Tether CTO Paolo Ardoino, in a series of tweets on Monday, confirmed reports that the leading stablecoin had become the target of hedge fund short sellers following the Terra collapse.
Ardoino says there have been attempts by hedge funds to cause further panic in the crypto markets following the Terra debacle by launching an attack on Tether, the market’s largest stablecoin.
According to Ardoino, these hedge funds have been aggressively short-selling USDT/USD perpetual pairs to hurt Tether’s liquidity and purchase the tokens at a discounted price. In addition, the CTO says these entities believe and have helped propagate the idea that Tether was not fully backed and has 85% exposure to Chinese commercial papers.
However, Ardoino maintains that all these claims are false, emphasizing the efforts of the firm to be more cooperative with regulators and transparent about how the Tether USD pegged stablecoin is backed in recent attestations. Ardoino asserted that USDT remains fully backed and says proof of that lies in the fact that the stablecoin issuer has been able to do what several traditional financial institutions would find impossible.
“In 48 hours Tether processed 7B in redemptions, averaging 10% of our total assets, something almost impossible even for banking institutions,” tweeted Ardoino. The CTO added that in just over a month, they have been able to process $16 billion in redemptions. Moreover, the Tether executive states that the firm’s exposure to commercial papers has been greatly reduced from $45 billion to $8.4 billion. According to Ardoino, this will eventually reach zero in the coming months.
It is worth noting that on Monday, a report by the Wall Street Journal revealed a surge in institutional short-selling of Tether following the collapse of Terra’s algorithmic stablecoin.
According to the report, these positions were quite sizable and worth hundreds of millions of dollars. The report reveals some of these traders are shorting the asset as they expect the US economy to shrink following the battle with record inflation numbers. However, others are doing so out of a lack of confidence in the reserve backing of the stablecoin.
It is worth noting that the collapse of the Terra ecosystem in May due to the de-pegging of its algorithmic stablecoin renewed concerns around the backing and transparency of stablecoins. Consequently, there have been increased calls by regulators to regulate the asset class, and it is expected that we will see quicker stablecoin regulations.
Tether remains the largest stablecoin by market cap with $66 billion, dropping from highs of $82 billion in the last month. Notably, it is now within touching distance compared to its closest competitor, Circle’s USD Coin (USDC).
It is worth noting that a Tether collapse could have unspeakable ripple effects on the entire crypto market. Notably, despite 3rd party attestations, Tether has yet to fully audit its reserves.