Dialogue with Tether Co-Founder: The Game Behind Exiting the European Market and the Future of Stablecoins

Source: "Milk Road Show"

Compiled by: Felix, PANews

William Quigley is the co-founder of Tether and WAX, as well as an early investor in crypto projects like Ethereum, Coinbase, and Kraken. Recently, he appeared on the "Milk Road Show" to explain the reasons behind Tether's exit from the European market, pointing out that the reserve ratio requirements in the EU's MiCA legislation prompted this business decision, and compared it to Circle's compliance strategy. The interview also explored the potential roles of tokenized fiat and CBDCs in future finance, expressing investment interest in RWA tokenization and blockchain applications in gaming.

Host: As a co-founder of Tether, I’d like to hear your thoughts on the recent developments in digital asset regulation in Europe. In response to the EU's MiCA legislation, companies like Tether and Binance have exited the EU market. What is your reaction to this? What impact will this have on Europe and the broader future of crypto?

William: First, I want to say that ideally, Tether and other stablecoins should be usable anywhere in the world, regardless of where you are, because tokenized fiat is a fantastic way to make payments and settlements (especially cross-border payments). However, every jurisdiction wants to impose its will on the companies operating within it. As it stands, the MiCA regulations regarding stablecoins and cryptocurrencies have been in the works for about five years, with the first draft emerging around 2023, so we anticipated this.

But in Tether's case, I believe the main reason for Tether's decision not to comply with MiCA and to choose to exit is that Tether would have to readjust its reserve calculations and structure to meet MiCA requirements. The MiCA regulations will require Tether to hold 60% of its reserves in EU banks. Given Tether's current operational model, this is simply not feasible for various reasons.

Moreover, if the EU were Tether's only market, it might be willing to do so. But the fact is, the vast majority of Tether's liquidity and trading occurs outside the EU. In the crypto space, the EU's importance has never compared to that of the US or Asia. Therefore, for Tether, this ultimately became a purely economic business decision: comply with MiCA's rules but significantly reduce its economic benefits, or simply exit? There are many details involved, as well as measures Tether could have taken. I believe that EU crypto users will suffer greatly without Tether, but that does not mean holding Tether is illegal; people can still self-custody, it’s just that regulated EU exchanges can no longer trade it. And in business, reversible decisions shouldn’t be overly agonized over; if in the future the EU's crypto trading volume becomes significant, Tether can always launch a stablecoin that complies with MiCA.

Host: Circle, which issues USDC and EURC, has taken a different path. They have complied with MiCA, established a subsidiary in France, and seem to be increasing their market share and dominance in Europe. What do you think of this outcome?

William: Circle made this decision because it wants to establish a foothold in Europe, so it has to make some compromises. I remember Circle's subsidiary is apparently based in France because it complies with MiCA standards. I believe EURC and Circle could capture 90% of the liquidity pool that users can trade.

But globally, compared to Tether, Circle has always been in second place. Tether holds an absolute dominance in many aspects, not just in market cap. If you look at trading pairs, almost every major trading pair for native cryptocurrencies on Earth is Tether. So if you are in second place, and it's a significant gap, you are likely to look for a way to expand into a market that a competitor does not want to participate in for various reasons. That’s Circle's logic. By operating under MiCA's rules, they have less to lose, so they are willing to do so.

Another factor is that no one really wants euros. The euro was touted as a competitor to the dollar, but it ultimately turned out to be a limping regional currency that only works in over 20 EU countries. If everyone globally wanted to hold tokenized euros, Tether would be happy to do so, but that hasn’t happened.

Host: Many Americans strongly oppose central bank digital currencies (CBDCs), believing they give central banks complete control over people's funds. Since Circle has complied with these regulations, are they becoming the de facto CBDC in the US? What risks exist if we move towards a centralized stablecoin system?

William: Circle cannot become a de facto CBDC. A few years ago, everyone thought the US would inevitably launch a CBDC, but it has stalled mainly due to public concerns. People fear that centralized digital currencies will allow the government to monitor every transaction and even freeze your bank account due to your political opinions. But I hope people understand the harsh reality: this has been happening for the past 15 years. Since the hurried passage of the Patriot Act after 9/11, the government and financial institutions have had the ability to weaponize the financial system. Those in the crypto industry know this best; many have lost their bank accounts simply for liking cryptocurrencies. The US government can access your bank records at any time without a court order. Therefore, I think the privacy reasons for opposing CBDCs are very naive, as those so-called "negative impacts" already exist in our current world. The benefits it brings (the tremendous efficiency of tokenized fiat) will far outweigh its negative impacts.

Host: You mentioned that the benefits of tokenized fiat outweigh the drawbacks. If the US's Clarity Act is passed, what significant release will it bring to the overall economy?

