The collapse of Terra brought a number of algorithmic stablecoins and illegal stablecoins to the forefront. Especially for Tether (USDT), the largest stable currency in the crypto market, it has the greatest impact.
Leon Marshall, head of institutional sales at Genesis Global Trading Inc., the world’s leading cryptocurrency broker, recently revealed to the media that more traditional shock funds have shorted Tether through Genesis for professional investors in the past month. The dollar notional value of the transaction is “hundreds of millions”.
In response, Tether Chief Technology Officer Paolo Ardoino tweeted in response that from the beginning, this really seemed to be a coordinated attack, a new wave of FUD and navy. Using tools such as USDT/USD perpetual contracts and spot short selling, these hedge funds seek to create enough pressure to cause massive capital outflows, damage USDT liquidity, and ultimately buy back tokens at lower prices. These hedge funds have believed in and helped spread all kinds of FUD over the past few months/years. Despite public third-party attestations, Tether’s cooperation with regulators, Tether’s initiatives to improve transparency, etc., they have always believed and implied that Tether is the bad guy. But as often said before, Tether is backed by >=100% reserves, redemption has never failed, and all USDT are redeemed at $1.
In fact, Tether has been controversial and questioned in the past because of its transparency and reserve ratio. In April 2019, the NYAG took Tether and Bitfinex to court because Bitfinex used the reserves of USDT, a stable currency issued by Tether, to cover up a loss of $850 million.
Now, that may change. Recently, Tether announced that it plans to become the first stablecoin to audit its market reserves.
Tether said it is currently preparing to be audited by a major accounting firm, one of the “big 12” accounting firms. Tether plans to be the first stablecoin to have its reserves audited, and other stablecoins are expected to follow in Tether’s footsteps as always.
In addition, more than 47% of USDT reserves are currently U.S. Treasuries, while commercial paper accounts for less than 25%. Its current commercial paper portfolio has been further reduced to $11 billion ($20 billion at the end of Q1 2022), to $8.4 billion by the end of June 2022, and will taper to zero without happening any loss. All commercial paper will mature and will be included in short-term U.S. Treasuries.
Tether says it has processed more than $14 billion in redemptions since May, a point that has come under the spotlight of critics. However, this is a fundamental testament to the strength of USDT and the quality of Tether reserves. Most notably, Tether processed a higher percentage of total assets within 10 days than Washington Mutual had before its bankruptcy.
As for the recent DDoS attack, Tether stated that this will never have any impact on the stability, liquidity or redeemability of USDT.
In response to Tether, FTX founder Sam Bankman-Fried said in an interview with the media that he was not worried about Tether. “It is the world’s largest dollar-pegged stablecoin with a market cap of over $70 billion. Many industry observers see it as a ticking time bomb with questionable collateral, and its failure will almost certainly pose an existential threat to the entire cryptocurrency market .I think it is wrong to be short on Tether and there is no evidence to support that view.”