In theory, it would make no sense to short USDT, since its value should always remain around $1, but some hedge funds did.
They evidently believed that the contagion triggered by the collapse of LUNA and UST in mid-May could spread to the main stablecoin of the crypto markets, causing it to implode, but it did not.
In a post published last week on the official blog, and titled “Why Hedge Funds are Losing Money Shorting USD₮”, Tether calls this assumption “incredibly misinformed” and “flat-out wrong”.
Better yet, it states that this hypothesis is on the edge of a conspiracy theory, and is supported by outright blind faith.
The “conspiracy” behind the Tether short
Underlying this hypothesis would be the misconceptions that USDT is not 100% secured by liquid and safe collateral, that Tether held Evergrande debt, that the commercial paper held by Tether was mainly derived from Chinese debt, that Tether created USDT out of thin air to pump up the crypto markets, and that Tether has unsecured loans.
The fact is that although the past two months have been extraordinarily volatile for the crypto market, USDT has always maintained its peg to the dollar. Moreover, Tether has repaid as much as $14 billion to those who have given back their USDT tokens, so much so that Tether’s ability to make these repayments without hassle is brought forward as further evidence of the quality and liquidity of the token’s underlying backing.
The Tether team writes:
“However, due to the sell-off in the cryptocurrency market various hedge funds have begun to take short positions on the crypto markets. Several of those funds have started to short USD₮ which shows a fundamental misunderstanding of both the cryptocurrency market and Tether”.
They then add that the mere fact that hedge funds saw Terra’s collapse as a good opportunity to shunt USDT highlights the lack of knowledge of the crypto market by traditional funds.
They actually ironically point to the fact that it was funds with short positions on USDT, and not Tether, that collapsed during this period.
The lack of confidence in Tether (USDT) audits
They also state that the company is preparing an audit with a major accounting firm, one of the “Big 12” globally, and that this will destroy another false myth of the conspiracy theory behind USDT, namely that Tether never does real serious audits.
Meanwhile, while USDT’s market capitalization is declining, USDC’s is increasing significantly, but the difference between trading volumes remains abysmal at about 10 times that of its main competitor.
They conclude writing:
“We are interested to see if all of Tether’s competitors can continue to keep up in these market conditions!”