Markets Rebound, Tether Proves Mistakes of Hedge Funds That Shorted USDT

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2022-08-04 08:09:39

Tether said short bets on USDT failed and resulted in large losses for hedge funds.

Hedge funds’ USDT short target has completely failed

Events of hedge funds short positions stablecoin USDT occurred when the market was in a severe recession without seeing any positive signals. However, until now, perhaps Tether is feeling “glory” when these short orders can cause significant damage to funds.

Before that, in the context of the market turmoil since May, USDT once temporarily lost its peg to the US dollar and slid to $0.995. The sell-off has prompted a number of hedge funds to enter short positions in the crypto market in general and USDT in particular – the world’s largest stablecoin with $66 billion in assets. Short USDT funds have a cost of raising capital to execute a trade, which is granted each time a bet is placed against them.

With the USDT price capped at $1, most bets are made in DeFi liquidity pools and USDT-tracking futures. According to Tether CTO Paolo Ardoino, the aim is to pressurize “billions of dollars, causing tons of outflows that hurt Tether’s liquidity and ultimately buy back tokens at much lower prices.”

From May 27, 2022 to June 27, 2022, the number of Short USDT hedge funds through Genesis Global Trading Inc., a cryptocurrency brokerage, has increased rapidly. Leon Marshall, head of institutional trading at Genesis, says the value of transactions is “in the hundreds of millions or even billions of dollars”.

USDT price chart until 2/8/2022

With the market momentum recovering well from last month, the execution of short USDT orders from many hedge funds is causing huge losses. Tether believes that hedge funds have lost millions of dollars in failed short bets because they lack a basic understanding of how stablecoin USDT works.

“Simply hedge funds consider the Terra crash as the basis on which to implement a Short USDT strategy. This shows an asymmetric knowledge gap between crypto market participants and entities in the traditional financial space. Clearly the underlying thesis of this trade is flawed. It is further reinforced by blind faith in conspiracy theories against Tether,” the company said in a blog post on July 28.

Tether has repeatedly dismissed rumors about its stablecoin as “untrue,” including that USDT is not 100% backed by liquid collateral, and the company’s commercial paper is mostly Chinese debt. Country.

They also quelled rumors of unsecured lending. Tether has cut its holdings of commercial paper from 30 billion a year ago to $3.7 billion today. The company expects to reduce its holdings to $300 million in August and completely to zero by November of this year.

The company has about 86% of USDT reserves in cash or cash equivalents. As of March 31, 2022, US Treasury bills accounted for 56% of that and commercial paper 28%, according to the latest transparency report.

According to Tether:

“Short hedge funds have created an opportunity for traders who believe USDT will enter a recession and can easily monetize the exchange. However, this has come at a cost and their assets have to fall into the hands of investors who execute long USDT orders.”

In recent times, Tether has come under pressure to be more transparent about the reserves that support stablecoin USDT. Many argue that disclosing information will help investors better understand potential risks and determine how auditors interact with the company.

Although Tether has provided some clarity about its bankers, they remain mysterious about their USDT reserves for the sake of security. The company is preparing to conduct a comprehensive audit of 12 leading accounting firms to improve the transparency of its reserves.

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