Tether, the issuer of Tether (USDT), says that hedge funds that struggled to short its stablecoin after Terra’s downfall in May are using a thesis that is “incredibly misinformed” and “flat out wrong.”
Tether pointed to a June 28 Wall Street Journal podcast in which host Luke Vargas and guest Caitlin McCabe discussed the bearish crypto market and concerns over Tether’s backing assets as the reasons for short sellers’ appetite for Tether, in a blog post on July 28.
Tether called the hedge funds, which saw Terra’s collapse as a reason to short USDT, have “a fundamental misunderstanding of both the cryptocurrency market and Tether.”
UST lost its peg in a dramatic manner and pulled down the price of Terra ecosystem’s native token LUNA – now known as LUNC – to fractions of a cent from over $60.
According to CoinGecko, Tether experienced a 21% drop in market cap since May 11 from $85.3 billion, however it is yet the largest stablecoin in the crypto market today with a $65.8 billion market cap.
Tether chief technology officer Paolo Ardoino confirmed that USDT had become the subject of a “coordinated attack” by hedge funds looking to short-sell the crypto asset.
He assumed that hedge funds have been trying to create pressure “in the billions” to “harm Tether liquidity” with the intention of eventually buying back tokens at a much lower price.
Tether in its updated blog post noted that several misconceptions about its holdings have been the basis of this short-selling movement — including Tether holding significant Chinese commercial paper or Evergrande debt, that USDT is created “from thin air,” or that Tether has issued unsecured loans.
“In short, the underlying thesis of this trade is incredibly misinformed and flat-out wrong. It is further supported by a blind belief in what borders on outright conspiracy theories about Tether.”
In a separate post the previous day, Tether tried to reaffirm the strength of its financial backing and ability to honor improvements, repeating that it holds no Chinese commercial paper and had cut its total holdings of commercial paper by 88% from $30 billion to $3.7 billion over the past year, in a separate post.
It added that commercial paper holdings would be as low as $300 million by the end of August, and it will hold zero commercial paper by early November.
The week that the UST fiasco started, USDT depegged briefly on the open market to a low of about $0.96 as investors dumped tokens either for fiat through direct recoveries or for other tokens, such as competitor USD Coin (USDC). Tether continued to honor fiat redemptions of $1 per token through that period.
Its last economic exposure on March 31 revealed that 85.64% of Tether’s financial backing is in cash and cash equivalents, including commercial paper.
Leave a Reply