Tether enters Bitcoin mining, AI and education

Source: Forbes, Nina Bambysheva

As much of the crypto world implodes, as FTX and other industry giants have tumbled, Tether has stood out from the storm and thrived.

The market value of its stablecoin, USDT, has soared to $111 billion, three times that of USDC, issued by Boston-based Circle. With higher interest rates on U.S. Treasuries, which make up the bulk of its digital stablecoin reserves, Tether is in an enviable position because its funding is effectively free. Unlike traditional banks, customers do not earn interest when they deposit hard currency into Tether in exchange for tokens.

For the first quarter of 2024 alone, Tether reported unaudited company-wide “financial results” of $4.5 billion and a net worth of $11.4 billion. In 2023, the company reported a net profit of $6.2 billion, making it perhaps the most profitable company in the cryptocurrency space today. Coinbase, the largest U.S. cryptocurrency exchange, made just $95 million on $3.1 billion in revenue for the full year 2023, while in the first quarter of 2024, its net profit reached $1.2 billion, thanks to the rise in cryptocurrency prices. Thanks to its partnership with Circle, about 20% of Coinbase’s 2023 profits came from the interest it earned on its reserves backing the stablecoin USDC.

With plenty of cash in hand, Tether is now looking for growth opportunities beyond stablecoins. Last month, the British Virgin Islands-based company announced a strategic reorganization that expanded into three new divisions in addition to its stablecoin business: bitcoin mining, artificial intelligence, and education.

“The concept of removing the middleman in crypto can be applied to many other things,” said Tether’s new CEO Paolo Ardoino, who has served as the company’s CTO and spokesman since 2017.

Tether’s planned expansion is more than a prudent diversification strategy — it’s a philosophy. “We feel like 90% of technology, maybe more, is built for the best case scenario, but nobody builds technology for the worst case scenario,” said Ardoino, 40. “If there’s a disaster, I’m not saying there will be, but anything could happen and we’re unprepared for it.”

Crypto historians will remember that Bitcoin was created by Satoshi Nakamoto in the aftermath of the 2008 financial crisis, when the stability and credibility of the global financial system was widely questioned. Ardoino believes Tether will play an important role in creating what he calls sovereign technologies that can empower people.

“It’s good to have resilient money, but if you only have resilient money and everything else is centralized, it will be destroyed very quickly,” Ardoino said. “One of our mottos is ‘Built for Doomsday.’”

Paolo Ardoino grew up on his family farm in northern Italy. He started programming at the age of eight and later studied computer science and mathematics at the University of Genoa. After graduating in 2008, Ardoino became a researcher on military projects at electronics and information technology company Selex Communications, focusing on high-availability resilient networks and encryption technologies.

Seeking opportunities outside of Italy, he moved to London around 2013 and soon after founded Fincluster, a startup building cloud-based financial applications for advisors, fund managers and institutions in London, Milan and Lugano. In October 2014, one of his clients introduced him to Giancarlo Devasini, CFO of Tether and sister cryptocurrency exchange Bitfinex. Devansini asked Ardoino to help scale the Bitfinex platform, which was already growing in popularity. Ardoino was soon assigned to lead the technology divisions of both companies, and as Devasini and CEO Jean-Louis van der Velde shunned the public spotlight, Ardoino became the face of Tether. All three, along with general counsel Stuart Hoegner, later became billionaires, according to Forbes’ Billionaires List. Last December, Ardoino officially took over Tether while retaining his CTO duties at Bitfinex. He also led strategic work for Holepunch, a technology platform launched by Tether, Bitfinex and infrastructure platform Hypercore that allows developers to create applications without servers.

According to Ardoino, there are no changes to Tether's ownership structure. CFO Devasini remains the company's largest shareholder, while former CEO van der Velde remains involved as an advisor. But that hasn't stopped Ardoino from charting a new direction for Tether. Last month, the company announced that it would reorganize into four divisions to develop its expanding business focus:

• Financial Division, responsible for managing USDT and overseeing the upcoming digital asset tokenization platform;

• Data Division, responsible for strategic investments in emerging technologies, including artificial intelligence and peer-to-peer platforms;

• Computing Division, focusing on Bitcoin mining and energy-related businesses;

• Education Division, supporting education and leadership programs.

