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March 11, 2022 10:40 pm

A $4 Billion Hedge Fund Is Shorting Tether's Stablecoin

Fir Tree Capital Management, a $4 billion hedge fund, is shorting Tether as the largest stablecoin in crypto faces down scrutiny from regulators. Decrypt reports: According to clients of the firm and reported by Bloomberg, Fir Tree has constructed a way to short Tether in an "asymmetric trade." In other words, the risk is minimized and the potential to generate profit -- the firm's clients reportedly say -- remains high. The hedge fund is also reportedly betting that its decision could generate a profit within 12 months. The firm's concerns center around the stablecoin provider's $24 billion in high-yield commercial paper, which the firm also believes is linked to Chinese real estate developers. Chinese real estate has been facing down a debt of its own, led by China Evergrande Group, whose liabilities exceeded $300 billion in December 2021, when it missed a debt payment deadline. While Tether -- the company -- says it does not own any commercial paper linked to Evergrande, Bloomberg reports that Fir Tree expects some of the commercial paper Tether does own will lose value. Investors reportedly said this could cause a potentially large drop in the reserves held by Tether. Speaking to The Block last month on the financial risks posed by stablecoins, U.S. Congressman Warren Davidson called Tether "a time bomb." He added: "There isn't transparency or disclosure there. They acknowledge that they have commercial paper, but they don't disclose what exactly that is. That's where I think that a framework that compels disclosure does provide investor protection."

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