In the first quarter, profits reached 4.5 billion dollars, Tether ventures into Bitcoin mining, AI, and education

Original Title: “First quarter profit of US$4.5 billion, Tether enters Bitcoin mining, AI and education”

Author: Nina Bambysheva, Forbes

Translation: Luffy, Foresight News

During the time when FTX and other industry giants were faltering, much of the cryptocurrency world was in collapse; however, amidst this storm, Tether stood out, demonstrating a thriving momentum.

Tether's stablecoin USDT saw its market capitalization soar to $111 billion, three times that of its closest competitor, Circle's USDC, headquartered in Boston. With high interest rates on U.S. Treasury bonds (which make up a large portion of the reserves backing its crypto stablecoin), Tether's business is enviable, as its funding sources are essentially free. Unlike traditional banks, customers who deposit hard currency with Tether in exchange for USDT do not earn any interest.

In the first quarter of 2024 alone, Tether reported an unaudited company "financial performance" of $4.5 billion, with net assets of $11.4 billion. In 2023, the company reported a net profit of $6.2 billion, likely making it the most profitable company in today's cryptocurrency sector. In contrast, the largest U.S. cryptocurrency exchange, Coinbase, reported $3.1 billion in revenue and $95 million in profit for the entire year of 2023, with a net income of $1.2 billion in the first quarter of 2024, largely due to rising cryptocurrency prices. Thanks to its partnership with Circle, about 20% of Coinbase's profits in 2023 came from interest earned on reserves backing the stablecoin USDC.

With ample funds, Tether is now looking beyond stablecoins for growth. Last month, the British Virgin Islands-based company announced a strategic restructuring, opening three new departments in addition to stablecoins: Bitcoin mining, artificial intelligence, and education.

Paolo Ardoino, CEO of Tether

Tether's new CEO Paolo Ardoino stated, "The idea of cryptocurrency eliminating intermediaries can be applied to many other areas," having served as the company's CTO and spokesperson since 2017.

Tether's expansion plans are not just cautious business diversification but also a philosophical issue. "We feel that 90% or even more of the technology is built for the best-case scenario, but no one is building technology for the worst-case scenario," said the 40-year-old Ardoino. "If disaster strikes, I'm not saying it will happen, but anything can happen, and we are not prepared for it."

Cryptocurrency historians will remember that Bitcoin was created by Satoshi Nakamoto in response to the 2008 financial crisis, during which there was widespread skepticism about the stability and reliability of the existing global financial system. Ardoino believes that Tether will play a significant role in creating what he calls sovereign technology that empowers people.

Ardoino stated, "Having resilient currency is a good thing, but if you only have resilient currency while everything else is centralized, it will be destroyed quickly. One of our mottos is 'built for the apocalypse.'"

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

In search of opportunities outside Italy, he moved to London around 2013 and soon founded Fincluster, a startup that built cloud-based financial applications for consultants, fund managers, and institutions in London, Milan, and Lugano. In October 2014, a client introduced him to Giancarlo Devasini, the CFO of Tether and its sister cryptocurrency exchange Bitfinex. Devasini invited Ardoino to help expand the Bitfinex platform, which was becoming increasingly popular.

Ardoino was soon appointed as the technology head of both companies, and due to Devasini and CEO Jean-Louis van der Velde's low profile, Ardoino became the spokesperson for Tether. According to Forbes' billionaire rankings, the three of them, along with General Counsel Stuart Hoegner, later became billionaires.

In December last year, Ardoino officially took the helm at Tether while retaining his role as CTO of Bitfinex. He is also responsible for the strategy of Holepunch, a technology platform that allows developers to create serverless applications, launched by Tether, Bitfinex, and the infrastructure platform Hypercore.

Ardoino stated that Tether's ownership structure has not changed. CFO Devasini remains the largest shareholder, and former CEO van der Velde is still involved as an advisor. However, this has not stopped Ardoino from planning a new direction for Tether. Last month, the company announced a reorganization into four departments to develop its expanding business focus:

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

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

• Computing power department, focused on Bitcoin mining and energy-related businesses;

• Education department, supporting educational and leadership programs.

