“Tether is no longer a part of anything,” Mallers said on an episode of the "What Bitcoin Did" podcast released last week. “Tether was part of the plan originally because it had to be, because I didn't have a choice.”
Tether, issuer of USDT, settled a New York State Attorney General probe into its finances in February. Last month, the company disclosed that nearly half of the collateral backing its token is commercial paper, without specifying the issuers or ratings of those debts, leaving the market guessing how creditworthy and liquid the assets were. (Stu Hoegner, Tether's general counsel, later wrote that "the vast majority" of this commercial paper is from issuers rated A-2 or higher, again without naming any.)
Prompting further skepticism, with more than $60 billion of USDT outstanding the breakdown would mean Tether has a $30 billion commercial paper portfolio – bigger than Google’s or Apple’s. According to the company, only 4% of Tether’s reserves are cash and 3% U.S. Treasury bills.
But when Mallers arrived in El Salvador several months ago, his options for building a faster, cheaper remittance system on top of Bitcoin’s Lightning Network were limited, he told podcast host Pete McCormack. (The relevant portion starts at around 23:00 here and ends at 27:00.) This was before Mallers met Bukele, who made international headlines this month when his country became the first to make bitcoin legal tender (alongside the dollar, which has been El Salvador’s currency since 2001).
From early conversations with local financial institutions, Mallers learned that custodying dollars on users’ behalf would be illegal for a service like Strike’s, he told McCormack. Hence, USDT, a cryptocurrency that usually trades for $1, had to serve as a stand-in for dollars sent to El Salvador through Strike’s system.
“We built tether into Strike which was the equivalent of the Chase bank account in America and at least gave us some MVP basic functionality,” Mallers said, using the tech industry abbreviation for “minimum viable product.”
According to a description of the beta pilot Mallers published in January, Strike would debit the bank account of a sender in the U.S. for, say, $1,000; convert it to bitcoin; send that BTC to the company’s Central American infrastructure; and then convert it to USDT, credited to the recipient’s account.
If users didn’t want to hold USDT, they could convert it to BTC through Strike and, if desired, cash it out for dollar bills at a local bitcoin ATM, Mallers wrote at the time.
As many skeptics pointed out in the wake of Mallers’ bombshell Miami announcement, one problem with that setup is there are only a handful of such ATMs in El Salvador and they can charge hefty fees. Another is the aforementioned limited information, and longstanding doubts, about USDT’s dollar backing.
But since meeting Bukele – an experience Mallers described to McCormack as nerve-racking at first because he had no idea going in if the president would support or frown on Strike’s activities in El Salvador – the entrepreneur has more options.
Strike is now integrating with the country’s top five banks and two biggest cashpoint distributors, Mallers told McCormack. These are stores where people can exchange physical cash for a balance on a mobile app or vice versa.
The integrations would presumably remove the need for USDT to serve as an ersatz greenback because Strike would be able to hold customers’ balances at the banks. It would also give them more places to cash out those balances for the paper stuff.
Mallers did not give a timetable for the integrations during the podcast. Neither he nor Tether responded to CoinDesk’s emails by press time.
Summing up Strike’s temporary use of tether in the interview with McCormack, Mallers waxed philosophical, speaking about his journey in the second person.
“You launch with tether, you growth hack, you learn and be a good listener, be a good observer, you end up meeting with the president and helping to find regulatory clarity in the country,” he said. “And then you roll tether out, get it the f**k out of here.”
UPDATE (June 28, 00:03 UTC): Adds detail about Tether's commercial paper portfolio.
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