Note: On August 8, 2025, Ark Invest's podcast "Bitcoin Brainstorm" invited ARK Invest founder Cathie Wood, Tether CEO Paolo Ardoino, American economist and student of Nobel Prize winner in Economics Mundell Dr. Arthur Laffer, and ARK Invest Digital Asset Research Director Lorenzo Valente for an in-depth dialogue. Golden Finance compiled and organized the content.
Key points:
1. The Birth and Development of USDT: Created in 2014 as the first stablecoin to address inter-exchange fund transfer challenges, USDT experienced rapid growth during the 2020 COVID-19 pandemic, as users in emerging markets used it as a hedge against currency devaluation. USDT's market capitalization has grown from $4-6 billion in 2020 to $160 billion today. It has also gradually expanded into areas such as commodity trading.
2. Historical Connections between Stablecoins and Monetary Systems: Dr. Laffer pointed out that from 1790 to 1913, the United States had a private monetary system, which resulted in stable prices. However, after the establishment of the Federal Reserve in 1913, the system gradually became a monetary monopoly, deviating from the gold peg and leading to inflation, with prices rising 32-fold. Stablecoins fill the gap left by currencies like Bitcoin, which lack a value stabilization mechanism, and are similar to key elements of historical private monetary systems.
3. Tether's Issuance Mechanism and Reserves: After registering and completing the KYC/AML process, users can wire funds to Tether to receive an equivalent amount of USDT. Upon redemption, Tether can redeem its funds by transferring USDT back to a designated address. Tether reserves comprise 80% in cash and US Treasuries (over $130 billion, mostly short-term, making it the 16th largest holder of US Treasury bonds), along with gold, Bitcoin, and other assets. Total reserves exceed circulating USDT by $6 billion, with a collateral ratio of 103%-104%. Tether publishes quarterly audit reports.
4. USDT Regulation and Future Plans: Tether is registered and regulated in El Salvador. Following the passage of the US Genius Act, which has improved the regulatory environment, the company is collaborating with law enforcement agencies in multiple countries, leveraging blockchain and related company tools to track transactions. Future plans include converting 100% of its reserves into US Treasury bonds, creating new practical products for users in developed countries, and addressing competition.
5. Reasons for the success of the US dollar stablecoin: The success of a stablecoin outside of its native currency is the same as the success of its native currency abroad. USDT is essentially a digital dollar. Its success is because everyone knows what the dollar is. Everyone outside the United States trusts the dollar. The dollar is the best product the United States has ever created.
The following is the full text:
Cathie Wood: Dr. Laffer is a monetary scholar. His mentor was Robert Mundell, who won a Nobel Prize for his work on monetary theory. Dr. Laffer also served in the Nixon administration. He was present when the US closed the gold window in 1971, but he did not support it at the time. In fact, he has been trying to find an answer ever since then. When we published our first white paper on Bitcoin in 2015, we collaborated with Laffer. After reading it, he said, "This is what I've been waiting for since the closing of the gold window in 1971."
Now we're entering Phase 2, with stablecoins and the regulatory and legislative clarity emerging in the US and around the world. When Laffer and I discussed stablecoins, he said, "Wait a minute, this is private money. We're returning to private money. This is so exciting." He was already excited about Bitcoin as a new global monetary system, and the idea of stablecoins as an onramp to DeFi services and private money reignited his enthusiasm. Dr. Laffer was excited about this new world of stablecoins, including USDT and USDC, and he wanted to learn more and asked some very important questions.
Our podcast is called "Bitcoin Brainstorm," and for years, most people who have listened have been Bitcoin-centric. But now, Tether, USDT, and USDC are really growing and helping the DeFi ecosystem, primarily on Ethereum. A huge thank you to Tether CEO Paolo Ardoino for agreeing to be on this podcast. Perhaps we could start with Ardoino describing USDT and what it is.
The birth and growth of USDT
Paolo Ardoino: Tether is a company founded in 2014. USDT was created to provide the ability to transfer digital dollars between different exchanges at the same speed and low friction as Bitcoin.
2014 was a very different time for exchanges, cryptocurrencies, and Bitcoin. There were four or five exchanges—Bitfinex, Kraken, Coinbase, and others—each international or foreign to the others. Consequently, arbitrageurs' ability to move funds between exchanges was extremely difficult. Arbitrageurs sold Bitcoin on one exchange with a higher price and bought it back on another with a lower price. Transferring Bitcoin from one exchange to another was easy, taking only 10 minutes. But transferring US dollars to a foreign country could take a day, seven days, or even a weekend, and was costly. For arbitrageurs, a day felt like an eternity. Because of price fluctuations, an opportunity that existed an hour ago might no longer exist.
