MUMBAI: Founded in 2012, Bitfinex is among the oldest cryptocurrency exchanges. It was the first trading platform on which bitcoin was traded with financing.
Bitfinex’s chief technology officer, Paolo Ardoino, also CTO at Tether, the world’s first stablecoin, spoke to Mint on the broader place of stablecoins in the crypto ecosystem and the proposed ban on bitcoin in India.
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Edited excerpts of the interview:
How is the supply of Tether tokens (USDts) set and what is its role in the bitcoin price boom?
Tether invented the concept of stablecoins in 2014. Tether tokens (USDts) are pegged one-to-one to the US dollar, and are used by customers, trading platforms, and exchanges across the globe.
USDts can be used by traders in arbitrage. This means that traders may sell bitcoin on a trading platform where the price is higher after purchasing it on a different platform where the price is lower. To do this, you have to send bitcoin to the platform where the price is higher and have a means of sending consideration to the platform where the price is lower. Tether provides a means for sending the other ‘leg’ of the transaction as fast as the bitcoin leg, using the blockchain technology. This speed can be critical for arbitrageurs. More broadly, tether provides a useful means of transmitting value around the ecosystem.
Price of bitcoin has recently been driven by companies investing billions of dollars into the ecosystem, such as Tesla or MicroStrategy. In order to buy bitcoin, these companies often rely on OTC (over-the-counter) desks and high frequency trading (HFT) firms. OTC desks buy USDts from Tether to purchase bitcoin across multiple crypto exchanges for their institutional clients.
To obtain and redeem USDts from Tether, a person must first become a verified customer of Tether. This means completing the KYC process, establishing identity, business type, source of funds, and related items. Once verified, the user will first have to deposit funds into Tether’s bank account. Tether will then credit the corresponding amount of Tether tokens (USDt) into the Tether wallet address provided by the user.
Where do you see stablecoins in the evolving crypto ecosystem?
Because of their innovative qualities and utility, stablecoins might play an important future role in the future of mainstream finance.
Central bank digital currencies (CBDCs) are also emerging as a new type of stablecoin. These may compete directly with private stablecoins. CBDCs may be used as a better settlement and interchange network among banks. Today, banks use outdated technology to talk to each other, while blockchains and stablecoins are much better technology that can solve several issues that banks have today. There is a bright future for stablecoins as both CBDCs and private interests issue their own digital tokens.
Do you see a bubble in bitcoin prices?
This is for the market to decide, but we do not necessarily see a bubble at the time of writing. Bitcoin is a useful store of wealth and value and may be seen as a hedge against inflationary fears in fiat currencies. Bitcoin allows people to keep their wealth relatively private and secure.
Your views on the Indian market and the proposed ban on cryptos
Without trying to predict the future, the Indian market is definitely one of the fastest growing and most interesting markets for cryptocurrency. We understand that the Indian government plans to restrict bitcoin’s usage in India. Such a move would be exceedingly difficult to enforce, both legally and operationally. Accountability must always be balanced with financial privacy. This balance can be achieved in a market without an outright ban.