Tether CTO Paolo Ardoino has responded to reports of hedge funds shorting its USDT stablecoin.
A “short” is a bet against the value of an asset. In contrast, a “long” position is a bet that an asset will appreciate in value.
On Monday, the Wall Street Journal reported that various traditional hedge funds had open USDT short positions worth hundreds of millions of dollars.
“There has been a real spike in the interest from traditional hedge funds who are taking a look at tether and looking to short it,” said Leon Marshall, Head of Institutional Sales at Genesis.
In a series of tweets, Ardoino responded to the allegations:
2/— Paolo Ardoino (@paoloardoino) June 27, 2022
Tools: USDt/USD perps (the perfect attack vector that offers an asymmetric bet), spot short selling, DeFi pools unbalancing, …
Goal: create enough pressure, in the billions, causing ton of outflows to harm Tether liquidity and eventually buy back tokens at much lower price.
In addition, Ardoino claims the hedge funds have helped to spread “FUD” (Fear, Uncertainty, and Doubt) about USDT.
FUD or legitimate concerns?
Stablecoins should remain “pegged” 1:1 to a fiat currency, most commonly the US dollar.
Whereas stablecoins like Circle’s USDC and Binance’s BUSD are regularly audited and backed with cash, concerns have been raised about Tether’s USDT.
Tether released an unaudited breakdown of its reserves last year to increase transparency:
Pay most attention to the smaller pie chart which breaks down the bulk (75.85%) of the reserves and reveals that just 3.87 percent of it is cash.
Tether still has large reserves to tap, and the company regularly points out that it’s never failed to honour a redemption request – even during large market crashes – but many investors feel the stablecoin might not be as stable as they’d like.
USDT has “depegged” from the US dollar on various occasions but often quickly recovers to at least around 1:1. As of writing, it’s at $0.99:
In response to concerns, Tether has vowed to increase transparency with independent audits and continue to at least reduce its commercial paper exposure until it reaches zero:
8/— Paolo Ardoino (@paoloardoino) June 27, 2022
Tether also reduced its commercial paper exposure from ~45B to ~8.4B and is set to phase it out in full in the coming months. All the expiring CP have been rolled into US Treasury bills, and we’ll keep going till CP exposure will be 0.
Tether portfolio is stronger than ever.
The collapse of Terra’s algorithmic stablecoin UST last month caused a market crash that led to eye-watering losses for investors.
UST’s collapse also caused wider fears that regulators will shift from implementing sensible regulations to more heavy-handed alternatives that will stifle Web 3.0 and blockchain innovation.
Keep calm and carry on
In April, the UK published its plan to become a global cryptoasset technology hub.
“It’s my ambition to make the UK a global hub for cryptoasset technology, and the measures we’ve outlined today will help to ensure firms can invest, innovate, and scale up in this country,” said Rishi Sunak, UK Chancellor of the Exchequer.
“We want to see the businesses of tomorrow – and the jobs they create – here in the UK, and by regulating effectively we can give them the confidence they need to think and invest long-term.”
Tether responded to the increasingly positive sentiment by UK officials around the blockchain industry by announcing a stablecoin pegged to the British pound sterling.
“We believe that the United Kingdom is the next frontier for blockchain innovation and the wider implementation of cryptocurrency for financial markets,” commented Ardoino.
“Tether is ready and willing to work with UK regulators to make this goal a reality and looks forward to the continued adoption of Tether stablecoins.”
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