Tether stated that the hedge funds that shorted its stablecoin after Terra’s massive collapse have “a fundamental misunderstanding of both the cryptocurrency market and Tether.”
The issuer of Tether (USDT), said that the hedge funds that tried to short its stablecoin after Terra’s collapse in May 2022 are using a thesis that is “incredibly misinformed” and “flat out wrong.”
In a blog post from July 28, Tether pointed to a June 28 Wall Street Journal podcast where the host Luke Vargas, and guest Caitlin McCabe discussed the bearish crypto market and concerns over Tether’s backing assets as the reasons for the short sellers’ appetite for Tether.
Tether stated that the hedge funds that saw Terra’s demise as a reason to short USDT, have “a fundamental misunderstanding of both the cryptocurrency market and Tether:”
“The simple fact that hedge funds view Terra’s collapse as a constructive thesis too short USDT represents the asymmetric knowledge gap between crypto market participants and entities in the traditional finance space.”
In early May 2022, TerraUSD Classic (USTC) dramatically lost its peg and pulled down the price of Terra ecosystem’s native token Terra (LUNA) – now known as Luna Classic (LUNC) – to some fractions of a cent from more than $60.
Within that time, Tether experienced a 21% plunge in market capitalization since May 11 from $85.3 billion, though it is still the biggest stablecoin in the crypto market today with a $65.8 billion market cap, based on data acquired from to CoinGecko.
In late June, Tether chief technology Officer Paolo Ardoino said that USDT had become the subject of a “coordinated attack” by hedge funds aiming to short-sell the crypto asset. He alleged that hedge funds have been attempting to create pressure “in the billions” to “harm Tether liquidity” to eventually purchase back tokens at a much lower price.
Tether, in a recent blog post, noted that many misconceptions about its holdings have been the primary basis of this short-selling movement – including Tether holding considerable Chinese commercial paper or Evergrande debt, that USDT is developed “from thin air,” or that Tether has issued some unsecured loans:
“In short, the underlying thesis of this trade is incredibly misinformed and flat-out wrong. It is further supported by a blind belief in what borders on outright conspiracy theories about Tether.”
In another separate post on the previous day, Tether tried to reaffirm the strength of its financial backing and ability to honor redemptions, restating that it has no Chinese commercial paper and had cut its total holdings of commercial paper by 88% from $30 billion to $3.7 billion in the past year.
It added that commercial paper holdings would be as low as $300 million by the end of August, and will hold no commercial paper by early November.
The week that the UST fiasco began, USDT depegged shortly on the open market to lows of around $0.96. The drop happened as the investors massively dumped tokens either going for fiat via direct redemption or for other tokens like competitor USD Coin (USDC). Nevertheless, Tether continued to honor fiat redemption of $1 per token in the whole of that period.
The most recent financial disclosure on March 31, it revealed that 85.64% of Tether’s financial backing is now in cash and cash equivalents, including some commercial paper.