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This is the second part of a three-part series interview with William Quigley, cryptocurrency and blockchain investor and co-founder of WAX and Tether, exclusively for crypto.news by Selva Ozelli It was carried out. Part 1 is about the prison sentences of Sam Bankman Freed and Chao Changpeng. Part 2 is about cryptocurrencies and banking. Part 3 is about his future with NFTs.
1) In part 1 of our interview, you mentioned that you started your career as a bank auditor at Andersen. Coincub recently published a Cryptocurrency Banking Report ranking the world's most crypto-friendly banks. What do you think about tokenization of the banking system?
I could write a book on this subject, but I will briefly summarize my thoughts.
Money and payments have evolved ever since they existed. During my lifetime, the methods societies have used to store and transfer value have changed, first through digitization and now through tokenization. Over the past several decades, each major upgrade to the global financial architecture has introduced both new benefits and new risks. With digitalization, much of what people commonly think of as “money” is actually book balances in databases maintained by commercial banks. As a general rule, banks primarily use, but are not limited to, relational databases running on Unix and Unix-like operating systems, which were first developed in the 1960s.
Tokenization of the global financial system is still in its infancy. Still, it is transforming the way commercial bank deposits, payments, government and corporate bonds, money market fund shares, gold and other commodities, real estate, and ownership of other assets and liabilities are recorded on blockchains and other distributed ledgers. may have a negative impact. , enabling a wide range of new features.
As detailed in Coincub's Crypto Banking report, several financial institutions around the world are using blockchain technology to improve the way they transfer value and enable fast, secure, and low-cost international payment processing. We are actively exploring the possibility of tokenizing assets to facilitate our services (and other transactions). ) Using an encrypted distributed ledger, it provides reliable, real-time transaction verification without the need for intermediaries such as correspondent banks or clearinghouses. Despite recent advances in digitalization, bank payment and settlement systems remain slow and inefficient for many users, delaying the settlement of large transactions and numerous intermediaries, each of which adds to costs. It has become.
Tokenization and distributed ledgers have the potential to overcome many of these obstacles by introducing finality for payments in real time and running 24 hours a day around the world. Because tokenization provides the following benefits:
- programmabilityThis could make it easier for banks and their customers to automatically withdraw funds, respond immediately and automatically to liquidity stress, and move liquidity when and where they need it. there is.
- Instant paymentThis has the potential to increase the speed and strength of bank payments, as future value transfers are wired into a ledger and automatically self-execute based on the occurrence of future conditions.
- atomic payment—This may reduce the risk of loss during the time between payment and delivery, or during the simultaneous exchange and settlement of payment and delivery, including between multiple parties.
- Immutability of the shared ledger—This can serve as a transaction record and reliable audit trail. Blockchain-based IT infrastructure significantly reduces payment errors and reduces account reconciliation time. The transparency and immutability of the ledger will help regulators and law enforcement obtain accurate and verifiable data on token transactions and seize assets from criminals.
Tokenization of the global financial system will face challenges and risks as financial institutions, developers, regulators, and other stakeholders continue to develop the technology, but the We are already seeing examples where this is starting to bring significant benefits. For example, in China, the introduction of the digital yuan in 2020 could put China ahead of Europe and the United States in the global race to develop state-backed digital currencies (also known as central bank digital currencies). CBDC) is used throughout the banking system. Digital Yaun has so far been used to the tune of 100 billion yuan ($14.5 billion), mainly for domestic retail and public sector payments, according to data released by the People's Bank of China.
2) What challenges and risks does tokenization pose to the banking industry? Collapse of virtual currency exchange FTXThis event, discussed earlier in the interview, was a turning point that led to a market downturn, the 2023 crypto banking crisis with five bank failures, regulatory backlash, and further bankruptcies. On April 26, U.S. regulators closed Philadelphia-based Republic First Bank recorded the nation's first bank failure in 2024 due to “material weaknesses in internal controls over financial reporting.” But this could be just the beginning of more bank failures, according to consulting firm Claros Group. analyzed We surveyed approximately 4,000 U.S. banks and identified 282 small banks that face potential losses from rising interest rates.
On the technical and operational side, many unanswered questions remain regarding the tokenization of the global banking system. If tokenization is to play a central role in a future financial system where small banks fail and are taken over by large banks, many questions remain unanswered.
