Tether Takes On Big Brother

Welcome to Bloomberg Crypto, our twice-weekly look at Bitcoin, blockchain and more. If someone forwarded this to you, sign up . In today’s edition, takes a closer look at Holepunch, Tether’s latest project:

Private Parts

After weeks of cryptic hints at a new project, stablecoin issuer Tether announced on Monday it’s building a peer-to-peer network called Holepunch with the rather ambitious goal of revamping the internet with privacy in mind. The question is: Why?

The move seems like an odd one for Tether, best known as the operator of USDT, the world’s most-used cryptocurrency. Launched as a joint venture alongside Tether affiliate Bitfinex and a software platform called Hypercore, Holepunch won’t be built on blockchain technology, or even include any crypto capabilities from the start. 

Instead, it plans to use (non-blockchain) open-source code to establish distributed peer-to-peer networks for communication, keeping all activity away from the prying eyes of Big Tech servers. It’s starting out with a Zoom competitor called , but the plans for Holepunch are much grander: They include everything from a search engine to file sharing and virtual private networks that help obscure your real location.

Paolo Ardoino, arguably one of crypto’s busiest executives as chief technology officer at both Tether and Bitfinex, has added a third role to his resume as Holepunch’s chief strategy officer. Tether says it’s invested $10 million in the project so far, and with no immediate revenue prospects, Ardoino said in an interview that it’s doing the whole thing “pro bono” to help preserve freedom of speech on the web.

A noble goal, no doubt. But there’s another intriguing possibility here — one more closely tied to Tether’s own prospects. A future Holepunch could help process peer-to-peer payments, something that’s integral to crypto’s anti-Big Brother appeal but has come under threat from regulators around the world. Think WhatsApp for Business, but instead it’s encrypted payments everywhere, and without a central intermediary.

Tether plans to link Holepunch to Bitcoin’s Lightning network further down the line, allowing developers to use USDT or Bitcoin for payments in their apps. That could provide a longer-term boost for the stablecoin, after its circulation shrunk by some $17 billion since the TerraUSD crash in early May. 

Unless regulators get in the way, that is. In part because of concerns around Tether’s own transparency, they’ve been stepping up scrutiny of everything stablecoin operators do lately. And against that backdrop, enabling a distributed network that would presumably be outside governments’ purview might not be the best PR strategy.  

Ardoino says that despite its non-crypto beginnings, Holepunch is “one of the most crypto things that someone could do” given the ethos behind it. But with the prevailing regulatory mood, Tether’s time might be better spent safeguarding something that is decidedly crypto right now: namely, USDT itself. 

Counting it out

Hearing them out

What we’re reading (and writing)

• Crypto Traders Rattled by SEC Scrutiny of Coinbase-Listed Tokens
• Axie Infinity CEO Moved Crypto Tokens Before the Company Revealed Hack (Businessweek)
• Signature Bank Bet Big on Crypto — and Must Now Reckon With the Crash (Financial Times)
• Tether Says There Is No Chinese Commercial Paper Among Reserves
• Crypto Project Solana Is Opening a Store in NYC. Take a Look Inside (Fortune)
• Coinbase’s 'End of Story' Is Just the Beginning: Lionel Laurent (Bloomberg Opinion)

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— With assistance by Suvashree Ghosh, and Hannah Miller