So, USDT, the first stablecoin, had a "simple" idea: Why not leverage the brilliant technology created by Bitcoin and put a dollar on Bitcoin? The idea was incredibly simple. Thus, USDT was born. While stablecoins currently primarily run on Ethereum, the first version of USDT was actually on the Omni Layer. So, Tether actually launched USDT on Bitcoin, then known as Mastercoin, because Ethereum didn't exist at the time. The Ethereum ICO took place in early 2015. This is how USDT was born.
For the first few years, no one cared about USDT. In 2017, Binance launched, along with other exchanges. They didn't have bank accounts, so they began using USDT as the US dollar, with all crypto-token trading pairs conducted in USDT. In 2018, the cryptocurrency market crashed. That's when USDT reached a $1 billion market cap for the first time. Fast-forward to 2020. USDT's market cap was roughly $4-6 billion at the start of the year, and by the end of the year, it had surpassed $40 billion. This massive growth, which has continued to rise to its current $163 billion market cap, was driven by the COVID-19 pandemic in early 2020. We were both humbled and amazed to see that USDT usage had shifted from pure crypto trading to real-world applications.
From 2017 to 2020, the younger generation in developing countries in emerging markets saw cryptocurrency as a way to make money and speculate. Young people are the most willing to learn new technologies. Emerging markets have larger birthrates, resulting in larger populations of young people. When the COVID-19 pandemic hit in 2020, as always, emerging markets were more threatened. Even in the US and Europe, people lost their jobs, which is fine. But in emerging markets, the situation was even more severe. Consider Argentina, Brazil, and Turkey; their currencies have depreciated even more rapidly against the US dollar. The Argentine peso has depreciated by over 90% against the US dollar over the past decade, and the Turkish lira by 80%. This situation has been accelerated by the COVID-19 pandemic, because if you stop producing or working, the situation is even worse.
The craziest thing is, before 2020, many parents were used to going to the black market to buy US dollars in cash. With the pandemic, going out became even more difficult, even more dangerous, because everyone was panicking about the virus. So, children told their parents, "Don't go out. There's no need to go out and buy US dollars in cash. I have US dollars in my smartphone. I learned about cryptocurrency. Now you can have US dollars in your smartphone." If you look at the USDT growth chart after March 2020, you'll see a huge upward trend. Tether didn't even have a marketing team until 2022, but by 2022, Tether's market capitalization had already reached $80 billion. We worked hard to understand why all this was happening in 2020-2021, sending people to all these countries, even the poorest ones, to understand how USDT was being used. Sometimes you start a company, and it takes years to understand why and how it happened.
History of the U.S. Monetary System
Cathie Wood: This is the beginning of a very big story. When I started talking to you about stablecoins, you compared it to another moment in history. So maybe you could give us a history lesson, Dr. Laffer.
Laffer: Let's look back at the history of the U.S. monetary system. From 1790 to 1913, the U.S. had a private monetary system. The government did three things. 1. It defined what a dollar was: one dollar was one-twelfth of an ounce of gold and one ounce of silver. 2. The government minted coins, but many others also minted coins. You brought in ingots of gold and silver, and a number of mints around the country would mint coins for you to the correct purity for a commission of around 3%. 3. It audited each bank's balance sheet. This was very important before the Federal Reserve. Back then, U.S. currency was banknotes issued by individual banks, which would publish their balance sheets, profit and loss statements, and so on. This allowed people to know how leveraged they were. These banknotes sometimes sold at a slight discount or premium.
This was a private banking system that lasted for about 120 years, from 1790 to 1913. While there were bubbles and price increases and decreases, the price level was stable, with no inflation for 123 years. Then, in 1913, the Federal Reserve was established and began to take over private currencies, establishing a monopoly. In 1933, it devalued the dollar from $20.67 to $35 per ounce. Then came the interest equalization tax (a financial regulation implemented by the US government in 1963 to improve the balance of payments by limiting capital outflows through taxation), the Voluntary Foreign Credit Restraint Program, and the Smithsonian Agreement (the new international monetary system reached by the Group of Ten after the collapse of the Bretton Woods system in December 1971). Then, we severed all ties to gold or anything else backing the dollar. The dollar became a paper currency without a basis. This is where we are today. And look at inflation: from 1913 to today, prices have increased 32-fold.
