We may be wrong of course, but lets spend few minutes inspecting the Tether risks
- There are two huge problems in the Tether network.
- We all know about the first – their risky investments and the money coverage
- But here we will discuss the other big problem, that nobody sees right now – the liquidity problem
Money coverage and investments :
If we look carefully at their last financial statement from March 31, 2022 everything looks more than perfect.
It definitely seems that they are tightening their risky investments and are rising their cash reserves.
But are there still problems? Just from their first report we know that those scary Commercial Papers and Certificates of Deposits are used for Class A Chinese corporate bonds.
In the right graphics you can see their last year performance. In fact they are loosing value and from 30.04.2021 their performance is negative -3.56%
That’s not so scary till the Chinese bond market is still working properly.
Of course there are risks because of the tension between Us, China and Taiwan
Those risks are small and we can conclude that the risk of disaster here is not so big
But what about their 55.53% of their US treasury bills investments ?
If we look at he US bond market we can easily do the math.
We have average yearly yield 2.27 % and inflation rate of 8.1%
That means that this “safe” investment is loosing huge amount of money.
But what is the future of the US bond markets? Before one year if somebody told us that, for sure we will laugh at him, but nowadays its seems realistic.
In the financial crisis Us bond market was the safest place in the world for money investments. But after the war in Ukraine and the Russian sanctions a lot of huge international investors takes their investments from the US markets.
There are huge risks for the US bond markets and and more respected economists talks about their crash.
Of course such an event will broke the Tether economy because of their 55.53% exposition.
For us this is huge red flag for the Tether economy, although their fiscal tightening for the last two quarters.
The liquidity problem :
The Terra UST Crash
- For the most of the analyst it is still mystery what exactly happens with UST in 9-th of May. But for us the main reason was the liquidity problem for the whole stablecoins market.
- In fact Tether was down with more than 5% that day and never came back to the 1$ area.
- If we take a closer look to whole stablecoins market we can see that there was few big crashes too, and all of the stablecoins was affected
- Is this happens for the first time in history?
- For sure no. We are exploring the stablecoin market for few years and can conclude that every time when there is an flash crash event, there always is the same effect on the stablecoins market
Lets take a look at the left chart. This is the USDT Market Cap in % from the whole crypto market.
It is obvious that every time when the USDT dominance reach the overheating line of the liquidity exhaustion the crypto market finds his bottom. And why this is happening?
Our theory is that this is the area where the USDT price algorithm is overheated and will crush the USDT price if somebody don’t help the market to recover. May be this is kind of bug in the algorithm, but we all know that once coded and published in the blockchain the algorithm can’t be rewrited or fixed while he is still working.
But what happens in the bloody date of 9-th of May?
This was Black Swan event for the whole crypto market. The biggest fear of all of the crypto investors is the crush of the Equity Market. And this happens
Actually this event has opened the Pandora’s Box for the whole crypto space.
If we look at the right chart, we will see that some of the USDT huge investors are already redeemed their money from the network. Are they know something that we didn’t ? And where is the biggest risk?
If we take closer look into the DeFi liquidation we can see that on the same date, there was the biggest loan liquidation ever. Bigger than the 2021 crash.
But is this the end of this song?
No. we think that this is just the begging of the biggest liquidity crypto crash ever.
When we invest the whole outstanding DeFi debt, we can see that the crash from the 9-th of May has liquidated not more than 20% from the whole debt.
This mean that, if the same Black Swan event happens again the consequences can be triple time bigger than those from 9-th of May
And how this event will thread the USDT price? We think that if this happens again, USDT can lose more than 40% from its value.
Ok, but if USDT loses 40% from its value just for one day, all of the investors will remember what happens with UST few weeks earlier and will redeem their USDT investments
And That is the biggest USDT risk! If we have panic USDT redemption, this can crush the price to around 0.06$ area – like in UST
And may be your question now will be: “Who the f*ck will get rich from this?”
Because in every crisis someone become richer. And the answer is :
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