William: Most people do not understand how complex the current payment networks are. There are about 5,000 licensed currency exchange entities globally, extracting up to $1 trillion a year in "hidden taxes" through complicated currency exchange fees. The value of tokenized cash is immense, allowing you to hold different currencies and use them as needed without being forced to convert and pay taxes. Once regulations are clear, the biggest impact will be that many companies will issue their own stablecoins. Any company with hundreds of millions of consumers or large platform enterprises (like Amazon, Apple, Google, Microsoft, Alibaba) could significantly reduce friction and costs by issuing their own stablecoins. For example, Zuckerberg. They were on the path to issuing a currency, but when he was questioned by Congress, he backed down. I believe he backed down because he knew nothing about it; he is an excellent platform creator but knows very little about finance and payment functions. He was only obsessed with the "metaverse" at the time. This may be his biggest strategic mistake. Imagine a platform with 2.5 billion users being able to make instant, almost zero-cost, zero-fraud-risk payments; that would be an excellent business if used on platforms like WhatsApp. Even if the metaverse loses money, the profits from stablecoins would be enough to cover it.

Host: Recently, about 140 US banks and financial institutions have formed a cooperative organization (like the Open USD project) to launch interoperable stablecoins. Will everyone have their own stablecoins in the future, or will companies like Tether and Circle continue to be widely used?

William: In my view, the stablecoins that will dominate in the future will be issued by those giant banks, large financial institutions, and ultimately by central banks. The cooperative model of these 140 banks is very similar to the model of US banks jointly creating the ACH payment network in the 1960s. It is a non-profit cooperative that serves merely as an exchange settlement system, allowing them to transfer funds quickly at almost zero cost. Now, once there are stablecoins that everyone can use, this system will become more efficient, faster, and less prone to fraud. There are millions of ways this could evolve.

I sometimes sit with my cryptocurrency friends and find it very interesting: will the future see one stablecoin dominate like the dollar, or will there be thousands or even tens of thousands of different stablecoins? Personally, I lean towards the latter; I believe more people will have different types of stablecoins rather than being monopolized by a single project. We will see in 10 years.

However, private issuers like Tether and Circle will still have their space to exist. I believe their role will be to embrace new technologies more readily, as old, entrenched financial institutions typically do not. Large institutions choose to wait because they are managed by a group of high-paid employees, so they fear taking any risks of doing something wrong. Therefore, private stablecoin issuers have their value. But when it comes to integrating stablecoins into the existing macro landscape of the global economy, which is $100 trillion annually, that business will be done by large banks, as large enterprises will continue to use the traditional payment rails operated by these big banks.

You might see certain specific demographics choosing to use privately issued stablecoins due to the additional features they offer, but large institutions will definitely choose traditional financial giants that can provide them with underlying services. As for the bank alliance that includes many important member institutions (similar to the OSD project), I speculate it will develop quite well because, as I said, it has an extremely successful historical reference: the ACH network. The only potential issue they may face is possible antitrust concerns, so they must be open to any qualifying member, just like the ACH network.

Host: If centralized entities launch digital assets, will this stimulate greater market demand for open, censorship-resistant, permissionless assets like Bitcoin and Ethereum?

William: In fact, the most significant outcome born from blockchain technology is clearly "stablecoins"; Tether's trading volume dwarfs that of Bitcoin. However, there is a strong reason for the existence of permissionless tokens (like DeFi projects and non-stablecoins): innovation. In DeFi, you can accomplish many operations that are unimaginable in traditional finance, with the code being completely open. These innovations may take years to realize on highly regulated or closed chains like JPMorgan or Robinhood, or may never happen at all. Therefore, they will not disappear. But whether they can continue to capture and retain the large market will depend on specific application scenarios.

Host: What investment area excites you the most at the current market stage?

William: I have always had a strong interest in video games, which is also why I founded WAX to allow players to trade virtual items freely without restrictions from publishers. However, so far, most blockchain games have been merely speculative and have not genuinely enhanced the entertainment value of gaming. What excites me the most right now is the tokenization of RWA. Currently, traditional financial trading assets are extremely clunky, requiring numerous intermediaries to ensure the legitimacy and authenticity of ownership. Using blockchain to trade RWA has strong commercial logic, which is where I am currently investing a lot of time. You mentioned my skepticism about AI valuations. Indeed, everyone can see the value brought by AI, but that is not enough to establish a business model that can capture that value. Sam Altman once compared AI to a "utility," but due to heavy regulation and massive capital expenditures, utilities are actually very boring and lack flexibility as investments. Currently, large companies are investing hundreds of billions or even trillions of dollars in capital expenditures in AI, and I am very skeptical about how they will recoup that investment. Moreover, I personally doubt whether large language models (LLMs) are the ultimate form of AI development. If companies cannot figure out how to return the capital invested by their investors, they are not worth much. For similar reasons of extreme capital intensity and lack of a moat, I am also skeptical about the space business in the next 25 years.

Disclaimer: This content is provided for general branding and informational purposes only and doesn't constitute financial, investment, legal, or tax advice. Any events, rewards, online events, or related information mentioned herein should not be considered a recommendation, solicitation, or invitation to purchase, sell, trade, or otherwise deal in any crypto assets or to use any services. Crypto assets are highly volatile and may result in loss. WEEX services and online events may not be available in all regions and are subject to applicable laws, regulations, and eligibility requirements. You are responsible for ensuring that your use of WEEX services complies with local laws and for carefully assessing the risks before participating in any crypto-related activities.