Tether is the issuer of the world’s largest stablecoin, USDT. The company has now said that the hedge funds that tried to short USDT following the Terra debacle in May were not only misinformed but also wrong.
Last week, Tether published a blog post referencing a Wall Street Journal podcast involving Luke Vargas and Caitlin McCabe. The two discussed the bearish cryptocurrency market and the concerns of USDT reserves as the reasons behind USDT’s short selling.
Tether said that hedge funds shorting USDT because of Terra’s collapse lacked understanding of USDT and the cryptocurrency market. He said that the fact that hedge funds were short-selling Tether because of Terra’s failure showed a gap between the participants in the crypto market and traditional finance institutions.
Terra’s collapse started with the depegging of the UST algorithmic stablecoin. The depeg dropped the price of LUNA (now LUNC) to $0. Before the collapse, LUNA was among the top ten largest cryptocurrencies by market cap.
After the collapse, USDT recorded a 21% decline in market cap. However, it maintained its position as the largest stablecoin in the crypto space. Towards the end of June, the chief technology officer at Tether, Paolo Ardoino, said that the stablecoin was under a coordinated attack by hedge funds.
Tether clears the air on USDT reserves
Tether also cleared the air of misconceptions about the stablecoin’s holdings, such as holding a large amount of Chinese commercial paper or its exposure to the Evergrande debt. The company has reiterated that it does not hold any Chinese commercial paper. Moreover, it reduced its total holdings of commercial paper by 88% to $3.7 billion from $30 billion over the past year.
The company added that its commercial paper holdings would drop to $300 million towards the end of August. By early November, Tether estimates that its commercial paper holdings will have dropped to zero.
On the week of the UST debacle, the USDT stablecoin dropped slightly from its peg to around $0.96 amid increased redemptions from investors dumping the token for fiat currencies or other cryptocurrencies such as the USDC stablecoin.
However, during the period of the USDT depeg, Tether continued honoring redemptions at $1. In a disclosure published on March 31, Tether said that 85.64% of Tether reserves were in cash or its cash equivalents.
