Two Titans Battle for Crypto’s Future

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[00:00:30] Welcome to Tech News Briefing. It's Tuesday, March 11th. I'm Charlotte Gartenberg for The Wall Street Journal. President Trump signed an executive order last week officially establishing a strategic Bitcoin reserve and a stockpile for other cryptocurrencies. The president's call to bring crypto into the mainstream through government regulation has raised the stakes of a battle over the $3 trillion industry between two crypto kings.

[00:00:56] Italian billionaire Giancarlo DeVicini and American Jeremy Allaire. DeVicini's company Tether and Allaire's company Circle are in a battle not only for who can dominate the industry, but who can survive this fight. We'll hear from WSJ reporter Angus Barrick, who has been following the rivalry and the cryptocurrencies at the center of it.

[00:01:22] Angus, we're talking about two stablecoins here, Tether and USD coin. Stablecoins are a form of cryptocurrency designed to be pegged to other assets like the U.S. dollar. Let's start with Tether and the man behind it. Who's Giancarlo DeVicini? Giancarlo DeVicini, he's the mystery man kind of at the center of the kind of crypto world.

[00:01:46] He's run Tether for over a decade, back from the early days of crypto when Bitcoin was worth like under $100. He's pretty much never spoken publicly. He's very rarely been seen publicly. It's difficult to say exactly how much he's worth, but he has a majority stake in Tether. And Tether last year said it earns over $13 billion, which is double the amount that BlackRock earned.

[00:02:15] So he's immensely wealthy, extremely secretive. And he's very focused on preserving this incredibly lucrative business as the industry heads into this new regulatory world. Okay, so explain Tether to me. What's the idea behind the eponymous digital dollar of DeVicini's crypto company?

[00:02:39] The initial idea for Tether was that back in the kind of early days of crypto, banks were very skittish about opening accounts for crypto companies. So for traders, it used to be a complete nightmare if you wanted to move from dollars or pounds or euros into a cryptocurrency. It could take days. The banks might close your accounts down. Tether was positioned as the solution for this. They would effectively work as the sort of central bank of crypto.

[00:03:05] Instead of needing to move between like real dollars and crypto, you could just, you could swap between Bitcoin and Tether's own token, which importantly is pegged to the dollar. Over the years, kind of the utility of Tether has developed enormously as many people around the world have seen how useful it is to have a digital dollar, which you can move around the world almost instantaneously.

[00:03:29] And for a very small cost, it has a lot of legitimate use cases, but there's a huge amount of criminal use as well. I mean, you know, last year, the Treasury Department publicly singled out Tether as being used to fund the Russian war machine. It was being used as a currency by importers and Russian weapons manufacturers to bring in parts that they needed.

[00:03:51] We've seen a huge array of kind of sanctioned actors, criminal organizations, terrorist groups turn to Tether as a tool to spirit money around the world under the noses of regulators. And how has Tether responded to allegation that it's the tool of choice for criminal groups? So Tether say that they cooperate with law enforcement agencies and that they're committed to compliance.

[00:04:16] They also say that this kind of vast kind of secondary markets in which there are, you know, sometimes $100 billion in transactions taking place every day, that that's not a market that kind of falls under their kind of direct oversight. How big of a space does Tether occupy in the crypto industry? Tether, to a great degree, is the kind of foundation on which the crypto industry is built. About four out of every five crypto transactions involves Tether.

[00:04:45] Its volumes are immense. We're talking $100 billion sometimes every day. Its closest competitor, Circle, has been growing very rapidly, but it's still only about a kind of third the size of Tether in terms of the value of its total market. Well, I'm glad you brought up Circle because that is sort of the other corner of this rivalry. Circle is Jeremy Allaire's company. Tell me about Jeremy Allaire.

[00:05:10] Jeremy Allaire, he was kind of an established Silicon Valley entrepreneur, somebody well respected there with very good contacts among the venture capitalists and on Wall Street. Around the same time that Tether was launched, he also became incredibly interested in the potential for crypto to rework the traditional financial system.

