WAX ON: Why Tether ($USDT) Was Invented

Learn more about what the cofounder of Tether is doing with WAX

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Video Transcript:

Today I'd like to share with you the origin story of Tether. You might know Tether. Tether was the world's first stablecoin, the first coin that was backed by an asset, in this case, a dollar.

Anyway, let me tell you a little bit about how stablecoins got invented. So, the story starts about six years ago. Now, at the time, the crypto space was in many ways a lot different than it is today, in some ways similar. Where it was way different in that there were virtually no exchanges and the few exchanges that existed, almost all of those, what we called altcoin exchanges (anything that wasn't Bitcoin was an altcoin) altcoin exchanges had no banking.

So what you would do is you would go to one of the few exchanges where you can actually send money, buy Bitcoin. Then you would transfer that Bitcoin to the alt exchange and use the Bitcoin on the alt exchange to buy all these other tokens, right? All good; all good except remember, it's very volatile. All of the cryptos are still volatile but they were just as volatile then. And every once in a while, in my case three times a day, I wanted to escape the volatility. But how do you escape volatility in crypto vis-a-vis the dollar or you sell your crypto and your shift it to cash? But of course, the exchanges have no banks so what do you do?

You take your crypto on the alt exchange, you convert it into Bitcoin, send the Bitcoin back to one of the few exchanges that actually had banking, sell your Bitcoin there, have them wire transfer you the money. The in and out of that whole process took a week. Because what would happen is you would get your wire and then you'd be like but now I want to be back in the market. So send the wire back to the original exchange, get it converted into Bitcoin, and transfer it over to the alt exchange. This was how we lived.

Well, my partners and I started to think about, wouldn't it be great if there was a token that behaved like a dollar? So you could just actually mimic a dollar and you could transfer into that token? Well, the only way we could think about doing it was to actually issue a token that was backed by a dollar. Simple conceptual concept, right? So we're like, “Hey, we can do this. Oh, but what blockchain should be used?" Well, as it happened, we had just finished working with some people on something called Mastercoin.

Mastercoin by the way, was the first blockchain to incorporate an intelligent layer, what we now all call smart contracts. Mastercoin was faster, cheaper to use and Bitcoin, we're like, alright, let's issue Mastercoins that will back this new token that will be collateralized by a dollar. So we're thinking to ourselves, okay, we've got the concept; we have the coin, what are we missing? Well, we need a bank account in order to put the dollars into. Now, of course, banks love deposits, particularly deposits that probably aren't going to get redeemed very often, but banks are also wary of crypto.

So we had to find a bank that was willing to do this, what at the time was really a test, with us. So here we are looking for a bank that's going to be crypto-friendly and as a former bank auditor, I can tell you when you say to a bank, "typically this money we're putting in can really be part of your core deposits because it's going to sit there for a long, long time," usually they would love it, but because they were wary of crypto, they weren't willing to partner with us. Eventually, however, we found someone who was. We found a partner who had access to banking and also ran a crypto exchange.

They totally got the concept. So we got the concept down, we got the blockchain, we got banking access, we even have an exchange partner to test this whole thing out.

So that was four years ago and what's happened since? Well that token, Tether, now trades over 4 trillion dollars annually. And something I always thought was really neat - this was the first time I experienced using blockchain technology to solve a blockchain-induced problem so that was pretty cool.

Let me mention a couple of other surprises from my experience creating Tether.

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Disclaimer

The information contained herein is for general informational purposes only. Nothing herein shall be construed to be financial, legal, or tax advice. The content of this video is solely the opinions of the speaker(s). Buying and selling cryptocurrencies poses considerable risk of loss. The speaker(s) does not guarantee any particular outcome. Past performance does not guarantee future results. You should do your own research, incorporating your own personal financial situation and risk tolerances, before making any purchase or trading decisions. The speaker(s) is not an investment advisor, broker or dealer. Your financial decisions are solely your responsibility.