The Tech Investor Helping Tether Make Deals Outside of Crypto

[00:00:00] [SPEAKER_01]: It's 4 a.m. and you're sucking baby snot through a tube because she's congested.

[00:00:04] [SPEAKER_01]: If you love her that much, love her enough to make sure she's buckled in the right car seat.

[00:00:08] [SPEAKER_01]: Find out more at NHTSA.gov slash the right seat.

[00:00:11] [SPEAKER_01]: Brought to you by the National Highway Traffic Safety Administration and the Ad Council.

[00:00:19] [SPEAKER_03]: Welcome to Tech News Briefing. It's Tuesday, August 27th.

[00:00:23] [SPEAKER_03]: I'm Zoe Thomas for The Wall Street Journal.

[00:00:25] [SPEAKER_03]: Climate change has made heat waves longer and more intense,

[00:00:29] [SPEAKER_03]: raising the risks for people who work outside in hotter regions or in spaces like large warehouses without air conditioning.

[00:00:37] [SPEAKER_03]: New high-tech personal cooling systems, though, are fighting the effects of heat.

[00:00:42] [SPEAKER_03]: We'll tell you how they work.

[00:00:44] [SPEAKER_03]: And then...

[00:00:45] [SPEAKER_03]: Tether, the company behind one of the world's most popular cryptocurrencies,

[00:00:49] [SPEAKER_03]: is investing in companies that seem unrelated to its core business.

[00:00:53] [SPEAKER_03]: What do they have in common?

[00:00:55] [SPEAKER_03]: Connections to a colorful financier.

[00:00:57] [SPEAKER_03]: Our reporter, Ben Foldy, will join us to talk about what's going on.

[00:01:10] [SPEAKER_03]: But first, when you are in intense heat, your body works really hard to cool itself down.

[00:01:17] [SPEAKER_03]: Extreme heat increases the risk of strokes, heart attacks, and severe dehydration.

[00:01:23] [SPEAKER_03]: But wearing something that can conduct heat away from your body, like new high-tech ice packs,

[00:01:29] [SPEAKER_03]: can allow people to stay in very hot conditions longer.

[00:01:33] [SPEAKER_03]: Here to tell us more about the companies developing these is our tech columnist, Christopher Memmes.

[00:01:38] [SPEAKER_03]: So, Christopher, in a broad sense, how do these systems work to cool the body?

[00:01:42] [SPEAKER_02]: There's a lot of ways to cool the body, some of which are more effective than others.

[00:01:46] [SPEAKER_02]: But the way that these work is just conduction.

[00:01:50] [SPEAKER_02]: So literally, a lot of them are putting something cool next to your body,

[00:01:54] [SPEAKER_02]: so it's cooling you the same way that taking a cold shower would.

[00:01:57] [SPEAKER_02]: So the heat is being transmitted directly out of your body into a dense medium that can absorb that heat quickly.

[00:02:04] [SPEAKER_02]: Sometimes they're using combination with other systems that just enhance our body's natural ability to cool us,

[00:02:10] [SPEAKER_02]: which is through evaporation, through sweat.

[00:02:12] [SPEAKER_02]: So there are fan jackets, for example, that are popular in Japan, which enhance your ability to cool through sweat.

[00:02:17] [SPEAKER_02]: But at the end of the day, if you really want to cool somebody off and it's really extreme circumstances

[00:02:21] [SPEAKER_02]: and maybe they're wearing protective clothing, the only way to do it is conduction.

[00:02:25] [SPEAKER_02]: So you've got to have something like an ice pack right next to your skin.

[00:02:29] [SPEAKER_03]: Tell us about one of these products, ice plates.

[00:02:32] [SPEAKER_03]: How did the idea for this system come about?

[00:02:34] [SPEAKER_02]: So there's a company called Core Performance.

[00:02:37] [SPEAKER_02]: It was founded by a man named Justin Lee,

[00:02:40] [SPEAKER_02]: and he was working with the U.S. Army to try to figure out how to keep soldiers cooler.

[00:02:45] [SPEAKER_02]: And the Army said to him, we need something that will cool soldiers for at least a couple of hours by 140 watts.

[00:02:54] [SPEAKER_02]: That's their measure for the amount of heat that they needed to take off these soldiers' bodies.

