Pt. 2 Paolo on Bitfinex’s 2016 Hack, Regulatory Challenges, and Tether’s Audit – To The Moon Ep. 22

i wanted to change the subject i 
i've always wanted to ask you this   what were your first thoughts in your 
immediate reaction when you learned of the   now famous bitfinex hack that 
took place in 2016. so i was um so   that was basically you go through different 
stages right so first you say well um you know   um it's not possible um you know there where uh 
there was um not third party estonian mode so   we it is is not possible and so on and then you 
when you start realizing that you feel really   terrible uh the reason why you feel terrible is 
because you you feel like you let have let down   your customers and that's the the worst feeling 
that that you can ever experience right you never   when you are in exchange you people trust you 
with their their money right can be one dollar or   can be one thousand dollars or one million or you 
know one billion it does not matter they for them   is a lot of money and since for them is a lot 
of money is your responsibility uh to take good   care of that so we let that happen and we had two 
options we could stop uh working or we could you   know roll up our sleeves and say okay we will 
we will actually make everyone whole uh we will   uh we will keep running and we will repay with our 
own work uh who lost money with us and um that's   what we did that's why i'm so attached to these 
companies because they are made by real lions   that was my second part of my question was how did 
you manage to to pull through when we've seen so   many other exchanges kind of uh you know go to the 
wayside after after a devastating hack like that   so i mean i think that we said uh we set history 
um so what we did was we socialized losses   but what we did is that we created a token 
um that was just readable on bitcoinx that   would represent you know we we lost um 72 
million dollars worth of bitcoin at that time   so we create 72 million dollars on these bfx 
tokens and people have two options either   well three options sell it on the market so there 
was a liquid market second they could um wait   and wait for us to earn money in order for buy at 
one dollar we we our commitment was buying those   um it was those tokens one dollar or third 
option would convert those tokens pfx tokens   into deep finance shares so we had um so 
the first month we the moment we reopened   trading we were again the first exchange right 
everyone was still trading on us so we were   and at the time also crypto was like bitcoin 
was growing so um between 2016 2017 there was   like that big boom of of of crypto so we 
were making more money so the first month   we started i think we bought back like one million 
dollars worth of bfx tokens and then people start   realizing okay you know they are doing something 
and then the second month we we both fight more   and then people started realizing that we we could 
actually do we could actually end up really well   and then we started getting more and more 
people to to convert their vfx tokens   in equity and then we kept going and in the end 
after even around seven months we were able to   pay back everything so part of of the ones 
affected um and converted their different vfx   uh tokens into shares and others just waited for 
the full redemption um but the entire process took   seven months we you know when 72 million dollars 
at that time where enormous amount of money   today we are seeing like the putting network 
it was like 600 million dollars and say wow the   size of the crypto markets is has changed so much 
in the last you know in the last five years that's   interesting like how you guys bounce back so 
quickly as well i suppose it's pretty impressive   um i guess like with the i think it's this bro 
this is this applies to bitfinex uh and tether   both both organizations um projects but like with 
the current it seems like regulators are really   stepping up uh well not necessarily step up their 
game but stepping up their attempted involvement   in the game um you've got things like uh so as uh 
coinbase has been told they can't uh i saw brian   armstrong this morning on twitter uh upset about 
how coinbase can't release a new feature i think   it's like a lending i believe um and also there's 
things like the ripple lawsuit going on with sec   and there's there's quite a few situations where 
the eu were talking about how they're going to try   and stamp down on bitcoin and so the us and all 
these different things um i suppose do you see   um regulations causing i guess more and more and 
more of an issue for both bitfenix and tether   um or because obviously you said you work 
quite closely with regulators where you can   so do you feel like you guys are kind of well 
equipped to weather the storm of incoming   regulations or or do you think the government's 
going to get quite nasty i suppose and try their   best to crack down in a harsh draconian fashion 
especially us uk and eu i suppose so um we were   the first exchange that decided to leave the us 
i think was uh 2017 early 2018 so we have been   seeing um these things coming right and so we have 
been proactive and from the kycml point of view   um and from you know discussions with their 
invaders and law enforcement so um we are i think   well equipped because our compliance team is great 
um we have uh you know also our legal abilities   is extremely uh well equipped to guide us in in 
the process of acquiring um nice and stiff well   i appreciate that i suppose uh because obviously 
you mentioned like i don't know if you can have   an answer to this question actually there's 
something i was curious about because i was um   well i was thinking obviously we're going to be 
talking to you i know back in i know this is a big   issue as well like with uh with tether a lot of 
the people who are upset with tether um uh i think   they especially there's a guy called coffee zillow 
i've seen on youtube who gets like pretty pretty   riled up about uh about tether and i actually used 
i actually used to watch his videos on other stuff   i quite liked him but he's getting very upset 
about it and i think a big thing is i saw in july   a lot of people know me about this audit situation 
right um despite the fact that you guys were   settled uh already with uh i think it's new york 
um basically back in july i believe uh it came   out that there was gonna be an independent audit 
um of uh tethers uh funds and backing et cetera   do you have any updates on that kind of things i 
know people will want to know an answer to that   since we've got you here do you have any updates 
on that i suppose so let me let me uh just clarify   so in 2021 um we settled with an ayat then we we 
started providing a quarterly attestation so an   attestation is not overloaded but it's still um is 
basically what all the other civil coins are doing   so um that is uh that is basically the best that 
uh and a civil coin can offer in this moment   then we went one step further and 
we started providing um a breakdown   of restaurants so the the breakdown research is 
the one that is the famous one that where people   say yes but you have commercial papers right so 
um after that people were asking more information   what we did was okay then you want to know what 
are these commercial papers fine we will give   you the rating of the commercial papers that is 
um eight for the vast majority of the commercial   papers is rated a true or above that is and is 