Woods and I argued in our 2015 podcast and paper that the existence of Bitcoin and the dramatic rise in the price of gold are a result of private markets deciding they no longer want to hold government money. They are trying to replace it with other currencies.
At the time, I said there was one thing missing from the monetary system. Gold is an asset, and many people have made a lot of money investing in it. But for it to be money, you have to have something to stabilize its value, so we can use gold for contracts and know what it will be worth in five, ten, or twenty years. That way, we can develop a capital market where we know the value of the unit of account that will exist. What Bitcoin lacks is anything that can stabilize the value of that currency. What does the Bank of England do every morning, noon, and night? At the close of trading, they look at whether the UK banking system is buying pounds with gold or buying gold with pounds, and then they run their monetary operations based on that. For example, if people are exchanging gold for pounds, that means there aren't enough pounds in circulation, so they implement monetary policy and open market operations to increase the number of pounds in circulation to stabilize the value. If people are exchanging pounds for gold, that means there are too many pounds, so they sell gold in the market to withdraw pounds and stabilize the value. They do this for a long time. This is what is needed to bring Bitcoin or gold back into the private sector as a monetary system to replace government currencies. Stablecoins are exactly what we said was missing when we published our paper in 2015. USDT, USDC, etc. seem to fill that missing link.
Detailed explanation of USDT issuance and redemption mechanism
Laffer: I'm curious about how you run your stablecoin business. What do you buy? How do you do it? Where does your initial funding come from? Do you step in to stabilize it, like the Bank of England does?
Paolo Ardoino: Let's start with the mechanics. USDT is a digital dollar. If a company wants to apply to issue USDT from Tether, it first registers on Tether's main market. You can find it at tether.to. Registration involves a KYC/AML process. We want to ensure we know who we are talking to and the legitimacy of the company or individual. Once this process is established, the company is authorized to apply to issue USDT. This means they must wire, for example, $100,000 to a Tether bank account. After receiving the wire, Tether asks for a blockchain address to which it sends $100,000 in USDT. The company uses this USDT for transactions or other purposes. At some point, they return to Tether with the USDT and say, "I want to redeem it." They send the USDT to the address listed on Tether's main market platform. They send the USDT, Tether receives the USDT, and then Tether sends the money back.
Tether’s reserves
Laffer: What did Tether do with that $100,000 during this interim period, let's say six months?
Paolo Ardoino: Tether invests its reserves in various assets. Historically, we have invested in a variety of assets. Before the end of 2021, the reserves were primarily invested in A1 and A2-rated commercial paper. We have never taken any risk and have never had any defaults. However, in 2022, Tether committed to the community to begin shifting the majority of its reserves into US Treasuries. So today, Tether holds over $130 billion in US Treasuries, mostly short-term, with maturities of less than 90 days. The average maturity is 81 days.
Tether reserves are 80% in cash and cash equivalents in the form of US Treasury bonds, with gold and Bitcoin also forming a portion of the reserves. Tether holds over 90 tons of gold and over 100,000 bitcoins. The total reserves backing USDT exceed the total USDT tokens in circulation by $6 billion. This means the collateralization ratio is essentially 103% to 104%.
Tether has been diligently increasing its holdings of U.S. Treasuries. Consequently, virtually all newly issued USDT has flowed into U.S. Treasuries. At the beginning of 2025, Tether's holdings of U.S. Treasuries may have been less than $100 billion, but they have been increasing. Tether has pledged to continue purchasing U.S. Treasuries. According to the latest statistics, Tether is now the 16th largest holder of U.S. Treasuries, surpassing South Korea, Germany, the UAE, Spain, and Australia. Tether was the fifth largest purchaser of U.S. Treasuries in 2024.
USDT currently has 450 million users, with 30 million new users added every quarter in emerging markets and developing countries.
Laffer: Why don't you make two separate stablecoins, one backed by gold and one backed by the dollar? Why mix them together?
Paolo Ardoino: Tether actually has a gold-backed stablecoin called Tether Gold, which currently has a market capitalization of $1.2 billion. We have reasons to hold some gold in our reserves. But in the long term, we will hold 100% of our reserves in U.S. Treasury bonds.
Tether Audit, Transparency, and Regulation
Laffer: Are your financial statements public? Are you subject to any oversight? Are there any regulatory bodies that could inspect you?
