Institutions short Tether amid concerns over stablecoin’s reserves

Short selling on the USDT stablecoin has increased despite Tether assuring the community that its reserves are fully backed. The Chief Technology Officer at Tether, Paolo Ardoino, had posted a thread confirming that traditional hedge funds were shorting the stablecoin.

Fear of USDT depegging

On Friday, a liquidity pool facilitating swaps between three of the largest stablecoins Circle (USDC), Tether (USDT), and MakerDAO (DAI) showed that Tether reserves constituted 65% of its composition. This showed that investors were concerned about the ability of the stablecoin to maintain its peg.

Ardoino has been adamant that the company has enough reserves to meet all redemptions. In the recent Twitter thread, he noted that the company managed to facilitate $10 billion worth of withdrawals after Terra LUNA’s collapse.

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Shortly after the TerraUSD collapse, USDT depegged briefly to around $0.95 but bounced back to $1. Hedge funds have since been betting that the stablecoin will not maintain its peg. However, the Tether team has assured its investors that the stablecoin will not follow Terra USD’s (UST) collapse. A spokesperson from the company said that it was normal for investors to swap USDT for other assets because the stablecoin was largely accessible.

Institutions are shorting Tether

Last week, Ardoino posted a long Twitter thread accusing hedge funds of shorting the stablecoin and spreading FUD to trigger massive redemptions in hopes that the stablecoin will depeg. Ardoino’s claims seem to be true, given the latest data shared by some hedge funds.

Genesis Global Trading recorded an increase in hedge funds shorting Tether between May 27, 2022, and June 27, 2022. In an interview with the Wall Street Journal, the head of institutional trades at Genesis said that the value of these short trades was in the “hundreds of million dollars.”

Crypto firms based in Asia have been counterparties to these short-selling activities done by European and American hedge funds. Tether also announced a drop in its commercial paper holdings to $4 billion. Tether plans to reduce its commercial paper holdings to provide credibility that the stablecoin is backed by several assets. These reserves help to sustain USDT’s peg at $1.

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