Tether has made significant progress in various fields. Last year, the stablecoin giant participated in a $1 billion investment in a Bitcoin mining operation in El Salvador called "Volcano Energy", although the operation will be powered by solar and wind energy. Tether has also established its own Bitcoin mine in Uruguay. Last September, Tether revealed that it spent $420 million on behalf of German-listed bitcoin miner Northern Data to buy 10,000 of Nvidia’s H100 graphics processing units (GPUs), which are typically used by artificial intelligence companies seeking to process large amounts of data. In exchange, Tether received a 20% stake in the company, which intends to lease the chips to AI startups. Another novel investment by Tether came in April, when it spent $200 million to buy a majority stake in Salt Lake City biotech Blackrock Neurotech, which makes brain implant chips designed to allow people with neurological diseases or paralysis to “eat, drink, operate a robotic arm and send an email” by “thinking.”

Tether has doubled its lean headcount to about 100 over the past year, according to Ardoino, who personally interviews every candidate. “I don’t want people who can only say ‘yes,’ ” Ardoino said. "I want people to tell me what they think about Tether and what we're doing right and what we're doing wrong."

When it comes to bitcoin mining, Ardoino's goal is to gain 5% of the market share, which would put it among the top miners in the world. "If you look at bitcoin as the ultimate form of money, you know, it's built for the end of the world, you don't want the majority of bitcoin mining to be concentrated in one country. So the way to achieve that is to invest in different regions," he explained. "We're starting with South America and we plan to expand in different regions around the world to ensure that bitcoin mining can continue to remain decentralized."

"In the bitcoin mining space, it really comes down to how much money you can put in. They've put in about $500 million. With that kind of money, you can go a long way," said Kevin Dede, an analyst at H.C. Wainwright. Adam Sullivan, CEO of publicly traded Core Scientific, added: "They are now the largest investor in bitcoin mining. That's a very good fit for them because that's what drives their business." Sullivan was referring to bitcoin's recent price surge, which has boosted Tether's profits because of its large holdings of the digital asset. If bitcoin prices continue to rise, mining bitcoin will amplify profits.

But while Tether has made progress in bitcoin mining, its move into artificial intelligence will be more challenging. In addition to deals with companies like Northern Data, Tether is looking to build an in-house team of experts to build large-scale models and integrate AI capabilities into its existing products. Job ads on its website list positions such as AI engineer and head of AI R&D. "I think AI can play a much larger role and be less influenced by the political biases of the elite few who currently run the world's largest AI projects," Ardoino said, referring to a group of companies including Microsoft, OpenAI and Google that currently dominate much of the work in AI development. “We believe AI should be free of middlemen, just like money should be free of middlemen.”

Rob Toews, partner at Radical Ventures, is skeptical of Tether’s alleged foray into AI. “Buying GPUs and renting them out to AI companies is a relatively easy strategy to enter, but I really struggle to imagine Tether being a credible competitor in the world of building multimodal AI models.”

Through its education arm, Tether will offer courses and workshops covering blockchain technology, AI, coding, and design. It has already launched partnerships with Georgia Digital Industries Academy and Bitkub, Thailand’s largest local exchange. “Education is the cornerstone of this journey and is key to fostering economic prosperity and sustainable development,” Ardoino said.

Given the volatile history of cryptocurrencies and the fact that Tether has yet to publish financial statements audited by a CPA, concerns about the source of its new investment funding are justified. According to the company’s financials, a large portion of its $4.52 billion profit in the first quarter came from gains on the company’s bitcoin and gold positions. Ardoino insists that Tether’s investments come from its profits, not customer reserves.

“If people thought they started dipping into customer reserves to invest in these things, Tether could collapse very quickly,” said Austin Campbell, an associate professor at Columbia Business School and an advisor to blockchain companies. “I’ve always said that the problem with Tether is not what they hold now, but what they could hold in the future because they’re not constrained.”

Campbell also warned that Tether’s dominance in the stablecoin space is far from guaranteed in the long term: “As stablecoin regimes come out and regulation formalizes, Tether is going to have to start complying with those regulations locally or leave those jurisdictions.”

Tether’s dominance is already being challenged. While USDT remains the leader in the stablecoin market with a 69% share, according to DefiLlama, it lags in trading volume. According to an analysis by payment giant Visa and enterprise blockchain data platform Allium Labs, Circle's USDC had 178.6 million transactions in April 2024, surpassing USDT's 173.9 million.

In addition, a new version of the bipartisan stablecoin bill proposed in April by U.S. Senators Cynthia Loomis (R-WY) and Kirsten Gillibrand (D-NY) would limit the issuance of stablecoins to a maximum of $10 billion by institutions without a banking license, which could spark competition from traditional banks, according to a recent report by S&P Global Ratings.

"We believe all of these investments are critical for Tether... We believe these investments can change the destiny of emerging markets and developing countries. We want to be a leader in the evolution of humanity," Ardoino said.