Tether CEO Paolo Ardoino: Stablecoins Expose Banks' Fractional Reserves
Tether CEO Paolo Ardoino responded to Pablo Hernández de Cos, General Manager of the Bank for International Settlements, who stated at the Jackson Hole conference that stablecoins are insufficient for large-scale trusted payments, and that tokenized bank deposits are more suitable for everyday payments, suggesting that stablecoins should remain in specialized scenarios.
Ardoino broke down the structure: stablecoins are backed 100% by liquid assets like government bonds; tokenized bank deposits remain bank liabilities, typically uninsured, with liquid assets often having only about 10% fractional reserves. He claimed that the real concern of the BIS is not whether payments can be made, but that stablecoins reveal the "emperor's new clothes" of traditional banks.
He posed two questions: if there are full reserves, why do savings still need to go into fractional reserve products; and if the public perceives stablecoins as safer and moves their savings there, what will happen to the financial system? He referred to the current stage as the "verification phase."
The BIS argues for the singularity, elasticity, and completeness of currency: stablecoins cannot be frictionlessly exchanged at face value, platforms struggle to interoperate, and anti-money laundering controls are difficult to consistently embed. Tokenized deposits still operate under a dual currency system, with payments increasing or decreasing on bank ledgers, interbank settlements using central bank accounts, and credit functions remaining within the banking system.
The risks discussed by both sides are not the same. Issuers emphasize reserve ratios and liquid assets during a bank run; central bank networks stress uniformity of face value, lender of last resort, and credit creation. The 10% figure is his summary of fractional reserves, not a liquidity coverage ratio published by any specific bank. Tether's own reserve structure is primarily composed of government bonds, making it one of the largest issuers in the stablecoin market, but it lacks central bank backing and deposit insurance.
In market mechanisms, sellers are stablecoin companies that convert government bond reserves into safer currency, while buyers are central banks and commercial banks aiming to preserve the deposit-loan cycle. The event-driven aspect is the public discourse following the Jackson Hole conference. If funds migrate from bank deposits to fully reserved stablecoins, demand for government bonds will rise, and banks' lendable funds will decrease. Beneficiaries will be issuers in the government bond custody chain; those under pressure will be banks relying on demand deposits for lending and the regulatory agenda that seeks to confine stablecoins to a "special role."
Source: Public Information
ABAB AI Insight
The Bank for International Settlements seeks programmable bank deposits, not programmable government bond fund shares. Pablo Hernández de Cos's classification of stablecoins as payment tools that fail the singularity test at Jackson Hole aims to keep tokenization within the dual currency framework: central bank money for settlement, commercial bank money for circulation. Paolo Ardoino reframes the same debate into a confrontation over reserve ratios, using the physics of bank runs to respond to monetary philosophy.
The capital path has already moved in the direction that the BIS is concerned about. Dollar stablecoins are turning retail savings into short-term government bond demand, allowing issuers to earn interest spreads while banks lose cheap demand deposits. The design purpose of tokenized deposits is to keep the same money on the lendable liability side. If the public truly moves according to "100% versus 10%", credit contraction will occur before payment experience improves. This is what he refers to when asking "what will happen to the financial system": it is not about slower on-chain transfers, but about less credit creation.
Analogies can be drawn to the breaking of money market funds in 2008 and 2020, the repeated blocking of narrow banking proposals by the banking industry, and the end of the gold standard when face value commitments shifted to reliance on central banks. The industry stage is that stablecoins can already facilitate cross-border and small-scale settlements, but have not yet been allowed to become alternative main accounts for sovereign currencies. Whoever first writes "full reserves" as a redeemable legal right will continue to siphon off demand deposits; whoever first connects tokenized deposits to the central bank settlement layer will be able to lock credit functions back into banks.
Structural judgments belong to the transfer of pricing power. The mechanism is that the price of money is no longer determined solely by policy rates, but by where the public places their savings among different types of liabilities. Once full reserve products expose the liquidity mismatch of fractional reserves, deposit rates, short-term government bond yields, and bank lending rights will all be repriced simultaneously. The day the emperor's new clothes are revealed is more important than whether stablecoins can serve as pocket change.
ABAB News · Cognitive Law
Once full reserves are revealed, fractional reserves must explain themselves.
The central bank wants programmable deposits, not programmable government bonds.
On the day savings migrate, banks lose not just accounts, but lending rights.