Opinion: The world's largest stablecoin looks shaky
Original title: THE WORLD'S LARGEST STABLECOIN LOOKS SHAKY
Original article by Liz Hoffman
Source of original text:semafor
Compiled by MK, MarsBit
Investors are increasingly concerned about digital tokens that play an important role in linking the cryptocurrency economy to the US dollarTetherIt could become the next cryptocurrency, kryptonite.
Last spring, some hedge funds bet on Tether, betting that Tether (named after being pegged to the US dollar) would fall below the $1 peg. Their views are so contrary, that Wall Street charges them relatively little — around 4% of the annual fee, about the same as what you're now betting on Warby Parker stock.
Today, one of these traders said you can't short Tether at almost any price. There are so many fears that it will be the next casualty of the rapidly expanding cryptocurrency storm that no one wants to take the other side of this bet, even for a hefty fee.
Tether initially did not respond to requests for comment, and it said in a statement that its “reserves are still extremely liquid.” It also said that the collapse of the cryptocurrency exchange FTX has caused a shortage of liquidity, making it difficult for short sellers to borrow Tether.
LIZ's point of view
As we've seen over the past few weeks, infectious diseases are spreading fast, and Tether is clearly a place where it can migrate and ferment.
Investors are most concerned about the actual support of Tether worth $65.6 billion, the largest in a series of “stablecoins,” which claim to be backed by easily sellable assets such as currency and government notes.
Since Bloomberg reported last year that it held venture capital such as short-term loans to Chinese companies, Tether said it had moved capital into safer areas such as government bonds. A September report prepared by Tether's auditors to reassure customers showed that more than 80% of its $68 billion was quite safe and liquid — $40 billion was US Treasury bonds, and $7 billion was goodsCoin marketThe remaining $6 billion in the market fund is cash. (After a wave of redemptions, the list of these assets is smaller today).
The rest, though, are investments that are more difficult to value and sell, and Tether knows very little about these investments. Its spokesperson confirmed to the Wall Street Journal last week that it has approximately $6 billion in loans secured by its own coins. If you lose faith in Tether, it's like rightFTXThe same blow to the token would reduce these collateral to zero and take away 10% of Tether's assets.
It also has $2.6 billion in “other investments,” according to the September report. According to a global research firm commissioned by hedge funds that bet on Tether's price, it's not entirely clear what's inside, but they are likely risky shares in other cryptocurrency companies held by their owners and affiliates.SemaforReviewing the findings of its report, it was discovered that Tether holds shares in more than a dozen cryptocurrency startups.
Semafor can verify some, but not others. We confirm that cryptocurrency exchanges that own Tether have invested in: an online betting site called Betfinex; a data sharing service Dazaar; Dusk Networks, a software that converts financial investments into tokens; a cryptocurrency trading platform called Rhino; a cryptocurrency wallet Shape Shift; and blockchain infrastructure companiesBlockstream; Digital ID company Netki; and video chat app Keet.io.
Any honest assessment of this $2.6 billion “other investment” portfolio could mean it's worth less today than it was in September.
As token holders wanted their money back, Tether had to sell everything it could sell — government bonds, corporate bonds, money market positions. This means that what it can't sell — that is, venture capital — will start to take up a larger portion of its assets. This is the beginning of bank overcrowding.
Tether fell to $0.98 last month after the cryptocurrency exchange FTX went out of business, forcing its chief technology officer to confirm that the company is returning hard currency to token holders who are demanding hard currency.” No problem,” he said on Twitter.
Since November 9, the day after FTX's problems came to light, investors have withdrawn $430 million from Tether, or about 6% of their capital.
It's also worth pointing out that leaving aside any risks lurking in Tether's portfolio, the cryptocurrency crash is bad news for the company. One major reason to own Tether is that it's a useful currency for many cryptocurrency exchanges — an arcade token that makes trading in the cryptocurrency space easier and cheaper. This is much less the case now.
Tether said, “The reality is that given the high liquidity of our assets, including 82.5% of the cash equivalent, any short seller trying to borrow dollars to sell would put themselves at extreme risk.”
objection
“Tether's dominance nears an all-time high as cryptocurrencies collapse” was a headline from industry website Blockworks last month.
All but the most pessimistic cryptocurrency skeptics believe someone will show up and professionalize the industry. Problem is, it should be Sam Bankman-Fried and FTX. (Bankman-Fried is an investor in Semafor.) As this role hasn't been filled, any cryptocurrency investors who are still committed to it need a place to save their money, and Tether may be the last one standing.
Over the past week, capital outflows have stabilized and slightly reversed. In the past three days, investors have invested more money into Tether than they have withdrawn. In this tight market, a 6% drop is nothing.
noteworthy
More details about the spring short bets on Tether, most of which were made byGenesisArranged, this is a huge cryptocurrency lender that is now facing its own problems.
Yale University researcher Steven Kelly wrote that stablecoins like Tether “can only import stability, not create stability, making them a net loss of stability to the financial system.”
