Short sellers circle Tether, but stock fails to calm nerves

  • Short sellers have increased their wagers against Tether, the Wall Street Journal reported on Monday.
  • The company’s sponsors continue to reassure markets that the token is backed by significant reserves.
  • On Friday, the 3pool platform processed around $117 million in trade volume.

The repeated assurances by the sponsors of the largest stablecoin, Tether, that the token is backed by significant reserves and operates smoothly have not been sufficient to convince markets.

As of Friday, a so-called liquidity pool that enables traders to swap between the three largest stablecoins still reveals an increased supply of Tether, with the token comprising 65% of the total. According to Edul Patel, CEO of the crypto investment site Mudrex, this demonstrates that investors continue to be wary of owning Tether.

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Since the collapse of the TerraUSD stablecoin in early May led to increased scrutiny of the assets it claims to be backed by, Tether has lost favour among crypto investors. In the past month, short sellers have increased their wagers against Tether, the Wall Street Journal reported on Monday, citing Leon Marshall, the head of institutional sales at Genesis Global Trading Inc.

The market value of Tether decreased by over $600 million this week, pushing losses since right before TerraUSD’s implosion to approximately $17 billion, according to statistics from CoinGecko.

“USDT is the most widely held and most accessible stablecoin in the world, so it isn’t a surprise that more people hold USDT and have it available to swap for other assets that they want to use for other purposes,” a Tether spokesperson said in an emailed response to questions from Bloomberg. USDT is the symbol for Tether’s principal dollar-pegged stablecoin.

On Curve’s 3pool, where traders can exchange Tether, USDC, and DAI, Tether’s supply share stood at 29.9 percent on May 6, right before TerraUSD began to deviate from its peg. As the TerraUSD problem intensified on May 12, this proportion reached as high as 82%, briefly detaching Tether from its own peg.

While Tether’s supply share has decreased following the TerraUSD issue, it remains significantly higher than it was prior to the crisis. And a portion of the decline has been reversed since the Journal’s publication.

On Friday, the 3pool platform processed around $117 million in trade volume.

Tether relies on a reserve of dollars and dollar-equivalent assets to preserve its 1:1 parity with the U.S. dollar, however the soundness of this reserve has been questioned on multiple occasions. Tether submits quarterly attestations from a Cayman Islands accounting firm on its holdings, which demonstrate a gradual reduction in its exposure to assets such as commercial paper in favour of more liquid securities such as Treasury bills.

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Bloomberg reported in February that Fir Tree Capital Management had placed a significant short bet on Tether, with the expectation that it would be profitable within a year.

Shorting TetherUSD Reignites Debate Over the Most Traded Cryptocurrency

Since TerraUSD plummeted, Tether Chief Technology Officer Paolo Ardoino has moved to Twitter multiple times to reassure markets. In a 12-part tweet this week, shortly after the publication of the Journal article, he stated that Tether has “never failed a redemption” and has reduced its commercial paper holdings by approximately $45 billion, adding, “Tether portfolio is stronger than ever.”

TetherUSD has traded close to its dollar peg since the temporary decoupling on May 12.