In theory, shorting USDT makes no sense because its value should always remain around $1, but several hedge funds did.
They clearly believed that the contagion caused by the collapse of LUNA and UST in mid-May would travel to the crypto markets’ major stablecoin, leading it to disintegrate, but it did not.
Tether deems this idea “extremely incorrect” and “flat-out erroneous” in an article published last week on the official blog titled “Why Hedge Funds are Losing Money Shorting USD.”
Even better, it claims that this concept borders on a conspiracy theory and is maintained solely by blind faith.
The “plot” behind the Tether short
This hypothesis is based on the misconceptions that USDT is not 100 percent secured by liquid and safe collateral, that Tether held Evergrande debt, that Tether’s commercial paper was primarily derived from Chinese debt, that Tether created USDT out of thin air to boost the crypto markets, and that Tether has unsecured loans.
Despite the fact that the crypto market has been quite volatile over the last two months, USDT has always maintained its peg to the dollar. Furthermore, Tether has refunded up to $14 billion to those who have returned their USDT tokens, therefore Tether’s capacity to make these repayments without difficulty is cited as further evidence of the integrity and liquidity of the token’s underlying backing.
According to the Tether team:
“However, due to the sell-off in the cryptocurrency market various hedge funds have begun to take short positions on the crypto markets. Several of those funds have started to short USD₮ which shows a fundamental misunderstanding of both the cryptocurrency market and Tether”.
They go on to say that the fact that hedge funds perceived Terra’s fall as an opportunity to dump USDT demonstrates traditional funds’ lack of understanding of the crypto industry.
They actually point out that it was funds with short positions in USDT, not Tether, that crashed at this period.
The lack of trust in Tether (USDT) audits
They further claim that the company is preparing an audit with a big accounting firm, one of the world’s “Big 12,” and that this will dispel another false myth of the USDT conspiracy theory, namely that Tether never conducts significant audits.
Meanwhile, while USDT’s market value is falling, USDC’s is rising rapidly, but the discrepancy in trading volumes remains appalling, at around ten times that of its primary competitor.
They end by writing:
“We are interested to see if all of Tether’s competitors can continue to keep up in these market conditions!”