that's maybe not a bad thing because for like victimless crimes, in other words, not crimes, if you're just doing what you want with your own money, which I don't believe there is such a thing as a victimless crime, I think for those things you can be anonymous on Bitcoin, because you can acquire the coins anonymously and you can pay your local farmer for their food anonymously.

And then they pay the local builders to build them farmhouse also with those coins. So you can get these kind of circulation of coins off nobody can keep track of, and people can essentially escape the monetary system without hurting anybody, without stealing. But if you steal somebody's coin, then that, then it gets tricky because somebody will be able to point to specific coins [01:25:51] and say, these are mine.

And then you have a tricky proposition in trying to get rid of it, especially if it's a large quantity. 

Paolo Ardoino: Yeah, absolutely. The fact is that if someone steals coins, eventually they might want to cash out. So they are not stealing Bitcoin because they are believing in the fact that they can use Bitcoin for their entire life.

And they're not big believers in Bitcoin. They definitely will eventually want to buy Lambos and nice houses and so on. So the problem is that when you start to cash out, that is when you get cold. 

Saifedean Ammous: And that's the good thing, is that criminals are high time preference, so there's definitely gonna be Lambos and they're not gonna be able to control themselves because, if they had self control, if they had low time preference, they wouldn't be criminals, they'd be doing something useful with their lives.

Okay. What about Bitfinex Pay? What is this new thing that you guys are introducing? [01:26:51] What's the plan there? 

Paolo Ardoino: The plan is trying to create a payment solution for merchants to accept Bitcoin especially via Lightning network and Tether hopefully soon. Still violate network. We want to, we understand that in order to go towards the I colonization of the world, we need to make it easy.

So we need to focus on the user experience of products to give to, even the seventies, old grocery owner lady to be able to accept Bitcoin payments really quickly. So I wanted to, with our team to build something that would be fully featured, would give them the ability to get as much exposure to Bitcoin as people are comfortable with.

So one of the things that I hate the most is is the fact that one of the big narratives against [01:27:51] Bitcoin is the fact that it's overly volatile, so will never be able to be used as a payment system. But actually it can be used as a payment system and people can, on the other side, on their receiving side can decide how much they want to keep in Bitcoin in real time, right? There is enough liquidity to provide exchange rates. It's like someone comes in into a store and with the Japanese based credit card, and you go in Europe and then the shop owner will get the euros and not Japanese Yen. 

There is an FX rate in the middle. So we are basically building the product that has a small slider and allow the merchant to decide how much they want to keep in Bitcoin for each transaction. So for me, it's a really important thing because I believe that the people should not be pushed to Bitcoin immediately, especially if they are not educated, they don't understand our industry.

So they need to be given [01:28:51] tools that will guide them, hand holding, guide them step by step in understanding that maybe, if you have have a successful business, if you have a shop and you keep even 2% for to start with in Bitcoin will not get you bankrupt. Then maybe the next year could be 3-4%.

Maybe you want to keep something for your nephews or for your children in a saving account. And you can adjust that slider over time, the more you feel comfortable. I believe that we should bring people to the level of education and realization of step by step.

Saifedean Ammous: Fantastic. Peter has a question for you, Peter. 

Peter Young: Hi, thanks very much for that overview Paolo. It's really interesting to understand the workings of Bitfinex and Tether. So last November, I was in El Salvador during the announcement that was made by Nayib [01:29:51] Bukele about his partnership with Blockstream and Bitfinex.

One of the things that were stated on stage was that Bitfinex was gonna play a key role in helping El Salvador to design a new securities law. And I just wanted to dig into that a little bit and find out more about what a securities law would provide for El Salvador, and why in particular Bitfinex is playing a role in the design of that law.

Paolo Ardoino: Sure. Let me start from the sequence of events. So it will be I think easier to understand. So we we were approach by the a Salvador government through Blockstream sounds so more specific. And basically the El Salvador government wanted to try to raise capital? Outside the traditional banking system and wanted to raise capital through, this is called Bitcoin bond or volcano [01:30:51] bond, right?

So in order to do that, so without using any any existing financial infrastructure and banking infrastructure, you would need a technological platform that would allow you to as an issuer, so because the government of El Salvador would be the issuer, to propose this product to your audience, and then receive capital, keep it in a safe way and so on and so forth. That incidentally, just one month before we announced our new license coming from Kazakhstan for Bitfinex securities.

So we had just at the right time a technological platform to allow issuers like what was talking before, like issuers like small companies from emerging markets and so on to issue their own security token and raise capital for it and have markets. 

Also El Salvador to my knowledge, and, there was confirmations at that time, didn't have any official [01:31:51] stock exchange. So they couldn't use their stock exchange, local stock exchange in order to trade the securities. And securities tokens is even more because they are based on blockchain. So they don't have that type of integration, even if they did have that.