[00:05:32] You know, in particular, he saw its utility for making cross-border transactions, which, you know, as anybody knows who tries to send money long distances is often incredibly slow and costly. In his words, he says that, you know, he wants to create a financial system for the internet age. The key difference between Allaire and Devicini is that he always saw the purpose of Circle was to build this new financial system kind of in cooperation with regulators. They weren't looking to exploit the gaps.

[00:06:02] Global regulation, they weren't based offshore. They've always been in the U.S. USD Coin, the cryptocurrency from Allaire's company, Circle. How does it work? So Circle's stablecoin, which is called USD Coin or USDC, it's a digital dollar which you can transact over the blockchain. You can exchange it for other cryptocurrencies or you can exchange it for other real world currencies like the euro. USDC is pegged against the dollar.

[00:06:29] For every USDC which Circle issues, they say that there is one dollar in a kind of cash equivalent asset backing that. So the total market value of USDC at the moment is around 60 billion dollars. And there is a pile of kind of 60 billion dollars of treasuries and cash equivalent assets which Circle holds, which kind of supports the value of the token.

[00:06:55] Coming up, the blows exchanged so far and what this battle means for the crypto industry's future. After the break. ServiceNow unterstützt Ihre Business Transformation mit der KI-Plattform. Alle reden über KI, aber die KI ist nur so leistungsfähig wie die Plattform, auf der sie aufbaut. Lassen Sie die KI arbeiten. Für alle.

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[00:07:48] What have the two founders said about one another and their companies? They've been badmouthing each other for a number of years. Circle's often kind of flagged Tether's opacity, how Tether's reserves aren't solely based on kind of cash on cash equivalents, that they also include, you know, portions of Bitcoin and gold and commercial loans. I also know through my reporting that Circle has taken its concerns about its use by kind of criminal actors

[00:08:17] and sanctioned entities directly to the Treasury Department and other authorities. Tether, on the other hand, the stick they used to bash Circle was predominantly kind of Circle's use of Silicon Valley Bank, which collapsed in kind of March 2023. And when it did, it trapped about $3 billion worth of Circle's cash reserves, which caused that kind of the USDC token to lose its peg to the dollar and fall to about 87 cents,

[00:08:43] which obviously for a token that is supposed to be stable and equivalent to a dollar is, that's a kind of huge dent to its reputation. I think so Tether have said that Circle was kind of mistaken to leave their cash in a bank because that then leaves them vulnerable to a bank failure. How has Circle responded to this? They say that in order to kind of facilitate customer transactions, that they need to keep a portion of their cash reserves in smaller banks.

[00:09:09] But they say that the vast majority of their reserves are held in treasuries and are stored at the Bank of New York Mellon, which is the largest custody bank in the world. What is one of the issues at the core of their rivalry? In Deversini's eyes, what Circle wants to do and what Jeremy Allaire wants to do is turn crypto into effectively just another corner of the regulated financial system,

[00:09:36] whereas Deversini wants crypto to remain true to its anti-establishment roots. Deversini, he told one associate that I spoke with last year that the only way that Circle will win this fight is if Tether dies. So they're both using pretty heated and existential language to describe this kind of battle that they're both locked in. What does this ongoing fight mean for the crypto industry and for its investors more broadly?

[00:10:04] On one hand, it's a fight about what's potentially the biggest cash cow of the crypto industry. Both these stablecoin companies, they're making huge profits, doing something which is currently fairly risk-free. I mean, they're just putting huge reserves into U.S. treasuries, which yield 4% and kind of collecting the resulting windfall. So on one hand, it's a fight for that pretty big slice of the pie. On the other hand, it's also this fight for the future of the industry and the industry's biggest players

[00:10:33] are going to be the ones that are championing kind of regulation and kind of embracing cooperation authorities in more or less a similar way that a Wall Street bank might. Or whether it's going to continue to be led by companies that fundamentally view very kind of skeptical of government and of regulations and would much prefer to be left alone. That was our reporter, Angus Barrick. And that's it for Tech News Briefing.

[00:11:03] Today's show was produced by Jess Jupiter and Julie Chang with supervising producer Catherine Millsop. I'm Charlotte Gartenberg for The Wall Street Journal. We'll be back this afternoon with TNB Tech Minute. Thanks for listening.