Paolo Ardoino: Tether publishes quarterly audit reports, independently conducted by BDO, a top-five auditing firm. BDO provides independent confirmation of the reserves. They work directly with the institutions where Tether holds its reserves. Incidentally, Tether's treasuries are held at Cantor Fitzgerald. In early 2024, Cantor Fitzgerald Chairman Howard Lutnick (now US Secretary of Commerce) stated very publicly on Bloomberg TV: "I saw the reserves. They have reserves. I spent a long time doing due diligence on their reserves." Despite this, we conduct quarterly audits. These are published on the transparency page on the tether.to website.
The previous US administration launched Operation Strangulation 2.0, which made it difficult for the top four accounting firms to participate in any cryptocurrency-related matters. Things are changing, and the new administration is very supportive of cryptocurrencies, and of course, stablecoins. Now that the [Genius Act] has been passed, it's a great move because it makes audits much easier. Transparency is very important to us.
Laffer: How is Tether regulated now?
Paolo Ardoino: The US (Genius Act) has been passed, but the US Treasury still needs to provide detailed procedures. Tether is registered in El Salvador and is regulated under El Salvador's stablecoin regulatory regime. Before the (Genius Act), basically no jurisdiction, or almost no jurisdiction, had a stablecoin regulatory regime, though some jurisdictions had sandboxes. After the (Genius Act), all other countries will begin to copy it, which may take two years, and everyone will be subject to roughly the same regulations.
Tether, an 11-year-old company, cooperates with over 250 law enforcement agencies in over 50 countries.
The beauty of blockchain technology is that it makes everything very transparent. Tether has worked with companies like Chainalysis and TRM Labs over the past decade to build these very efficient and accurate internal tools to track transactions.
What happens if the US dollar stablecoin encounters US dollar inflation?
Laffer: Do you guarantee the value of your stablecoin?
Paolo Ardoino: We have never had a redemption failure. Every dollar is always redeemed for one dollar, and the redemption fee is 10 basis points.
Laffer: The US dollar is inflationary and a bad currency. Is there a good mechanism to make the value of USDT increase with the inflation rate?
Paolo Ardoino: I don't think inflation will ever go away, at least not in the short term. There are a few solutions. One is a tokenized money market fund, but that's a bit tricky because it becomes a security. It's hard to tokenize a money market fund and then have 1.4 billion people in Africa use it. The SEC would take a very strong stance on that.
There are two approaches to stablecoins. One is to share profits with holders, and some stablecoins are doing this, but again, they face the risk of SEC scrutiny. The second is to start with one dollar and retain the accumulated value. The token will appreciate, and it will no longer be worth one dollar. Some have tried this, but the user experience is poor. Unfortunately, people are accustomed to thinking in dollars, and you have to constantly do math in your head.
I thought there was a better way. We created this product called Alloy. Alloy essentially mints Tether Gold, a gold-backed stablecoin, as collateral. You can go long gold, which technically means you're short the dollar. Decentralized lending platforms in cryptocurrencies lend dollars against Bitcoin and Ethereum. We can do the same thing with gold by putting Tether Gold into a smart contract. You own that gold and lock it up to borrow against it, with an 80% collateralization ratio. This gives you a dollar-denominated value you can use in your daily life, but you're still long gold. You mentioned that the dollar has actually depreciated by 99% since 1913. That's why we came up with a product that allows you to both go long gold and borrow digital dollars to hedge against this. Of course, if the collateral value drops, there's the risk of liquidation.
Emerging markets love USDT
Laffer: I hear you describing two markets. One is the African market, where people are willing to use dollar-denominated stablecoins; the other is the developed world market, where we don't need dollars.
Paolo Ardoino: While the US dollar isn't perfect and can't compare to Bitcoin or gold, it's good enough for people in places like Turkey, Argentina, Brazil, Africa, Nigeria, all African countries, and Southeast Asia. If you're a father in a Turkish family, working from January to December, you're poorer at the end of the year than you were at the beginning. I've spoken to many people in Turkey, even in the government, and they're very happy with USDT because their inflation rate was 50% last year and 70% the year before. That's why a digital dollar would still have a huge impact on these people. Bitcoin is better, gold is better, but even just owning dollars is an investment for them.
