Paolo Ardoino, CTO of Bitfinex & Tether – Interview Series
Paolo Ardoino is the CTO of Bitfinex & Tether.
Bitfinex is a digital asset trading platform offering state-of-the-art services for digital currency traders and global liquidity providers.
Tether is the most widely used stablecoin in the world. They recently launched Tether Gold.
You’re currently the CTO of two of the most successful blockchain companies in the cryptocurrency space, Bitfinex and Tether. How did you find yourself in such an enviable position?
I started in the Bitcoin crypto space between 2012- 2013, not too early, not too late. I was able to enjoy quite a few runs in the space. At the time I was working in the traditional financial sector in London. I had my own startup, and my expertise was in building highly scalable applications as a part of computing and distributed systems. Of course, finance and scalable applications and what the system sees is a perfect match for Bitcoin. So as soon as I started reading about Bitcoin, I fell in love.
I was experimenting and getting more and more excited about Bitcoin. And then at the end of 2014, I had the opportunity to join Bitfinex. They had a problem with the matching engine. Given my expertise, I offered my help to build the matching engine to be more scalable, so we were able to achieve 1,000 times the previous number of transactions per second.
Then, I started getting a little bored with my company in London which was mired in traditional finance. The old, outdated protocols were no longer interesting and I wanted to do something that was related to Bitcoin and the crypto space. I saw this as a huge opportunity to do something that would matter in the long run — to help change the financial system itself and leverage the groundbreaking technologies based on blockchain.
In mid-2016 I became CTO of Bitfinex and worked hard to bring the platform to what is today. The beautiful interface, carefully designed and really robust, the matching engine and APIs were all a priority, as well as making it all highly scalable. This is basically still my role today. Apart from managing my team, I keep working on the core of the platform. In 2017, I became the CTO of Tether. Tether is the biggest stablecoin by market capitalization. It’s really one of the most amazing ideas in this sector. Everyone today talks about Tether, but it was really created by a group of visionaries and Bitcoin lovers in 2014. They had this great idea to solve the problem of arbitrage, especially efficient arbitrage across crypto exchanges. The arbitrage opportunities were really big, but the problem is that to exploit those, you have to move wires around different exchanges. It was really painful and really slow — it could take days! Tether was the solution for that and worked out beautifully.
Tether Gold is a token (XAU₮) that is pegged to physical gold. Where is this physical gold located and what’s the redemption process should an investor choose to redeem their tokens?
The physical gold is located in Switzerland and for security reasons I cannot give the exact location. In order to redeem Tether Gold, a holder must have enough tokens for a full bar of gold. In order to start the redemption process we normally ask that a customer have at least 430 Tether Gold tokens. We do that because 400 ounce gold bars aren’t actually 400 fine troy ounces — they vary in size from as small as 385 fine troy ounces and as big as 430 fine troy ounces.
When a holder wishes to redeem, we run an algorithm that “consolidates” their Tether Gold tokens onto one or more full gold bars. Those bars are then made available to the token holder for pick-up at the location of their choosing in Switzerland. From there, they can bring the gold wherever they want, according to travel rules and transport mechanisms and various rules of Switzerland and their jurisdiction. Alternatively, the token holder can ask us to try to sell their gold bar to a purchaser in Switzerland. If we’re able to sell it, the token holder will get the proceeds from that sale, less our fees, instead of the physical gold bar.
Why do you believe that gold stablecoins are necessary for investors?
We are seeing a period of uncertainty in the market. Thus, gold represents an interesting alternative to fiat cash. When there’s a lot of uncertainty in the financial markets, usually hedge funds go to cash, so they sell their assets and they try to minimize the volatility. They usually use cash for that, but gold is representing a sort of middle ground between keeping the investment in full — let's say equities, stocks, cryptocurrency, whatever — that are super volatile and something that feels more volatile than cash of course that is more novel. Gold is this middle ground, and is also one of the assets we see becoming more active when there is geopolitical uncertainty.
Tether Gold recently surged to a $21 million market capitalization. Do you believe this is based on coronavirus fears? What else is driving this surge in interest?