So basically long story short, we were asked to provide the infrastructure and help them with with our infrastructure. And basically I told that we could do that, but we would need to be regulated. Although we are just a technological provider, we would need to respect regulations.

So we would need to be operate in a regulatory environment. So I asked them if they had any law that would cover this type of product. So that is a security talk and then they didn't. So they given the fact that we had the background from the Casa license that we got to run security talk, as they asked, [01:32:51] they asked ourselves to respond to certain to certain questions that would make them understand how a company like Bitfinex, but not limited to Bitfinex, by the way.

So this is an open will be an open regulatory framework would need in order to operate in the country, in a regulated environment. So that is basically what happened and how and why it happened. 

Peter Young: My understanding of the situation was that this is something that extended far beyond just Bitcoin based products. It was something that extended across the whole securities framework in El Salvador. Is that correct? 

Paolo Ardoino: Yes. The law is not fully defined yet, so I don't want to say something incorrect, but my understanding in the way it is in Britain, the law, is that it's a full securities token law.

So basically is a law that would allow companies to issue [01:33:51] tokens that would have certain features taken from the security space, for example, coupons, dividends, and so on, but not limited to the Volcano token. It's a broader law that would sit on top of their current loads. 

Peter Young: Is that okay to ask how far along that process has come? Have you had productive discussions so far is do you think we are quite near to having that framework that would be needed to issue products like the volcano bond?

Paolo Ardoino: I think so. I'm not really deep into the politics there, but so what happens is that by February, March, they were almost ready.

Then they have the issue that we all know about, and they had to give of course presidents and to their national interest on that side, this is still what they gather. But my understanding also from the discussion [01:34:51] we are having is that they are getting back, ready to proceed.

So the keep in mind that the law is not passed yet in the Congress. So there are different steps that need to happen, right? So the law needs to be passed to the Congress, then reviewed by the Congress, approved by the Congress, then the issuer that is the government will need to provide a key information document that would contain all the disclosures of what they will do with the race capital and will need to provide this information and the updates on a quarterly basis.

So the key information document will need to be approved by the regulator that is still part of the government. And then once we have that as a security token platform, we can allow the issuers, so them to issue their own token and to access the audience and start proposing their token.

And then eventually when the the entire [01:35:51] sale has happened, we can open an healthy or fully healthy secondary market. 

Handre van Heerden: So my question would be, or actually you answered some of it with Peter. Given that I am from Libya, North Africa. We are one of those countries that you might call them, like emerging markets USDT, Tether, and Bitcoin is huge over there.

And actually lately I've been advising for this company that they call themselves a payment solution because of the laws over there. But at the moment we are trying to figure out how to link up with the big exchanges and how to get somewhere, a bit of a legal framework.

But you also said with your answer to Peter, that until regulation is sorted in the country that would be the time where you guys would be interested. Do you think [01:36:51] any other way to maneuver that? 

Paolo Ardoino: So with Bitfinex, we have the Kazakh license and hopefully if if the theor will provide us the license in El Salvador, we'll have also an Salvador based license.

That doesn't mean that we can only serve companies in Kazakhstan or in El Salvador, for example Phoenix securities successfully helped block stream to raise a cap, $10 million for their block stream mining node. And block stream. We didn't have any Kazakh entity. I don't want to say something correct.

I think was a BVI based company. Deregulatory framework can help. So companies from abroad can still apply to use our platform in order to raise capital. And so on. Of course, if when you bring capital back to EBI or any other country, you will need to take care of paying the, whatever [01:37:51] taxes, whatever, duties you have.

But our need was especially for the size of the ELSO bond we wanted to do to be regulated or acting in Ador because they wanted to do everything under Salvador law. But in general, we can serve companies from almost anywhere in the world, apart of the us. And of course, few other jurisdictions.

Handre van Heerden: Got it. Thank you. 

Saifedean Ammous: Excellent. Anybody else have any other questions for Paolo? or Paolo, do you have any other questions for us or anything else you'd like to discuss or mention?

Paolo Ardoino: It was really nice chat, actually. I love that we spent a lot of time in in Bitcoin and I could talk about the vision and the, I feel really strong on the layer one layer two scalability part because it's my daily bread.

And I think we need to go towards like a more futuristic future [01:38:51] if if you want, we need to be ready for a more futuristic future. I like the machine to machine payments and then the robots taking over. I'm a scifi fan. 

Saifedean Ammous: And also you mentioned your taking part in plan B summer school, starting in July in Switzerland.

Tell us a little bit about this. What is going on there? 

Paolo Ardoino: Sure. Again, part of the educational role that we believe we should have is trying to create a courses in in countries that in the countries we collaborate with and this, the Plan B, the entire plan B thing is for me is one of the most exciting opportunities that we had.

