• Sat. Jul 20th, 2024

According to reports, Tether short-sellers have increased over the past week. Also, more investors continue to dump liquidity despite Tether’s report that its reserves are backed.

Furthermore, most crypto investors moved their assets to stablecoin after the fall of BTC. This was because of the stability that stablecoins offer. 

However, the recent de-pegging of the TerraUSD has caused panic across the crypto community. Investors are now afraid of leaving their digital assets as stablecoins. 

Investors Afraid USDT Might Lose Its Peg 

On Friday, a liquidity pool issued a notice. The notice stated that 65% of its pool comprises Tether reserves. The liquidity pool allows users to swap stablecoins such as USDC, USDT, and DAI.

The recent announcement means investors of USDT are afraid the stablecoin might drop. Meanwhile, Paolo Ardoino, Tether’s CTO, noted that the firm allowed withdrawals worth over $10 billion.

The company took this step following the fall of TerraUSD, hoping to encourage investors. Since the fall of TerraUSD, several hedge funds have predicted that Tether’s value might drop.

Immediately after the fall of TerraUSD, USDT dropped to $0.95. Furthermore, its market capitalization dropped by over $600 million last week.

On May 6th, Tether’s token in the liquidity pool, 3pool, was 29% before the TerraUSD collapse. After the collapse, Tether’s share increased to 82% on May 12th.

As a result, the USDT lost its peg to the Dollar, briefly falling to $0.95. According to a Tether representative, it is usual for investors to swap their USDT for other assets.

Institutions Continue To Short Tether’s USDT 

Jeff Dorman, Arca’s chief investment officer, noted that several hedge funds are betting for USDT to lose its peg. These investors have used strategies such as buying a put option and short selling.

Short-selling occurs when investors borrow USDT while using another crypto BTC as collateral. The investors can sell the USDT and buy again when the price falls.

From May 27th to June 27th, hedge funds shorting Tether have increased. Many have used the crypto brokerage firm Genesis Global. 

According to Leon Marshall, head of trades at Genesis, the trades are over million dollars. Furthermore, Asia’s crypto firms are counterparties to the ongoing short-selling trades.

On July 2nd, Tether announced that it had reduced the commercial paper in its reserves to $4 billion. The aim is to increase the credibility of the reserves backing the USDT. 

As stated by CoinGecko, the USDT’s trading price is still at par with the Dollar. However, tension continues to build up since the fall of the USD stablecoin.

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