It reached $21 million, but for me this is just a start. I believe that in the next few months we'll see additional growth. As I said, gold is not just a really useful hedging mechanism for traders. Gold is a good way to hedge part of the risk when you have your assets under management. Tether Gold is a good way to hold gold because you are not charged annual fees based on your holdings of Tether Gold. I believe that the $21 million Tether Gold is still a small amount. Our vision is that Tether Gold will become a preferred way to hold gold. As gold is used as a hedging mechanism for large funds, we expect Tether Gold will continue to grow in popularity. There will be the need of much more Tether Gold as a result. So we should see more and more users acquire Tether Gold.
Can you share with us the current plans of integrating Tether (USDT) on the lightning network?
Bitfinex and Tether are funding a project called RGB Spectrum that is meant to develop a protocol to issue digital assets on top of the Lightning network. I believe that the moment the protocol is live, stable, and well-tested Tether will be one of the first to utilize this new protocol. That’s because Bitfinex and Tether believe that Bitcoin and Lightning network are really important technologies and the network is really scalable, purely peer-to-peer. It's as decentralized a protocol for micropayments as it should be. The RGB protocol will be ready to launch Tether on top of it because that will complete our vision of having Tether enable peer-to-peer micropayments.
Over the past year we have seen many new USD stablecoins. Why should investors continue to use Tether over some of these new options?
I believe that the reason is that Tether has some first mover advantage. It started in 2014, and the first big competitor started in 2018. Tether had four years of technological advancement and business advantage. One of the key qualities of a stablecoin should be cross-chain interoperability. Our major competitors are working mainly on Ethereum, while for us it is important to try and to serve as many communities as possible. Ethereum has a big community, EOS has a big community. Other blockchains that we support like Algorand, and Liquid, and Tron have big communities, so realize that for a stablecoin to be complete and to be really useful it needs to be the common ground of different blockchains. That is a huge advantage that we believe our competition hasn't realized yet.
Bitfinex recently replaced IEOs with Bitfinex Token Sales which is digital assets offering and launch solution for high-quality crypto projects. Can you share with us what this platform is exactly, and why entrepreneurs should use it versus launching an IEO on Binance, KuCoin, or other competitors?
First of all, you can see that Bitfinex didn't launch many IEOs. They didn't launch many projects because we know that most of the projects that were launched had really bad performance. We don't want to replicate the errors made by other platforms. We are more careful, and did an enormous amount of due diligence before deciding to launch a project through our Bitfinex token sales platform. I believe that our approach is more professional and more thorough. Projects that we'll launch will be part of a really exclusive platform and will be fully considered as a high quality project just for the fact that we were able to complete our thorough evaluation process. We want to make sure that whatever we list is a quality project that respects the fair valuation, and has a high utility so that the Bitfinex customers that will be interested in participating in the offering will be protected. To achieve this, we’ll already have done a lot of due diligence for them.
What type of projects will be featured on this platform?
There’s a wide variety of projects. There are artificial intelligence-related projects. There are games. There are tokens that aim to bring banking to the unbanked in a poor region. There are new blockchains interested to get adoption and prove themselves through the process. It's really a huge variety of projects.
Are there any new exciting projects in the pipeline at either Bitfinex or Tether that we should be aware of?
At Bitfinex, we are working on many new features that are really important for our customers. We are focusing on options when it comes to our derivatives platform. We are launching new integrations with third party providers in the near future around lending. And we are going to create an advanced version of our renowned peer-to-peer margin lending platform that has been powering our margin trading platform since 2013. So there are many projects that we are working on, plus launching additional pilot projects built on top of Lightning network to help market makers to try out how to improve their trading strategies, exploiting fast live network pay settlements.
Is there anything else that you would like to share about either Bitfinex or Tether?
As a general thought, Bitfinex is one of the key companies in the crypto space that for many years fought and allowed the industry that we’re all a part of to grow in a steady manner. Bitfinex shielded a lot of the problems to the crypto industry, especially being an on ramp to fiat and helping raise funds. Bitfinex built many interesting projects, a really solid trading platform that is home to a lot of traders. Experiment was the first to support the Lightning network, so basically Bitfinex is showing a lot of love to Bitcoin. We believe that Bitfinex is working for Bitcoin rather than using Bitcoin to just create profit.