Hedge funds renew efforts to short Tether after UST collapse

Fed’s interest rates raise playing part in shorting efforts, claims crypto broker Genesis

Representation of a Tether token standing on a mirror in front one dollar bills                                 
Hedge funds are trying to short the world’s largest stablecoin, Tether (USDT) – Photo: Getty Images

Hedge funds are shorting the world’s largest stablecoin Tether (USDT) following the collapse of the TerraUSD (UST) stablecoin in May.

Leon Marshall, head of institutional sales at Genesis, a crypto brokerage firm for professional investors, told the Wall Street Journal: “There has been a real spike in the interest from traditional hedge funds who are taking a look at Tether and looking to short it.” 

Marshall explained that some investors had been shorting USDT for at least a year, but hedge funds had renewed their interest in doing so following the collapse of UST.    

Additionally, the decision by the US Federal Reserve to raise interest rates to curb inflation has played a part in why hedge funds are shorting USDT, Marshall stated.

This has prompted others to voice concerns in regards to the quality of the assets that back Tether.

Tether CTO: Hedge funds trying to cause panic

Paolo Ardoino, chief technology officer of Tether and also Bitfinex, the digital asset trading platform, responded in detail to the article via Twitter. He said: “I have been open about the attempts from some hedge funds that were trying to cause further panic on the market after the Terra/LUNA collapse.”

Ardoino explained that the goal of these hedge funds was to “create enough pressure, in the billions, causing [a] ton of outflows to harm Tether liquidity and eventually buy back tokens at much lower price”.

The CTO said that the hedge funds believed that Tether was not 100% backed by the US dollar and that Tether “had issued tokens from thin air”.

However, Ardoino reiterated that Tether has 100% backing and has never failed a redemption as all USDT are redeemed at $1.  

To prove his point, Ardoino added: “In 48 hours, Tether processed $7bn in redemptions, averaging 10% of our total assets, something almost impossible even for banking institutions.”

As of 13:59 BST (UTC +1), USDT was changing hands at $0.999, down 0.04% on the previous 24 hours, and down 0.01% over the past seven days, according to CoinMarketCap.

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