Tether CEO on Tokenized Deposits: “The Emperor Has No Clothes”
The debate between several representations of onchain fiat money and the advantages they offer users is raging.
Paolo Ardoino criticized recent statements by Pablo Hernandez de Cos, the General Manager of the Bank for International Settlements (BIS), who stressed that stablecoins are not an effective substitute for fiat money as they face several issues.
These include poor redeemability, supply issues, interoperability problems, and facilitation of crime.
De Cos instead promoted tokenized bank deposits as a “more direct path to harness tokenisation while preserving the monetary system’s foundations.”
Ardoino stressed that BIS’s concerns came as stablecoins were naturally a higher form of money than tokenized deposits, as they were almost fully backed by U.S. Treasuries, while the latter were usually only 10% collateralized by liquid assets.
“BIS is rightfully worried about the fact that stablecoins are exposing the emperor without clothes. Why someone should choose to put his savings into a fractional reserve product while stablecoins are fully reserved?” Ardoino declared.
Stablecoins have grown in popularity and adoption, and Tether’s $USDT, which boasts a market capitalization of over $183 billion at the time of writing, has become a relevant product in emerging markets: Ardoino himself pointed out that there were economies “heavily relying on $USDT, for both internal and foreign commerce.”
The stablecoin issue has reached into the higher echelons of U.S. politics, becoming a pain point in the debate over passing the Digital Asset Market Clarity Act, known as the CLARITY ACT, as banks fear deposit flight if crypto exchanges are allowed to issue rewards for these products.
“What happens to financial system if people start realizing that stablecoins are safer and move their savings into the better asset class? We’re in the Find Out phase.” Ardoino concluded, hinting at large-scale deposits-for-stablecoins substitution.