Hedge funds employ multiple methods to short USDT! Tether CTO: Commercial paper will be reduced to zero, reserve ratio over 100%

Since the UST decoupling incident, more and more traditional financial institutions have shown interest in shorting USDT. On the 27th, a report from The Wall Street Journal indicated that the scale of hedge funds shorting USDT has reached hundreds of millions of dollars, prompting a response from Tether's CTO.

Institutions Shorting USDT in Large Amounts

According to a report by the Wall Street Journal, in the past month, many traditional hedge funds have been shorting USDT through the services provided by the cryptocurrency broker Genesis Global Trading. Leon Marshall, the head of institutional sales at Genesis, revealed that the nominal amount of these trades amounted to hundreds of millions of dollars, with the majority coming from institutions in the United States and Europe.

"Interest from traditional hedge funds in Tether has increased significantly, and they are researching Tether with the expectation of shorting it," said Leon Marshall.

Leon Marshall attributed this phenomenon to two main reasons. Firstly, with the Federal Reserve continuously raising interest rates to curb inflation, these professional institutions believe it will drive investors away from high-risk assets, including cryptocurrencies. Secondly, the reserve asset issues that Tether has long been criticized for; they believe that the commercial paper held by Tether lacks security and is related to heavily indebted Chinese property developers.

Tether CTO Responds

Amid various FUD sentiments and comments on social media, Tether's CTO, Paolo Ardoino, also addressed the current situation through Twitter.

Paolo Ardoino stated that these hedge funds are using various methods such as USDT/USD perpetual contracts, spot selling, and DeFi liquidity pool imbalances to exert enough pressure with the goal of causing significant outflows to damage Tether's liquidity, enabling them to buy back tokens at much lower prices.

Furthermore, these institutions have been spreading rumors and FUD sentiments rapidly in the community over the past few months. Paolo Ardoino mentioned that the misinformation includes:

• They believe Tether is not 100% reserved.
• They believe Tether once held Evergrande commercial paper.
• They believe 85% of Tether's reserve assets are Chinese commercial paper.
• They believe Tether created tokens out of thin air.
• They believe borrowers lent from Tether without excess collateral.

"Despite our numerous public third-party attestations, collaboration with regulatory bodies, efforts to increase transparency, commitments to gradually reduce commercial paper exposure and transition to U.S. Treasuries, they still believe and insinuate that we are bad actors," Paolo Ardoino said.

Regarding the accusations mentioned above, Paolo Ardoino stated that their reserve assets actually exceed 100% and there have been no issues with customer redemptions. Tether processed $7 billion in redemptions within 48 hours, accounting for 10% of their total assets, a feat that most traditional banks find challenging to achieve.

Moreover, addressing concerns about commercial paper, Paolo Ardoino mentioned that the exposure to commercial paper has decreased from $45 billion to $8.4 billion and will continue to decrease over the coming months until all are shifted to U.S. Treasuries.

"In any case, these hedge funds that borrowed billions of USDT and sold short will have to cover their positions. What will happen then? USDT will prove to be the only stablecoin that is viable under extreme stress," Paolo Ardoino added.

Tether Undergoing Next Round of Auditor Review

In fact, Tether has been providing increasingly detailed reserve data. The image below is the reserve status as of the end of March this year, as published on the website:

In the announcement released on 6/27, it was also stated that they are currently undergoing audits by 12 major accounting firms. Some may wonder why not the Big Four accounting firms; Tether stated that the Big Four focus on reputation risk and due to the lack of regulatory transparency for stablecoins, they do not provide audit services for stablecoins. This is also the reason why none of the stablecoin competitors have accepted audits from the Big Four.