- The stablecoin believes that its critics are being very severe in the analysis of the “vulnerability” of the cryptocurrency, but not when looking at its competitors.
- It rejects being compared to the failed Terra project and suggests that other stablecoins are in trouble.
- Tether calls hedge fund short selling “misguided.”
Tether (USDT) claims that it has maintained its parity with the dollar despite the strong volatility that has shaken the cryptocurrency market for several months. The stablecoin further revealed that it has had to shell out more than $14 billion to cover withdrawals from its investors.
These massive USDT swaps demonstrate that the cryptocurrency does not have the same vulnerability as Terra and other stablecoins, says the team behind the project. For this reason, USDT does not understand how its critics are being so harsh when analyzing its financial strength, which is not the case with its competitors.
“The simple fact that hedge funds view Terra’s collapse as a constructive thesis to short USD₮ represents the asymmetric knowledge gap between cryptocurrency market participants and entities in the traditional finance space,” Tether wrote in an article posted on its blog. The stablecoin defended itself and countered in the article titled “Why Hedge Funds Are Losing Money Shorting USD₮.” The explanation is that “the underlying thesis of this trade is incredibly ill-informed and dead wrong,” said the team at Tether.to, the company that launched in 2014 that manages the token.
“It is further supported by a blind belief in what borders on outright conspiracy theories about Tether,” it added. The company listed a number of reasons that led to the crypto bull run that has hit the crypto market recently. The stablecoin claims that the elusive hedge fund analyses are stemming from a “fundamental misunderstanding” about the cryptocurrency market and Tether.
This misunderstanding is based on “the belief that Tether is or was not backed 100% by conservative, liquid collateral.” Likewise, the company says it is also a misunderstanding that “Tether was a holder of Evergrande debt” and that “Tether’s commercial paper holdings were predominantly Chinese debt.”
Another “mistake” by hedge funds has been to believe “that Tether created USD₮ from thin air to pump crypto markets” and “that Tether had unsecured loans to borrowers,” said the issuing team of the largest stablecoin in the market.
The Bet against Tether
Since the beginning of May, the TerraUSD Classic (USTC) stablecoin has lost its peg to the dollar. The result was that the price of the native token of the Terra ecosystem (LUNA), now called Luna Classic (LUNC), plummeted almost completely from $60 to fractions of a cent in a matter of a few days.
USTC’s dramatic drop hit other cryptocurrencies, including Tether, which fell 21% from its market capitalization at the time (USD 85,300 million) and briefly lost its peg to the dollar. Since then, the accumulated losses for USDT add up to USD 19.5 billion, and the current value stands at USD 66.171 million, according to CoinMarketCap.
Tether backed up its comments about the alleged conspiracy against them encouraged by their critics and competitors, citing part of an article published late last month in The Wall Street Journal about hedge funds shorting Tether.
“So a number of investors have been betting against Tether for much of the last year. But more hedge funds have become interested in shorting Tether after the collapse in May of another stablecoin called TERA USD,” notes reporter Caitlin McCabe in the WSJ article.
“And I think that's made some professional investors more skeptical of the stability of the broader crypto ecosystem,” she added. Tether CTO Paolo Ardoino recently referred to a “coordinated attack” on the stablecoin by several hedge funds with the purpose of short-selling the cryptocurrency.
Ardoino argued that hedge funds have tried to manipulate the market, creating strong artificial pressure with the aim of “harming Tether’s liquidity” in order to later buy the stablecoin at a lower price.
Why USDT Is Not the Same as Terra
“Tether is currently preparing an audit with a major accounting firm, one of the “Big 12” accounting firms, which kills another conspiracy theory that “Tether would never do an audit," the article adds. The article mentions “the many ways in which USD₮ differs from Terra, why USD₮ is more stable, why USD₮ is not subject to the same risks, and why the failure of Terra has no implications for the question of if USD₮ would fail." The company maintains that “Tether remains the most transparent stablecoin in the market and it begs the question of why Tether's critics don't call all other stablecoins to the same standard?” On narrowing the gap in market capitalization between USDT and larger competitors, the company explained that the reason is that the cryptocurrency caters to the traditional banking industry and is used for cash swaps.
“Tether is focused on being the most used currency for peer-to-peer exchanges, remittances, a tool of freedom and inflation hedge for developing countries,” it argued. Tether's 24-hour trading volume is still about 10 times that of its closest competitor. Lastly, Tether delivered a hard jab to the jaws of their opponents. “It is also a fact that Tether’s competitors are often operating at a loss! Their businesses are losing money each quarter and each year." “Investors must ask themselves, is this sustainable? Can these operations continue losing money forever?," and he finished with a poison dart: “Tether has no need to burn investors' money to promote the adoption of USD₮.”
On the Flipside
- The criticism against Tether did not start with the collapse of Terra; it predates it.
- There are unclear aspects about the structure of the company, its partners, and the capital that supports the cryptocurrency.
- Some have even gone so far as to speculate that it represents the biggest risk to cryptocurrencies.
It is not possible to say whether or not there is really a conspiracy against Tether. The truth is that in the current bear market, there is a merciless fight to hold on and not succumb to the fierce volatility that hits cryptocurrencies.
In a market still wild in many respects due to a lack of regulation, many companies in the sector could be tempted to use all the means at their disposal to compete and survive the crypto winter. In such a scenario perhaps, the main casualty could be business ethics.