Wall Street Journal: Tether and Circle's life-death battle

Written by:Angus Berwick

Compiled by: Luffy, Foresight News

In the Alpine town of Lugano, Switzerland, the world's new billionaire Giancarlo Devasini lives in seclusion. He lives in a normal apartment by the lake, wearing a black hoodie and strolling on the cobbled streets, and is furious about the American competitor he thinks is trying to ruin his business.

Devasini is one of the main owners of Tether, the company’s digital dollar USDT is an integral part of the cryptocurrency industry. USDT's core position has helped Devasini accumulate huge wealth, have a huge influence in the crypto industry, and has also been supported by one of President Trump's top ally.

Critics say USDT has become the preferred tool for criminal gangs to transfer funds around the world.

Jeremy Allaire, a powerful rival in an attempt to subvert the Devasini business empire, founded by the Circle company that was Tether's arch-rivaled rival, issued a stablecoin called USDC. Allaire is an executive in suits who handles it with ease whether in Davos, Wall Street or Congress Hall. He is launching a campaign to eliminate USDT through regulation.

Devasini once told business partners that Circle was vilifying USDT to politicians and inciting enforcement actions against Tether. In Devasini's view, Circle wants to turn the industry into another regulated corner in the financial field, while he hopes that cryptocurrencies can stick to their bold and anti-traditional roots.

In 2014, Tether CEO Giancarlo Devasini was in Milan

A few months ago, Devasini told a partner: "As long as USDT is still there, Circle will not win."

The battle is about the future of the $3 trillion cryptocurrency industry. The Trump administration, which supports cryptocurrencies, should have ushered in the golden age of the industry, and on Sunday, Trump announced a strategic reserve plan for cryptocurrencies. But in fact, calls for mainstreaming cryptocurrencies through government regulation have triggered a life-and-death battle among cryptocurrency participants. While the law is expected to be crypto-friendly overall, it can be devastating for individual players like USDT who stand on the opposite side of the new rules.

Allaire has been encouraging governments in the United States and other countries to pass laws prohibiting the use of USDT tokens issued abroad. A such law in the EU went into full force last December, and the United States introduced a similar bill.

USDT is a well-deserved industry leader, with four of its stablecoins being used in every five cryptocurrency transactions. USDT Holdings, which owns half of the shares of Devasini, said the company made $13 billion last year, twice that of BlackRock, and its profits came mainly from its large number of ultra-safe U.S. Treasuries, which are value support for USDT's 1:1 pegged to the USD.

Allaire often testifies before Congress, calling for stricter regulation, which would come at the expense of USDT but would benefit Circle. Last year, a senior deputy at Allaire urged lawmakers to target USDT on the grounds that USDT was used for terrorism financing. The Wall Street Journal reported in October that the U.S. Department of Justice and Treasury are investigating whether USDT may have violated financial crime laws.

"We want to make USDC the digital dollar of choice," Allaire said in an interview.

Jeremy Allaire, founder of cryptocurrency company Circle

By contrast, Devasini avoids the spotlight and almost never speaks in public. The 60-year-old has been USDT's nominal chief financial officer and on Monday said he would be transferred to chairman. In fact, he has always been in charge of the company's operations - even though the business card he sent said "No title, no job, nothing". Behind the scenes, his colleagues revealed he hopes allies like U.S. Commerce Secretary Howard Lutnick to stifle hostile legislation backed by Circle, Lutnick's company Cantor Fitzgerald, which holds a large reserve of USDT Treasury bonds. Lutnick resigned from his position at Cantor Fitzgerald after he received a cabinet position in the Trump administration in February.

Both companies refused to comment directly to each other. Allaire said Circle is not focusing on the "unregulated world of currency", but the entire legal digital currency market worth $100 trillion. In February, when a YouTube blogger in cryptocurrency asked Devasini’s deputy Paolo Ardoino about Circle, he grinned and replied, “You mentioned this name, I didn’t mention it.”

USDT has repeatedly denied helping criminals and said it works with law enforcement agencies.