- Will there be only a handful of integrated, interoperable banking ledgers where all tokenized transactions take place around the world?
- Or will many banks maintain their own blockchains?
- To what extent will these banking blockchain platforms become interoperable, allowing customers using different blockchains to safely and securely transact with each other globally and seamlessly?
- How will cybersecurity and other financial risks be handled among banks? For example, when Silicon Valley Bank collapsed last year, the stablecoin USDC broke its dollar peg after the US corporate circle behind the coin revealed that $3.3 billion of the $40 billion in USDC reserves backing it was held by Silicon Valley Bank. In contrast, Tether (USDT), the world's first and most traded stablecoin that I co-founded, had better managed the risk of bank failure with reserve deposits that are transparently reported to the public daily.
Then there is the legal, regulatory and tax perspective, with countries implementing different legal regulations and tax systems governing digital assets and blockchain. Additional work is needed to clarify the extent to which ownership and other rights associated with particular assets are attached to tokens and travel with them across borders.
Eventually, these and many other important questions will be answered one way or another as financial institutions, developers, regulators, and other stakeholders continue to develop blockchain technology around the world. Meanwhile, with the leadership of the Financial Action Task Force (FAFT) and the Organization for Economic Co-operation and Development (OECD), several global standards in money laundering and tax law are being established.
3) In Part 1 of our interview, you co-founded Tether, the world's most traded digital asset, the first ever fiat-backed stablecoin, and are in the midst of a fierce battle with meta, BRICS countries and more. He said he is leading the industry in terms of competition. Please tell me about Tether stablecoin.
Tether is a fiat-backed stablecoin launched by Tether Limited in 2014. Tether Limited is owned by iFinex Inc., a company based in the British Virgin Islands. iFinex Inc. also owns Bitfinex, a Hong Kong-based cryptocurrency exchange that offers digital asset investments and investments. Transactions with Users Outside the United States.
As of May 2024, Tether has been minted on 14 protocols and blockchains. Tether stablecoins avoid extreme volatility in digital assets, most commonly by tying their value to the price of traditional currencies/fiat currencies such as the US dollar, euro, or Chinese yuan. Meta attempted to launch a stablecoin called Libra, which was later renamed Diem and shut down in 2022. BRICS countries have been keen to issue stablecoins based on a basket of fiat currencies since 2017. Tether launched #BRICST at last year's BRIC Summit, a BRICS stablecoin that replaces USD and USDT, is pegged to the Chinese Yuan and offers 10% annual returns to meet this demand To do.
Tether is the largest cryptocurrency in terms of trading volume, with 64% market share among stablecoins. USDT surpassed Bitcoin in 2019 to become the most traded digital asset in the world. As of May 4, 2024, Tether's total circulation exceeds $110 billion, 36 million euros, 20 million yen, 19 million Mexican dollars, and 246,000 Australian dollars, which raises the systemic risk of the digital asset market. This has raised concerns that it could threaten broader market stability. financial market.
Tether is generally considered a safe investment, primarily as a means of hedging the volatility of other digital assets. However, like any investment, there are risks involved, and investors should maintain a fully transparent company by publishing daily records of current reserve assets and working with international regulators to strengthen regulatory compliance. It is essential to consider tether efforts to
4) As the most traded digital asset, Tether is inevitably used for illegal transactions. According to TRM Labs, USDT is linked Illegal transactions in 2023 reached $19.3 billion, making it the most used stablecoin for crypto criminal activity last year. Do you have any comments regarding the misuse of Tether?
Starting December 1, 2023, Tether has been cooperating with law enforcement and regulators by implementing a voluntary wallet freezing policy. Tether provides secondary market controls that freeze transactions related to individuals on the U.S. Office of Foreign Assets Control (OFAC) Specially Designated Nationals (SDN) list. This list includes companies and individuals controlled or owned by sanctioned countries.
Recently, Tether also announced a partnership with blockchain monitoring firm Chainalysis to monitor the trading of tokens on secondary markets. This monitoring system helps Tether identify risky crypto addresses/wallets that may be used to evade sanctions or be used for illegal activities such as terrorist financing and illegal transfers.