So as we talk just few minutes ago, we have been having involved with the we [01:39:51] Salvador. And you can argue that Salvador and Switzerland are two completely different countries, right? So one Isodor is a bit poor. And Switzerland is basically the country of the banks. But also Switzerland is the country I think is the fairest country in the world. Is a country that also allows privacy. Is a country that takes really seriously humanitarian issues.

We chose, we chosen Switzerland to be the European hub because we believe that it's it retains its independence from Europe. We know how Europe has been recently harsh on on the cryptocurrencies and especially, thankfully he didn't pass, but eventually they wanted to ban bitcoin mining at some point and other things. 

[01:40:51] So I like the fact that Switzerland retained, has been extremely supportive to of Bitcoin since 2016, FINMA that is the regulatory body is extremely proficient and helpful in in dealing with the crypto industry in a positive way that is of course important.

And we have seen in Lugano, that is the place where we started this plan B thing, extreme openness in in the administration. In just few months of discussions they agreed to, and they actually, they are the driving force of all this, but they agreed to allow 100% of the taxes in Bitcoin and Tether.

All their city services could be paid in Bitcoin and Tether, and then there was a push towards educating merchants [01:41:51] to get them point of sale solutions that would allow them to accept Bitcoin Tether. And so in sport. So as part of that effort, so there are two things that are going to be really important.

Lugano is a small city. It has 70,000 habitants, but has three universities. It speaks really highly about the interest in education. And that is another thing that led me to to focus our efforts here. So as part of this this educational effort we partner with the two of the universities for the summer school is basically two weeks of with the seven students is a trial.

So it is the first time that we do it. So we invite the seven students that could participate to two weeks of lessons. There is myself, but there is more, more importantly, Adam Beck, also Natalie Brunel is doing a [01:42:51] panel. There are people from the industry. Not just on the tech industry, but also on the legal industry on the legal part.

So how can a company can use Bitcoin how can be accounted for how and how, what is the legal framework around that, and so on. There are many aspects that we wanted to cover. And we will start from educating on the history of Bitcoin.

I believe that is important for everyone to know the roots and the history. Otherwise we'll keep making the same mistakes and then we go, we will deep dive into, more details about security in blockchain, but also again, legal compliance and and business and marketing and so on.

Will be two exciting weeks, but this event will be followed by a continuous course in the universities. [01:43:51] To teach about Bitcoin and blockchain. And then there will be an event that, of course you guys are invited from 27 to the 29th of October in Lugano. We have already quite a few speakers.

We want to focus on Bitcoin as a freedom of wealth solution. And also we want to focus on freedom of speech. So as with both Bitfinex Tether, we are investing in the peer-to-peer communication stocks. We have been investing and funding at the development on a full peer-to-peer communication stock, that is like a zoom replacement, but allows also many other things like VPNs and so on. 

But the first application that will come in two weeks is a zoom replacement, so that you have the same quality of zoom, if not higher in terms of video quality. But without any central server, there will be, of course, the things that I like [01:44:51] the most is that of course it's not blockchain based, so otherwise it will not scale.

You don't need to have any token to talk and to use the network, because I know that there are many competitors in the web space that are trying to create Zoom and Twitter and whatever replacement, trying to sell yet another token. So we will beat everyone of these initiatives with something that will scale indefinitely without having a token, it's basically bit torrent for data streams.

And that is basically bit torrent is the most successful file sharing application and unstoppable file sharing application. We took that concept and we created something that I think that everyone of us could use because it's just pure privacy and there is no issues with privacy. And of course it's something that could use by activists and people that actually need to take good care of their privacy.

There is no [01:45:51] phone required. No email required. Everything is a public key and a private key. So we wanted to show that in the event of October, we want to demonstrate that privacy is a human right that is mostly forgotten by many, especially with the big social network movement.

And so we will try to educate a little bit people how to get back to their privacy in when they talk to their families and friends. 

Saifedean Ammous: Excellent, fantastic! Thank you Paolo so much. This has been absolutely amazing and very informative and I wish you the best of luck with Bitfinex and Tether and I think I'm not the sort of person who's going to object to things happening between willing participants and particularly when they don't involve fraud.

And which is where I [01:46:51] think Tether has distinguished itself from the altcoin industrial shit coin complex, and a lot of the other stablecoins, which have given us plenty of amazing spectator moments over the last few months with their explosions.

Yeah, I think I think if you guys keep doing a good job, manage to continue to redeem that $20 billion a month, I think the future is probably very bright. I can see if Tether can go on Lightning, I can see it spread like wildfire in the non dollar world, and I can see it being really the real gateway to widespread Bitcoin adoption.

Paolo Ardoino: Yeah. We will keep doing our job that is just paying people their money back and we will [01:47:51] especially, we will keep doing our job to promote Bitcoin as much as we can. Thank you very much here guys, for having me today, was fantastic! 

Saifedean Ammous: Cheers! Thanks a lot, take care.