Make the dollar scream

Devasini is an Italian and his career has changed a lot. He started as a plastic surgeon in Milan and later started an electronics import business in Hong Kong. In 1995, Italian prosecutors accused him of fraud by running a software piracy gang. Devasini reached a plea agreement with authorities and paid Microsoft a settlement.

Later, he came into contact with the emerging cryptocurrency industry and discovered an opportunity about a decade ago. Cryptocurrency companies cannot connect their digital currencies to the real-world banking system.

Paolo Ardoino is one of Devasini 's main deputy and often appears in public on behalf of USDT.

USDT was launched in 2014 and is registered in the British Virgin Islands to address this issue. Traders can convert their real-world currencies into USDT pegged to the USD and exchange this stablecoin for other tokens almost instantly via blockchain.

In Devasini's view, USDT aims to disrupt traditional finance. His wife is an artist, and in the paintings she exhibits, George Washington on the dollar bill is screaming, thinking that the dollar is "no longer valuable."

Allaire's mission is different. The 53-year-old American is a veteran Silicon Valley entrepreneur who served as chief technology officer at software company Macromedia, which pioneered Flash animation technology. Allaire, who founded Circle in Boston the year before USDT, hopes to create a new financial system for the Internet era to change into inefficient, intricate banking networks that often lead to problems with international payments.

While most members of the crypto community like unregulated markets, Allaire’s strategy to grow Circle by working with regulators is ironic and “reverse bets”, said Hemant Taneja, CEO of venture capital firm General Catalyst.

Taneja and other well-known American investors, including venture capitalist Jim Breyer, are known for their early investment in Facebook, and they have invested in supporting Allaire's vision. Goldman Sachs, BlackRock and Fidelity, as well as cryptocurrency exchange Coinbase, also later made investments. Allaire remains the largest individual shareholder of Circle.

When Allaire came to the door to seek a currency transfer license, regulators were skeptical. In this young and untested, scammer-filled industry, he quickly won the reputation of "the most reliable adult in the room." At the end of 2013, Allaire testified for the first time before Congress, calling on the United States to take the lead in setting up regulatory measures for cryptocurrencies to prevent criminal acts.

"He is the best of people I know when it comes to dealing with senior politicians in Washington," Breyer said.

In 2020, when cryptocurrency trading went mainstream, Circle and USDT began to blame each other.

In January of that year, Allaire wrote on Twitter: "The biggest feature of USDT is its non-compliance and opacity." He pointed out that USDT has become the choice for those who want to bypass the financial system.

In a letter to authorities in the United States and elsewhere, Circle warned of the possible harm that unregulated stablecoins could cause to consumers. In July of the same year, Circle pointed out an incident that occurred two years ago when the authorities seized a large amount of USDT in a money laundering investigation, causing it to temporarily lose its peg to the dollar. Circle said this suggests that such stablecoins may have problems, destroying consumers' cryptocurrency assets.

Circle promotes its transparency and released audited financial statements in 2021. Later, it hired Deloitte to review the comprehensive monthly statements covering dollar currency reserves, which consisted mainly of U.S. Treasury bonds, and also included some short-term Treasury bond loans and cash.

By contrast, USDT's financial statements are much simpler in detail and are only issued under mandatory requirements by New York State regulators. USDT also incorporates Bitcoin, commercial loans, gold and other unspecified investments into its Treasury reserves.

Information viewed by the Wall Street Journal shows that Devasini complained to her partners about an unfair comparison with the Circle company. He called USDC "junk coins" and said that the auditors were reluctant to work with USDT due to reputation issues, and also claimed that rumors about his company were spreading online.

" Transfer to high-quality assets"

After years of dull returns, USDT and Circle Inc. unexpectedly received huge inflows in 2022. When the Fed raised interest rates, USDT's Treasury yields surged from tens of millions of dollars a year to hundreds of millions of dollars a quarter.

A surveillance screen in Hong Kong shows the prices of various cryptocurrencies including USDT and USDC

Devasini hardly spent this windfall on herself. He often went to meetings in a worn sportswear and a hat with the words "fool" printed on it, and a bunch of keys and storage devices hung on his shoulder strap. Despite this, he still likes to brag about how much USDT earns every day.

