In June, Tether CTO Paolo Ardoino stated that the stablecoin USDT on a large scale shorted is becoming by institutes. He called it a coordinated attack, and it was also evident in USDT’s sharply falling market value. But now declares the company that this is a naive strategy.
USDT shorts are wrong
In a blog post writes Tether that it doesn’t make sense for investors to short USDT. The company describes five misconceptions surrounding the situation:
- Tether is not 100% backed by ‘conservative, liquid collateral’
- Tether has debt from Chinese real estate developer Evergrande
- Most of Tether’s investment in corporate bonds was of Chinese origin
- Tether creates USDT out of nothing to make cryptocurrencies rise in value [door na het minten te investeren in crypto]
- Tether invests in uninsured loans
These five claims, according to Tether, are not true and make shorting USDT pointless. Shortening costs money because of the funding rate. When you go short, you are actually selling something that you have borrowed because you expect it to fall in value. If that happens, then you have to buy it back afterwards.
Tether actually expects this point to come, while the investors expect that they can make a profit because it loses its value. In fact, according to the fintech company, there is an “asymmetrical lack of knowledge between investors in cryptocurrencies and entities in the traditional finance world.”
Still criticizing Tether
Yet we mustLet’s make a few remarks here. Tether does talk about the funding rates for going short, but in general these rates are very low. You can’t easily short going on USDT – there you actually have an institutional market maker necessary for. It is not known in this case what the funding rate is, but you can imagine that it is not that high for something that should be 100% stable and liquid.
Meanwhile, the number of parties that are very vocal about the alleged problems of Tether and USDT has grown rapidly. An IMF chief named USDT in particular is a risk. Tether itself stated that it has made “no loss” on a loan to Celsius, but in the meantime it is actually still not clear.