Tether CTO Affirms Hedge Funds Tried to Short USDT

Key Takeaways

  • Tether CTO Paolo Ardoino said today that various cryptocurrency firms have tried to short its stablecoin.
  • Also today, Genesis Global Trading admitted that its hedge fund clients shorted Tether through its services.
  • Tether seems to have withstood the challenge: USDT is valued at $1.00, on par with the U.S. dollar as intended.

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Paolo Ardoino, CTO of Tether, affirmed today that hedge funds have been attempting to short the USDT stablecoin.

CTO Says Funds Failed to Short Tether

Ardoino wrote on Jun. 27 that he is “open about… attempts from some hedge funds” to short Tether (USDT).

He explained that those hedge funds tried to achieve their goal by utilizing perpetual contracts, by short-selling on spot markets, and by creating imbalances in DeFi pools.

If those efforts were successful, Ardoino says, those hedge funds would have created billions of dollars worth of pressure before buying back USDT at a considerably lower price.

Having failed to destabilize Tether, Ardoino says that those entities will need to buy back the Tether that they borrowed at the coin’s proper value of $1.00 or face bankruptcy.

Ardoino argued that this month’s liquidity crisis shows that lenders and hedge funds are “taking risks that Tether never touched even with a ten-foot pole.” Though Ardoino did not name any companies, Celsius and Three Arrows Capital are facing insolvency for unrelated high-risk investment strategies.

Tether, by contrast, has successfully redeemed $16 billion of USDT at full value in more than one month, Ardoino said.

Genesis Says Clients Shorted Tether

While reports of Tether shorting have emerged from various sources in recent months, the Wall Street Journal published an explicit admission from one firm today.

Leon Marshall, head of institutional sales at Genesis Global Trading, claims that traditional hedge funds shorted Tether through his brokerage. He said that the relevant trades involved “hundreds of millions” of dollars in value.

He added that U.S.- and Europe-based hedge funds typically seek out opportunities to short Tether, while cryptocurrency firms in Asia arrange the other side of the transaction.

It is unclear why firms have chosen to short the stablecoin. Marshall suggests that shorting Tether provides a way to bet against the broader economy and rising inflation. Additionally, Marshall says that concerns around USDT backing are encouraging investors to short the asset.

Tether, meanwhile, says those concerns are based on misinformation. Today, Ardoino denied rumors of Tether’s insufficient backing, exposure to Chinese commercial paper, and exposure to the defaulted firm Evergrande.

All of those rumors have previously been denied by Tether. Still, uncertainty about the stablecoin, well-founded or not, has likely encouraged hedge funds to take risks.

Despite ongoing controversy, USDT is currently priced at $1.00, at parity with the U.S. dollar as intended.

Disclosure: At the time of writing, the author of this piece owned BTC, ETH, and other cryptocurrencies.

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