He also felt that his new wealth had made him the target of public criticism. In December of that year, at a meeting in the Bahamas, Devasini told a business partner that he believed the USDT posed a threat to the US-led international banking order and that the White House could attempt to close the USDT at any time.

Meanwhile, Allaire is deepening its ties to the traditional financial world. By the end of 2022, Circle will store most of its reserves at Bank of New York Mellon, the world's largest custodial bank, and some cash at other regulated financial institutions. BlackRock manages its U.S. Treasury portfolio.

According to people familiar with USDT, the company is mainly managed by Devasini and a small group of people who also come from outside the industry, including Ardoino, a combative Italian computer programmer. Circle has hundreds of employees and a board of directors composed of former corporate executives.

As USDC gradually caught up with its competitors, Allaire posted on Twitter to “transfer to quality assets”, suggesting traders are abandoning USDT and choosing USDC.

But when Silicon Valley banks collapsed in March 2023, Circle was in trouble, with more than $3 billion in cash reserves trapped. Panicked traders sold USDC, bringing its price to 87 cents.

USDT took the opportunity to sprinkle salt on Circle's wounds and proclaimed that it was not affected by the bankruptcy of Silicon Valley. As traders re-sumed into USDT, Ardoino hit back on Twitter: "Transfer to safe assets."

USDC resumed its peg to the dollar after regulators bailed Silicon Valley banks. For the rest of the year, about $20 billion was out of the USDC.

Ardoino warned that people should be "really alert" to stablecoin companies like Circle that have reserved in uninsured cash deposits, which he said made USDC vulnerable to bank failures, despite the fact that USDT had also had funds seized several years ago. Allaire said Circle needs to retain a small amount of cash reserves outside of Bank of New York Mellon and other major global banks to provide redemption services to customers.

In June of the same year, Allaire petitioned Congress for the passage of a stablecoin bill that would provide strict reserve requirements and allow issuers to hold cash at the Federal Reserve. He launched a fierce attack on USDT, calling for measures to ban the circulation of digital dollars issued overseas and “not complying with U.S. rules.” "The worst thing is that they are undermining the national interests and security of the United States," he said.

He and his lieutenants travel around the world - Japan, Singapore, the EU, Brazil - to recommend that governments in other countries formulate stablecoin-related laws and sign contracts with foreign banking partners to enable local Circle customers to trade directly with regulated institutions.

Circle Company makes progress

Last year, at home in Lugano, Devasini was upset by growing legal restrictions, both due to increasing regulatory measures and allegations that USDT was used for criminal activities.

According to Lugano Mayor Michele Foletti, the Swiss town is his "safe haven" to hide from the outside world. Devasini often works in a regular office upstairs at a sports bar and eats with Foletti in a restaurant serving bitcoin-themed Italian bread. Devasini’s wife unveils a sculpture by Satoshi Nakamoto, the anonymous founder of Bitcoin.

Devasini tells her companions that he won't go to the United States. In a chat group, he asked about the fate of Kim Dotcom, founder of Megaupload, a bankrupt file sharing website, whom the U.S. Department of Justice is trying to extradite him on charges of piracy.

In April 2024, the U.S. Treasury Department specifically pointed out that the USDT was used to fund Russia’s war machine. In June, the slogan of “USDT linked to corruption” appeared on billboards in Washington, D.C. and New York Times Square. This is part of an initiative launched by an advocacy group to draw attention to the use of USDT by terrorists and drug trafficking groups. The organization called USDT the "next FTX".

Devasini believes that Circle is behind this. He told a business partner: "They are behind every attempt to discredit USDT."

Ardoino later publicly accused USDT's competitors of funding the advocacy group's activities. The group, called Consumer Research, has launched campaigns against environmental, social and corporate governance investments in the past, and the group said it never reveals the identity of donors.

Circle declined to comment.

However, throughout 2024, Circle executives frequently met with senior U.S. Treasury officials and other authorities pointing out the national security risks of USDT, according to people familiar with the discussion. When asked about USDT in February, Circle's senior policy director said she hopes US authorities can study how USDT has contributed to "malign activity."

