Is it feasible to short USDT and USDC?
6 min readJul 11, 2022


USDT is the largest stablecoin in the cryptocurrency market, and its value is pegged with the US dollar, 1USDT can convert to 1 US dollar. According to data from Tokenview, until July 10, 2022, the market capitalization of USDT is still as high as about 66 billion US dollars.

Last week, The Wall Street Journal interviewed Leon Marshall, the head of sales at crypto brokerage Genesis Global Trading. Marshall said that many traditional hedge funds are planning to short USDT on a large scale, involving hundreds of million dollars. As soon as the news came out, the market’s fud sentiment towards USDT instantly increased, more and more people began to join the ranks of shorting USDT.

In fact, this is not the first time that USDT has experienced such a large-scale panic. As early as 2018, USDT’s reserve assets value, which used as a pledge, was exposed smaller than the market value of USDT circulating in the market. People’s belief in USDT began to decline, and USDT was sold in the market one after another.

In 2019, data released by Tether showed that the proportion of USDT backed by cash, bills and equivalents are 74%, which means that 26% of the USDT in the market did not have corresponding reserves as pledge, those 26% USDT may not be able to redeem in time. This news caused the market panic, and USDT was continuously be sold.

In May of this year, with the stable currency UST’s thunderstorm, market conditions and sentiment are affected, the currency circle began to form a sell-off boom, and more and more traditional hedge funds began to short USDT.

The main reasons for these hedge funds to short USDT can be summed up in the following two points:

1. Not too optimistic about the prospects of cryptocurrencies.

As inflation continues to intensify, the Federal Reserve is gradually raising interest rates and through other ways to contain and mitigate the impact of inflation. The reduction of liquidity in the market will make investors stay away from high-risk investments including cryptocurrencies, and the overall popularity and liquidity of the currency circle will gradually weaken predictably.

2. Distrust the Tether institution.

USDT claims that its currency is pegged 1:1 to the U.S. dollar on the premise that its collateral reserves are sufficient, which cover assets such as cash, bonds, commercial paper and bank loans. Some institutions believe that according to Tether’s previous reserve information, whether the mortgage reserve is sufficient remains to be verified. For example, in 2021, Tether and Bitfinex were accused of misrepresentation of reserves and were forced to pay a fine of $18.5 million. In addition, other bears believe that most of Tether’s commercial paper holdings come from today’s debt-laden real estate developers.

Since its brief decoupling from the U.S. dollar in May, USDT’s market value has dropped and dropped. According to Tokenview data, the market value of USDT has fallen by about $17.4 billion since May.

However, during the same period, the market value of USDC, a stablecoin issued by Circle and Coinbase, increased by 8.27%, reaching a peak of $55.9 billion on July 2. The market value ratio of USDT and USDC is close to 1.18, which is the smallest gap since its birth.

Like USDT, USDC is also a stable currency anchored to the US dollar. USDC is pegged to the US dollar 1:1, 1USDC=1 US dollar. Every time a user buys 1 USDC, Circle will deposit 1 USD to the designated bank (Silvergate Bank), and send the minted USDC to the user. Different from USDT, USDC has always focused on compliance and transparency.Circle, the issuer of USDC, has payment licenses in the United States, the United Kingdom and the European Union, as well as BitLicense in New York State. On the other hand, coinbase is the cryptocurrency exchange with the most regulatory licenses in the world.

Market sentiment shows that since the collapse of Terra in May, cryptocurrency investors have gradually become cautious about stablecoins, and USDT and USDC, the leading stablecoins, are inevitably bearish by some short-sellers. However, because Tether has a lot of information on asset reserves and supervision that is not disclosed to the public, investors are generally more worried that USDT will experience thunderstorms. With the continuous intensification of USDT shorting, investors are more willing to exchange USDT for USDC for storage, because compared with USDT, USDC has more clear judicial supervision and institutions as endorsements, and the possibility of a thunderstorm event is very low.

Considering the heightened panic in the market, Jeremy Allaire, founder and CEO of Circle, also issued a series of statements on Twitter, saying that he has been working with regulators, top guarantee companies and leading financial institutions and will continue to work on transparency and trust, will continue to strengthen reporting and disclosure through simple, clear and frequent updates.

Circle will regularly publish financial audits and USDC reserve details and make them public on the official website

This announcement is undoubtedly increase user’s confidence. Tokenview on-chain data monitoring shows that the USDC liquidity on Uniswap reached an 18-month low of $186,154,314.42 on July 3, which means that in terms of market sentiment, people are more inclined to exchange other Currency into stable U for value preservation, while USDC is generally more optimistic.

Let’s talk about USDT. Will USDT have the same serious de-anchoring event as Terra’s UST?

In fact, with the help of UST’s experience, we can also see that if a stable currency has a relatively serious thunderstorm, most of the reasons are due to loss of market trust and difficulties in large-scale sales/redemption. UST is an algorithmic stablecoin, which relies solely on market behavior to adjust anchoring. This method currently seems to be relatively fragile, because when the overall market is cold, investors are easily affected by the “herd effect”. Behavior becomes uncontrollable. As a collateralized stable currency, USDT itself is collateralized by assets such as cash, bills, bonds, etc., so it is relatively more stable and reliable.

On May 19, Tether’s latest quarterly assurance opinion showed that compared with the 8.4B of commercial paper assets currently held by Tether, 5B of the paper assets will expire on July 31. Once it expires, it means that Tether’s commercial paper holdings will be significantly reduced to a low of 3.5B, which is in line with Tether’s commitment to the community. The goal remains to bring that number down to zero. While commercial paper and treasury reserves are typically liquid assets and cash equivalents, the U.S. treasury will now account for a larger percentage of Tether reserves.

On the other hand, Tether has never had a case of redemption failure, which means that if you want to exchange USDT for fiat currency, they can be exchanged at any time. However, large-scale redemption is impossible for USDT, which has a wide range of applications. As an old stable currency, USDT is not only deeply bound to the encryption circle, but also a bridge between the currency circle and the real financial field. Therefore, it plays an important role in all aspects. Once a serious thunderstorm occurs in USDT, it will affect the entire encryption circle. Therefore, when USDT was in a crisis of shorting, Tether, the center of the whirlpool, also made its own response to this incident.

On June 27, the CTO of Tether, Paolo Ardoino, also tweeted to clarify the panic remarks of USDT, stating that Tether has been working with regulators to improve transparency. Tether is also gradually reducing its purchases of commercial paper, switching to buying U.S. Treasuries, and improving the efficiency of settlement.

A Tether spokeswoman also said that “hedge funds are creating opportunities for short selling through disinformation,” and they would not comment further.

Everyone has a different opinion on whether there will be thunderstorms for USDT and USDC. But it is undeniable that with the overall coldness of the crypto market environment, USDT and USDC will inevitably be affected by some factors such as market sentiment. For stablecoins, how to improve credibility and transparency, and further enhance payment security and application scenarios, is a more urgent issue to think about now.



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