[00:02:58] [SPEAKER_02]: And that's a lot of power.

[00:03:00] [SPEAKER_02]: And he was trying to figure out, can I do this with batteries?

[00:03:03] [SPEAKER_02]: Can I put solar panels on these soldiers with little fans or something?

[00:03:07] [SPEAKER_02]: And the only thing that he eventually arrived at that wouldn't make their packs a lot heavier was,

[00:03:13] [SPEAKER_02]: hey, what if we just froze the water that they have to carry in these canteens anyway?

[00:03:18] [SPEAKER_02]: Why don't I just create these kind of thin plates that can be filled with water and frozen,

[00:03:25] [SPEAKER_02]: and then they can just be stuck right on the body, like in a vest, under body armor, in a backpack.

[00:03:30] [SPEAKER_02]: And that was the birth of ice plates, which are now used in tons of commercial applications.

[00:03:36] [SPEAKER_02]: People who work at Chick-fil-A or coffee shops in Tempe, Arizona, and hot warehouses and things like that.

[00:03:42] [SPEAKER_03]: What about Easy Cool? How is that different?

[00:03:45] [SPEAKER_02]: If you search on Amazon for cooling garment or a cooling vest,

[00:03:49] [SPEAKER_02]: you'll see a lot of what are basically vests and jackets and shirts,

[00:03:54] [SPEAKER_02]: where it has the same kind of gel packs that you might put in a lunchbox.

[00:03:58] [SPEAKER_02]: And it's basically just this idea that, like, what if we could create garments with gel packs

[00:04:03] [SPEAKER_02]: that could cool people but actually fit their bodies?

[00:04:06] [SPEAKER_02]: Imagine a future in which you pull a shirt out of a fridge or freezer and throw that on before you go outside.

[00:04:12] [SPEAKER_03]: You've given us a few examples. Where are these systems being used?

[00:04:16] [SPEAKER_03]: And what have the people who are using them said about how they've changed just their body temperature

[00:04:21] [SPEAKER_03]: and what it's like to work in hot conditions?

[00:04:23] [SPEAKER_02]: So one thing I think we forget about is that lots of people work indoors but don't have access to air conditioning.

[00:04:29] [SPEAKER_02]: So imagine you're working in a giant Amazon distribution center.

[00:04:33] [SPEAKER_02]: People might work 15 minutes and then go have to cool off for 45 minutes in a little air conditioned hut.

[00:04:39] [SPEAKER_02]: This could allow them to work for twice as long,

[00:04:41] [SPEAKER_02]: and it can also just reduce the odds that they're going to get some kind of heat sickness.

[00:04:47] [SPEAKER_02]: So for a lot of people who have to do jobs where there's just no way around being somewhere hot

[00:04:52] [SPEAKER_02]: or being in protective clothing, they've told me it's an absolute game changer

[00:04:55] [SPEAKER_02]: because it allows them to really keep their core temperature lower for longer.

[00:04:58] [SPEAKER_03]: All right. That was our tech columnist Christopher Mims helping us learn to cool off.

[00:05:02] [SPEAKER_03]: Thanks for joining us.

[00:05:04] [SPEAKER_02]: Thank you for having me.

[00:05:05] [SPEAKER_03]: Coming up, we'll tell you how a crypto giant is using some of its profits

[00:05:09] [SPEAKER_03]: and how a colorful investor is benefiting from its dealmaking.

[00:05:14] [SPEAKER_03]: That's after the break.

[00:05:21] [SPEAKER_01]: It's 4 a.m. and you're sucking baby snot through a tube because she's congested.

[00:05:25] [SPEAKER_01]: If you love her that much, love her enough to make sure she's buckled in the right car seat.

[00:05:29] [SPEAKER_01]: Find out more at nhtsa.gov slash the right seat.

[00:05:32] [SPEAKER_01]: Brought to you by the National Highway Traffic Safety Administration and the Ad Council.

[00:05:40] [SPEAKER_03]: The cryptocurrency Tether is popular with investors because it's stable,

[00:05:45] [SPEAKER_03]: it's always supposed to be worth one U.S. dollar,

[00:05:47] [SPEAKER_03]: and it's highly liquid, making it ideal for business transactions.