The Treasury Department is very concerned about the widespread use of USDT among its enemies and even considers whether to impose sanctions on USDT itself. This will leave USDT out of the U.S. banking system and will likely lead its business to destruction. The Treasury Department also applied for new powers to Congress to crack down on overseas stablecoins supported by the US dollar, with the target direct targeting USDT, but these powers were not approved.

Senator Kirsten Gillibrand, Democrat of New York, and Senator Cynthia Lummis, Republican of Wyoming, introduced a bill in April that would ban unregulated stablecoins. "If I want to choose, I will choose USDC, not USDT."

U.S. Senator Cynthia Lummis proposes bill to regulate cryptocurrencies

Under the new regulations, Circle has also obtained a license to operate in the EU region, which requires stablecoin issuers to hold at least 30% of their cash reserves at local banks. USDT opposes this condition, believing that it will increase risks, and the collapse of Silicon Valley banks is an example. In response, Coinbase and other exchanges removed USDT from the EU region.

Another win for Circle was in December when Binance, the world's largest cryptocurrency trading platform, worked with it to promote the use of USDC. For many years, this once free and unruly exchange has been the center of USDT trading. But at the end of 2023, after Binance admitted to violating U.S. financial crime laws, it also stood on Allaire's side.

New Government

Devasini has a trump card in her hand: Commerce Secretary Lutnick, whose company Cantor Fitzgerald holds USDT's Treasury Reserve.

Lutnick had personally negotiated a deal to allow Cantor to invest in Tether's holding company through convertible bonds in April 2024. After meeting Lutnick Ke in Lugano the following month, Devasini told colleagues that Trump’s allies would seek to veto any bills that could harm Tether. Devasini added that Lutnick didn’t like Circle either.

The U.S. Department of Commerce did not respond to a request for comment. A Cantor spokesman declined to comment.

People close to Lutnick said Lutnick helped Devasini connect with the Trump camp. One month after Trump's victory, Tether spent $775 million to acquire a stake in conservative streaming platform Rumble, which Cantor was responsible for. Rumble CEO Chris Pavlovski, a close friend of Donald Trump Jr., said on Twitter that Tether is spreading "American freedom."

President Trump met with Howard Lutnick in the office in February, and he was appointed Secretary of Commerce a few days later

During Lutnick’s appointment hearing, senators pressed him to explain the conflict of interest Tether could bring. He claims that criminals use Tether more than USDC is just because Tether has a larger market. "It's like blaming Apple for using Apple phones," he said.

When Sen. Maria Cantwell, a Democratic Washington state, asked Lutnick if he would undermine any bills that regulate Tether, Lutnick replied that he had repeatedly expressed his belief that Congress should be careful not to undermine "dollar hegemony on blockchain", suggesting that Congress should not enact legislation that would be too heavy for companies like Tether to prevent them from losing market share.

He did not promise not to interfere with any federal investigation into Tether, but wrote that he would perform his duties in accordance with the government’s ethical laws. Regarding his previous discussion with Devasini, Lutnick wrote: "I have never hinted to anyone that I would do anything wrong with Tether."

Trump issued an executive order aimed at promoting "legal dollar stablecoins around the world." The order formed a Presidential Cryptocurrency Working Group, which included Lutnick, to review regulations that should be repealed or amended.

After Lutnick left Cantor, his son Brandon Lutnick was appointed chairman of the company, who had interned at Tether in Lugano.

Meanwhile, Circle donated $1 million to the Super Political Action Committee that supports crypto-friendly candidates and $1 million to Trump’s inauguration committee.

Senator Kirsten Gillibrand helped introduce a bill that she said would allow formal cryptocurrency companies to compete on a fair market

In February, Lummis and Gillibrand jointly proposed a new stablecoin bill with two Republican senators, and Allaire publicly welcomed it, and the House of Representatives proposed a similar proposal. Gillibrand said in an interview that the legislation would allow formal cryptocurrency companies to compete on a fair market "without being adverse or undermined by fraudsters without security standards and transparency."

"I don't think Tether is currently in line with the requirements," she said.

Its growth has begun to slow since USDT was removed from some exchanges in mid-December.

Circle's stock price soared, and the total value of USDC finally exceeded the level before the Silicon Valley Bank incident in early February. The company is about to move to its new headquarters at the World Trade Center in New York.