WSJ: Hedge funds build up short positions in USDT

Among cryptocurrency-focused hedge funds, the number of short positions in the stablecoin USDT is rising amid negative market conditions and the collapse of Terra’s ecosystem. The Wall Street Journal reports.

According to the publication, a month earlier traditional hedge funds traded in short via the Genesis Global Capital service. The head of institutional sales, Leon Marshall, valued these trades at “hundreds of millions” of dollars.

“There has been a real surge of interest from traditional hedge funds that are eyeing Tether and trying to sell it,” he said.

According to Genesis, the dynamics began to be evident after the crash of the algorithmic stablecoin UST. Against the backdrop of market turbulence USDT briefly deviated from its peg to the US dollar. At present, the coin trades at about $1, with a market capitalization of roughly $67 billion (CoinGecko).

According to Marshall, some hedge funds are selling USDT “as a bet on the economy as a whole,” as the Fed continues on its path to raising the policy rate. Others worry about the quality of assets in the reserves of the “stablecoin.”

In May, Tether Holdings Limited said it reduced its backing for USDT in commercial paper by 17%. Later the company denied rumors about dominance of Chinese commercial papers in its reserves.

Tech director Paolo Ardoino, in response to the publication, recalled that he had anticipated attempts by “some hedge funds” to trigger further panic in the market.

2/
Tools: USDt/USD perps (the perfect attack vector that offers an asymmetric bet), spot short selling, DeFi pools unbalancing, …
Goal: create enough pressure, in the billions, causing ton of outflows to harm Tether liquidity and eventually buy back tokens at much lower price.

— Paolo Ardoino (@paoloardoino) June 27, 2022

“The goal: to create enough pressure in the billions of dollars, which would lead to outflows and harm Tether’s liquidity, ultimately enabling the tokens to be bought back at a much lower price,” he wrote.

Ardoino stressed that over 48 hours Tether processed $7 billion in payments — about 10% of total assets on average. He said this is “almost impossible even for banking institutions.”

“Tether also reduced its collateral in commercial paper from about $45 billion to about $8.4 billion and intends to phase them out entirely in the coming months,” the company’s tech chief said.

8/
Tether also reduced its commercial paper exposure from ~45B to ~8.4B and is set to phase it out in full in the coming months. All the expiring CP have been rolled into US Treasury bills, and we’ll keep going till CP exposure will be 0.
Tether portfolio is stronger than ever.

— Paolo Ardoino (@paoloardoino) June 27, 2022

He added that the company did not take the risks that many lenders and hedge funds did.

On June 18, the issuer’s stablecoin site was subjected to a large-scale DDoS attack. Ardoino then ruled out any impact of the incident on the ability to redeem USDT positions.

As a reminder, Tether said it would not lay off staff despite the unfavorable market conditions.

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