[00:05:51] [SPEAKER_03]: The company behind Tether is now flush with cash because it backs its crypto mostly with U.S. treasuries

[00:05:57] [SPEAKER_03]: that are throwing off more cash due to higher interest rates.

[00:06:01] [SPEAKER_03]: Tether is raking in roughly $4 billion a year.

[00:06:04] [SPEAKER_03]: It's using that cash to buy controlling stakes in companies

[00:06:08] [SPEAKER_03]: with the help of a tech investor and entrepreneur named Christian Engermeyer.

[00:06:13] [SPEAKER_03]: Engermeyer's deal introductions have had mixed results in the past, though.

[00:06:17] [SPEAKER_03]: Here to tell us more is our reporter Ben Foldy.

[00:06:19] [SPEAKER_03]: Ben, one of the companies that Christian Engermeyer helped Tether invest in is called Northern Data.

[00:06:25] [SPEAKER_03]: Can you tell us about this company and Engermeyer's connections to it?

[00:06:29] [SPEAKER_00]: Yeah, so Northern Data is a Bitcoin miner.

[00:06:32] [SPEAKER_00]: They are an infrastructure provider for computer clouds and things like that,

[00:06:38] [SPEAKER_00]: and then they are also pivoting into an AI services business.

[00:06:41] [SPEAKER_00]: Engermeyer's held a meaningful stake for a long time

[00:06:45] [SPEAKER_00]: and has been paid by Northern Data in the past to find sources of fundraising.

[00:06:50] [SPEAKER_00]: And then also Northern Data ended up buying some companies that Engermeyer had ties to.

[00:06:56] [SPEAKER_00]: First, a company that he had a small stake in called Decentric,

[00:06:58] [SPEAKER_00]: and then another called Bitfield that was a Bitcoin mining operation

[00:07:02] [SPEAKER_00]: that had been founded by somebody who used to work for a pyron, Engermeyer's fund.

[00:07:07] [SPEAKER_03]: And how is Northern Data doing financially?

[00:07:10] [SPEAKER_00]: Northern Data trades publicly in the unregulated German markets,

[00:07:14] [SPEAKER_00]: so their finances are unlike what we in the U.S. come to think of as a publicly traded company

[00:07:20] [SPEAKER_00]: and what they're obliged to disclose, like the rules are slightly different.

[00:07:24] [SPEAKER_00]: So the only real look we have at Northern Data's financials are audited financials that they publish annually,

[00:07:30] [SPEAKER_00]: but over the last two years, they've lost several hundred million dollars.

[00:07:34] [SPEAKER_03]: So what is Tether's stake in Northern Data?

[00:07:37] [SPEAKER_00]: So Tether first invested in the spring of 2023.

[00:07:39] [SPEAKER_00]: They paid about 32 million euros for a stake.

[00:07:42] [SPEAKER_00]: It wasn't a massive stake in the company.

[00:07:44] [SPEAKER_00]: It was less than 25 percent.

[00:07:46] [SPEAKER_00]: Otherwise, it would have had to disclose the investor, and Tether was never disclosed as that investor.

[00:07:51] [SPEAKER_00]: And then what's interesting, too, is that Engermeyer got a 5 percent fee for introducing the two companies.

[00:07:58] [SPEAKER_00]: A couple months later, Tether bought another 48 million euros of shares in Northern Data,

[00:08:02] [SPEAKER_00]: and again, Engermeyer gets a 5 percent fee.

[00:08:04] [SPEAKER_00]: So Engermeyer ended up with about 4 million euros between the two deals.

[00:08:08] [SPEAKER_00]: And then Tether publicly began helping Northern Data, first with about a 400 million dollar investment.

[00:08:14] [SPEAKER_00]: Basically, they funded this Irish company that Northern Data then took over in return for shares worth 400 million euros.

[00:08:22] [SPEAKER_00]: And then they extended a credit line of 575 million euros that Northern Data has drawn down.

[00:08:27] [SPEAKER_00]: At the end of all these transactions, Tether had a majority stake in Northern Data, which has since been disclosed.

[00:08:33] [SPEAKER_03]: And does Engermeyer get anything for these later transactions?

[00:08:37] [SPEAKER_00]: The company declined to answer whether Engermeyer got fees on the later transactions.

