Tether Short Selling Continues, What Happens If The Largest Stablecoin De-pegs?

Tether Short Selling Continues, What Happens If The Largest Stablecoin De-pegs?

Data on Curve’s 3pool, where users can swap between stablecoins USDT, USDC, and DAI, showed that Tether makes up 65% of the supply, according to a Bloomberg report on Monday, an indication that Tether holders are more willing to sell their holdings.

“USDT is the most widely held and most accessible stablecoin in the world, so it is not a surprise that more people hold USDT and have it available to swap for other assets that they want to use for other purposes,” said a Tether spokesperson reached for comment.

While Tether attributes its dominance of the 3pool supply to its massive adoption, it is worth noting that its supply in the pool only surged to such volume following the de-pegging of Terra USD. Notably, Tether’s share of the supply only constituted 29.9% as of May 6 before the Terra crisis. Moreover, its supply in the liquidity pool surged to 82% on May 12 as the UST decline continued.

As the Wall Street Journal reported last week, hedge funds have made large bets against USDT following the Terra ecosystem collapse. It is worth noting that since the UST de-pegging, scrutiny of stablecoin backing has increased, and Tether’s reserves have been brought into question once again.

While Tether continues to release third-party attestations of its crypto holdings, detractors of the stablecoin have called for a full audit instead. Meanwhile, amid these, Tether has continued to report that it is making its reserve as liquid as possible, increasing its US treasury bills holdings while steadily reducing its commercial paper exposure with a plan to bring it down to zero in the coming months.

Several pundits have said that a major USDT de-pegging event could be catastrophic for the crypto markets. Moreover, it is not just the largest stablecoin but also the 3rd largest crypto asset by market cap, serving as the most used on and off-ramp for other assets.

While Tether appears to be losing popularity with hedge funds, it still maintains significant retail demand. Consequently, recent reports show that Argentines are purchasing the stablecoin en masse as inflation concerns grow. The same trend can also be seen in several developing economies witnessing worsening inflation.

Tether has seen $16 billion wiped from its market cap in just over a month as it fielded a rise in redemptions.

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