rated by standard poor's so that is basically   the most known rating agency right in the us so 
we kept going and giving more information then   we went on cnbc and we said yeah by the way guys 
now that we settle our thing with the with the   again we are we we set up this process with 
the stations we we already started a full   audit process and we believe that within um a few 
months we will have that right so the process is   going is going well so you know um i cannot give 
you an exact timeline but you know there are   all our resources are to make that happen because 
i think that we we will make a good service to   the community to the people that defend us and to 
all our customers but at the same time if you ask   me when if you have the full audit your troubles 
and your you know the witch hunt will stop i will   tell you no because before they were saying you 
don't have the money and then now they now that   nanayag and uh with the afternoon we have we have 
this uh you know the we came out with the station   that proves that we have the money yeah but you 
know the money is not the way is not allocated in   the way we want and then we will do the full 
audit and we'll say yes but you are you know   we don't like it we don't like your t-shirt or 
you don't like we don't like you know your your   hairs and it will with these people like you 
know all the classic ones that are attacking us   um you never uh you are you they keep changing 
the goal so you know they are not fair um they   are not fair debate in my opinion i understand 
that i it does feel to me a little bit like um   so for example you see you i saw like an article 
about usdc in circle and that they're trying to   become a bank and they're going to change to being 
backed by uh just dollars in an account all these   different things so but then it's always we are 
going to or we're going to be or we're trying to   um and people i feel like a lot of people see them 
as like the cleaner you know safer stable coin as   a result of these kind of promises but actually 
it just feels like they're kind of just winning   a war of trying to appear clean if you get what 
i mean it doesn't really feel like there actually   are any different really i suppose it just feels 
like they're trying to play the publicity ball a   little bit better i suppose the question coming 
out this is like because originally from my   understanding could be wrong but originally tether 
and bitfinex weren't like publicly closely linked   right and it only became like later on that that 
was the case do you feel like um some of the like   negative witch hunts on tether that some i guess 
must put some people off do you think that can   is something that kind of impacts bitfinex badly 
because of the link i guess do you wish that they   hadn't been linked together like that i suppose or 
do you think that really it's not actually a big   problem and if anything tether maybe strengthens 
bitfenix's public opinion because of you know   you've got uh you're linked to a token that has 
69 billion dollars placed in it so i mean do   you think it's a good thing or a bad thing i guess 
that both are so linked together well i think that   i can answer for myself i you know i love 
to be the cto of both companies so i'm um   i think that there are two awesome group of 
people although there are some overlapping   um i'm an example um and i i just i think that 
you know bitfenix is doing great by the way   is um you know still one of the top exchanges 
um and uh tetra is the top stable coin so   i don't think the the two things are affected and 
uh you know um i think is um uh things are going   great for both companies i guess like uh well i'll 
probably i want to i want to change topic after   this question because i don't want to just ask 
you about telephone for like half the interview   but um yeah i guess when it comes to tether 
something i was curious about people for example   at bitrifa will ask okay what goes into accepting 
uh you know what accepting a token for payment or   currency for payment um because obviously we had 
usdt on ether then on on tron um and you know   people just want to know like why can't they get 
usd on terror or you know all these other things   um so there's obviously a reason for that i guess 
with with you guys like for tether uh what what is   in that thought process what goes behind choosing 
the networks that your token will run on because   you said you're gonna be working on lightning 
and things as well uh is it a mix of different   like things and attributes that you guys then 
make a decision on like hey we're gonna focus   on that or is there like key metrics that 
you guys focus on for uh for what your token   runs on essentially sits on so it's basically 
just a decision of uh community size right so we   we look at the in the end you if you do the effort 
to support in the blockchain you want to make sure   that there is enough support tron had and you know 
tron was the third blockchain we supported and   had already a growing community and uh you know 
transactions are cheap and so everything worked   um everything in the end worked really well and 
today i believe that there is some something like   34 billion uh issued on tron so that's a great 
example not all blockchains has been extremely   successful uh sometimes you you know you didn't 
you properly don't you cannot properly analyze you   know how many developers are actually on using 
the blockchain because sometimes you know then   the trading numbers don't reflect necessarily the 
community behind the development community behind   each blockchain so uh we are seeing of course less 
uptake on on certain blockchains but you know tron   ethereum omni uh and we believe um liquid and 
lightning will will uh be another huge uh use   use step for for that in terms of you know use 
acquisition i'm sure we are pretty very excited   with what's happening in el salvador and um you 
know i guess some people do have you know some   reservations regarding you know the basically 
being forced to accept bitcoin you know as the   payment you know people do not have the option to 
actually refuse accepting bitcoin if a customer do   offer bacon what are your thoughts do you think 
it's a bit too extreme and do you think people   should have the option to either accept or refuse 
or do you think it's a net positive either way so   you know yeah it's a tough question because 
sometimes uh you know from bitcoin perspective   i believe that if there is no if you don't if you 
don't make it a bit uh you know forcefully slow   you will not push you know uh commercials 
to to adopt bitcoin that in the end is um   will be beneficial at least from my point of 
view for um for um the long-term um let's say   um growth of a country so um you know if basically 
because probably if what let's say that the   law wouldn't have made it mandatory uh maybe 
mcdonald would not have adopted it right and uh   i mean of course i don't like imposing things 
i don't like uh i really don't like that   especially from our government point of view 
so i i i feel like myself a lit honestly i   feel myself a little bit biased in say yes i 
i don't mind that this is actually enforced so   you know truthfully i'm biased but you know 
the government governments in general do   force a lot of things on on on people that are 
not fair so for once i like i like this one

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