[00:08:41] [SPEAKER_03]: What did Northern Data say about its future or its connections to Tether?

[00:08:46] [SPEAKER_00]: Northern Data said that the transactions with Tether had been disclosed in compliance with accounting and financial disclosure requirements.

[00:08:54] [SPEAKER_00]: Northern Data also said that, like a lot of tech businesses, it's common to post a lot of losses before you start posting profits.

[00:09:02] [SPEAKER_00]: And they're investing in their future, and this pivot to AI isn't cheap, but they expect it to be reflected in their revenue growth for the next several years.

[00:09:10] [SPEAKER_03]: What has Tether said about its relationship with Engermeyer?

[00:09:13] [SPEAKER_00]: Tether didn't answer any questions about that.

[00:09:16] [SPEAKER_03]: Tell us about another investment that Engermeyer brought to Tether in a company called BlackRock Neurotech.

[00:09:22] [SPEAKER_00]: So BlackRock Neurotech makes what are called brain-computer interfaces, so electronics that get implanted in people's brains

[00:09:28] [SPEAKER_00]: with the purpose of converting neurological activity into computer signal.

[00:09:33] [SPEAKER_00]: Around the time that Neuralink was raising a bunch of money, Christian Engermeyer ended up leading an investment round of $10 million into BlackRock Neurotech.

[00:09:41] [SPEAKER_00]: And he became a co-chair of the board and then helped raise more money for them, did about a $37 million venture round last year.

[00:09:52] [SPEAKER_00]: And then Tether came in again with a $200 million investment earlier this year.

[00:09:59] [SPEAKER_00]: It's a transaction that, given Tether's existing business model, is pretty out of left field, it seems to most observers.

[00:10:07] [SPEAKER_00]: When you step back and you look across these transactions and you're like, OK, well, what's the logic here?

[00:10:11] [SPEAKER_00]: The commonality is Christian Engermeyer.

[00:10:13] [SPEAKER_03]: And did BlackRock Neurotech comment for this story?

[00:10:16] [SPEAKER_00]: BlackRock did not respond to any requests for comment.

[00:10:18] [SPEAKER_03]: Has Tether said anything about these investments?

[00:10:20] [SPEAKER_00]: Tether has, over the last several months, worked on a rebranding exercise of like, Tether, we're not just the stable coin.

[00:10:29] [SPEAKER_00]: We're also Tether the brain interface company and Tether the AI concern.

[00:10:34] [SPEAKER_00]: How that's translated into business results, we don't have a lot of insight into the company from the outside.

[00:10:42] [SPEAKER_00]: And it's difficult to see what this is really doing for their business.

[00:10:46] [SPEAKER_03]: Did Tether specifically respond to any requests for comment for your story?

[00:10:50] [SPEAKER_00]: Tether did not answer questions about these transactions.

[00:10:54] [SPEAKER_03]: We say we don't know why Tether is doing this, but what's the significance overall?

[00:10:58] [SPEAKER_03]: Why does it matter if Tether is investing in these companies?

[00:11:01] [SPEAKER_00]: If you add it all up for one, Tether has spent a billion and a half dollars on these kind of, let's say, off the beaten path kind of investments.

[00:11:09] [SPEAKER_00]: Tether is arguably the most important company in crypto, a huge cash generator.

[00:11:14] [SPEAKER_00]: But it's also kind of like, it's this mystery and it fits a pattern of Christian Engermeier connecting with companies that expanded their mandate, had a lot of cash and went shopping for deals.

[00:11:25] [SPEAKER_00]: And they ended up through Christian Engermeier being brokered into these transactions.

[00:11:29] [SPEAKER_00]: And Tether kind of fits that line.

[00:11:32] [SPEAKER_03]: That was our reporter Ben Foldy.

[00:11:34] [SPEAKER_03]: And that's it for Tech News Briefing.

[00:11:36] [SPEAKER_03]: Today's show was produced by Zoe Kolkin with supervising producer Catherine Millsop.

[00:11:41] [SPEAKER_03]: I'm Zoe Thomas for The Wall Street Journal.

[00:11:43] [SPEAKER_03]: We'll be back this afternoon with TNB Tech Minute.

[00:11:46] [SPEAKER_03]: Thanks for listening.