Tether has made progress in each area. Last year, the stablecoin giant participated in a $1 billion investment in a Bitcoin mining operation in El Salvador called "Volcano Energy," which will be powered by solar and wind energy. Tether has also established its own Bitcoin mining facility in Uruguay. In September last year, Tether revealed it spent $420 million on 10,000 Nvidia H100 graphics processing units (GPUs) on behalf of Northern Data, a publicly listed Bitcoin miner in Germany, which are typically used by AI companies looking to process large amounts of data. In exchange, Tether received a 20% stake in the company, which plans to lease these chips to AI startups. Another novel investment by Tether was in April when it spent $200 million to acquire a majority stake in Blackrock Neurotech, a Salt Lake City-based biotech company that manufactures brain implant chips designed to enable people with neurological diseases or paralysis to "eat, drink, operate robotic arms, and send emails by thought."

According to Ardoino, Tether's workforce doubled last year to about 100 people, and he personally interviews every candidate. "I don't want people who are just compliant," Ardoino said. "I want people to tell me what they think about Tether, what we did right and what we did wrong."

In terms of Bitcoin mining, Ardoino aims to capture a 5% market share, which would place it among the top miners globally. "If you believe Bitcoin is the ultimate form of currency, built for the apocalypse, then you wouldn't want most Bitcoin mining to be concentrated in one country. So the way to achieve this is to invest in different regions," he explained. "We are starting in South America and plan to expand globally to ensure Bitcoin mining can continue to be decentralized."

"In terms of competition in Bitcoin mining, the key is how much capital you can invest. They have already invested about $500 million. With that kind of capital, you can go a long way," said HC Wainwright analyst Kevin Dede. Core Scientific CEO Adam Sullivan added, "They are now the largest investor in Bitcoin mining. It makes sense for them because it's the real driver of their business." Sullivan noted that, given Tether's large holdings of digital assets, the recent surge in Bitcoin prices has boosted its profits. If Bitcoin prices continue to rise, mining Bitcoin will expand profits.

However, despite Tether's significant progress in Bitcoin mining, entering the AI sector will pose greater challenges. In addition to striking deals with companies like Northern Data, Tether is also seeking internal development, building large-scale models and integrating AI capabilities into existing products. Job postings on Tether's website list positions such as AI engineers and AI R&D directors. "I believe AI can play a greater role and will not be influenced by the political biases of the few elite currently running the world's largest AI projects," Ardoino stated. He referred to many of the companies currently driving AI development, including Microsoft, OpenAI, and Google. "We believe AI should be free from intermediaries, just as currency should be free from intermediaries."

Radical Ventures partner Rob Toews expressed skepticism about Tether's move into AI. "Acquiring GPUs and leasing them to AI companies is an easier entry strategy, but I find it hard to imagine Tether becoming a reliable competitor in building multimodal AI models."

Tether will offer courses and workshops covering blockchain technology as well as AI, coding, and design through its education department. The company has already partnered with the Digital Industry Institute in Georgia and Thailand's largest local exchange, Bitkub, to launch several initiatives. Ardoino stated, "Education is the cornerstone of this journey and is key to promoting economic prosperity and sustainable development."

Given the tumultuous history of cryptocurrencies and Tether's lack of audited financial statements from certified public accountants, there are reasons to be concerned about the sources of funding for the company's new investments. According to the company's financial disclosures, most of its $4.52 billion profit in the first quarter came from the company's Bitcoin and gold positions. Ardoino insists that Tether's investments come from its profits, not from its customers' reserves.

Austin Campbell, a part-time professor at Columbia Business School and consultant for blockchain companies, stated, "If people think they are starting to tap into customer reserves to invest in these things, Tether could quickly fall." "I've always said that Tether's problem is not how much they hold now, but how much they might hold in the future because they are unrestricted."

Campbell also warned that Tether's dominance in stablecoins is far from guaranteed in the long term: "With the advent of stablecoin regulations and the formalization of oversight, Tether will have to start complying with these regulations locally or exit those jurisdictions."

Tether's dominance has already been challenged. According to data from DefiLlama, although USDT still leads the stablecoin market with a 69% share, its transaction volume lags behind. An analysis by payment giant Visa and corporate blockchain data platform Allium Labs found that Circle's USDC had a transaction volume of 178.6 million in April 2024, surpassing USDT's 173.9 million.

Additionally, a recent report from S&P Global Ratings indicated that a new bipartisan stablecoin bill proposed by U.S. Senators R-Wyo and D-N.Y. in April would limit the issuance of stablecoins by non-bank entities to a maximum of $10 billion, potentially spurring competition from traditional banks.

Ardoino stated, "We believe all these investments are crucial for Tether… We believe these investments can change the lives of people in emerging markets and developing countries. We hope to be leaders in human evolution."