If I remember correctly, the number of individuals using USDT as a savings account has peaked. But we're starting to see a shift, primarily driven by commodity traders. They're realizing that stablecoins are the best way to trade commodities. If you have a ship somewhere in the Middle East waiting to load some crude oil and waiting for a wire transfer to clear, using a stablecoin can significantly improve capital efficiency for these commodity trading firms. This is what we're seeing today. Tether announced in October or November 2024 that we'd start facilitating some of these transactions, and now there's tremendous demand for USDT from commodity traders. Why? Because if you have a stablecoin, you can potentially send it to somewhere in Africa, where you can pay salaries, buy houses, or buy equipment. This is why all commodity traders prefer using USDT because on the sell side, typically in emerging markets, USDT is essentially king.
Developed countries need new utility for stablecoins
Paolo Ardoino: USDT is the perfect product for all emerging markets. It will bring about huge changes in emerging markets. For example, Nigeria's financial system is only 10% efficient, but stablecoins can bring it to 50%. Meanwhile, the US financial system is 90% complete, but stablecoins will only bring it to 95%.
I've been very public and outspoken about the lack of need for a dollar stablecoin in Europe and the US. In the US, perhaps only a small percentage of people are unbanked. Virtually everyone has a credit card, debit card, bank account, Cash App, and so on. So we need to create something different, something that brings new utility to users in developed countries. We're going to create a package, not just a product. But I don't want to spoil the story.
Laffer: If you don't do this, you will encounter other very competitive companies. Tether issues USDT, which does not pay interest, while holding interest-bearing treasury bonds, which gives you a very large profit.
Paolo Ardoino: I'm very proud of this because a few of us Italians made history by getting the most powerful government in the world to sign a law.
Tether made about $13.7 billion in profit in 2024, and it's likely to exceed that figure in 2025. So, I understand why everyone is very interested in getting a piece of the action. (The Genius Act) definitely opens the door for basically all banks and all institutions to issue stablecoins.
USDT is just a digital dollar
Woods: This raises the question, our banking system is a fractional reserve system. When dollars leave the banking system and enter stablecoins, they leave the banking system. Does this affect the velocity of U.S. money? What are the economic effects of the migration to stablecoins? You just said that competition might push the stablecoin world toward something more like a fractional reserve system?
Paolo Ardoino: Stablecoins shouldn't be fractional reserves; they need full reserves to ensure stability. The first part of the word "stablecoin" is "stable," ensuring they remain stable no matter what happens. The cryptocurrency industry has experimented with algorithms to ensure the stability of stablecoins, but the Terra/Luna incident in 2022 didn't end well.
People should ask themselves why they want stablecoins. What are stablecoins? People sometimes tell me that Tether can freeze USDT or do certain things with it. Yes, Tether can. USDT is just a digital dollar, and it's subject to the same AML/KYC requirements that banks are subject to. So if you want an asset that's unstoppable and has no owner, that's Bitcoin. If you want a stablecoin, that means you want dollars, and you want some kind of guarantee that at any given time you can get the exact same amount of dollars in the stablecoin. So it's all about the use case and utility of stablecoins. Stablecoins aren't like a multi-purpose Swiss Army knife.
Woods: When people ask me what the biggest surprise in the crypto world was in the past 10 years, my answer is stablecoins. We didn't talk about it at the time. I knew Tether existed, but we didn't talk about it at the time, and I didn't understand it at the time.
Paolo Ardoino: If you'd asked me in 2014 or 2015 what USDT's market capitalization would be in 10 years, I would have boldly said $1 billion, because its original design was to improve arbitrage efficiency between exchanges. But I could never have predicted the explosive growth after 2020. We didn't have everything figured out from the beginning.
The success of the US dollar stablecoin lies in the US dollar itself
Lorenzo: Basically 99% of the stablecoin market is based on the US dollar. Do you think there is room for local currency stablecoins such as the Japanese yen stablecoin? In which markets might local currencies or local stablecoins make sense?
Paolo Ardoino: A stablecoin is only as successful outside of its own currency as its own currency is abroad.
If you go outside the United States and stop 10,000 people on the street and ask them whether they would rather hold their local currency or the US dollar, 9,999 people will say they prefer the US dollar. If you go outside Europe, such as Africa, and ask people whether they prefer the euro or their local currency, many people will ask what the euro is.
So, the success of the dollar-denominated stablecoin is because everyone knows what the dollar is; it's on everyone's mind. Everyone outside the United States has been born trusting the dollar. The dollar is the best product the United States has ever created. That's why the dollar-denominated stablecoin works.
You could certainly issue an Argentine peso stablecoin, and that might work, but people would still sell it for dollars. An Argentine peso stablecoin wouldn’t add much utility.
