Inside USDT’s ongoing battle with FUD

CryptoSlate’s James Van Straten and I sat down with Paolo Ardoino, the CEO of Tether, at BTC Prague this month. In one of Paolo’s most transparent to date, he addressed several critical topics related to Tether, including FUD surrounding Tether, its holdings in US treasuries, and competition in the industry.

2022: A Year of Challenges and Resiliency

Paolo reflected on 2022 when I first met him at Paris Blockchain Week, labeling it as significant for both good and bad reasons. He acknowledged that while the year saw the exit of many bad actors from the crypto industry, it also provided Tether an opportunity to demonstrate its resilience. He recounted:

“When we met it was I think 2022 was an incredible year for good and bad, in my opinion. The good thing is that many actors that were eventually recognized as bad actors have left the crypto industry for good. It also was a good moment for Tether to prove its resiliency. And that, in my opinion, is, was very, very crucial.”

Paolo noted that the events of 2022 served as a trial by fire for Tether, allowing it to prove its stability and reliability under pressure. At the time, he publicly predicted the downfall of Terra Luna, a competitor in the stablecoin market. He faced criticism for this prediction, as many believed competitive interests drove his comments. He explained:

“At the conference at the Blockchain Week in Paris in 2022, was before the Terra Luna fallout. I publicly said, I think Terra Luna is going to go bust. And I was criticized about that because people were telling me, oh, of course you are saying that because it’s your competitor is going to eat your lunch.”

He clarified that his concerns were based on the inherent issues he saw in Terra Luna’s model. According to Paolo, Terra Luna’s stablecoin was backed by another token they created, a structure he compared to a “Fugazi” (something fake or insubstantial). He contrasted this with Tether’s principle of ensuring they could always redeem its stablecoin for its face value, emphasizing the importance of liquidity and reliability for stablecoin issuers.

Bank Run and Short Attack on Tether

Paolo detailed this led to a coordinated attack against Tether, where attackers attempted to short the stablecoin and create a bank run to prove that Tether did not have sufficient reserves. He explained that these attackers borrowed large amounts of USDT and sold it at a discount, aiming to cause panic and a rush for redemptions. Paolo…