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Look I am very ignorant about all this stuff but ... is there any downside to shorting a stablecoin? Please be gentle with me: Like if you short it and the pri

Look I am very ignorant about all this stuff but ... is there any downside to shorting a stablecoin? Please be gentle with me: Like if you short it and the price doesn't move (by design) are you out any money? The price won't go up (by design) because nobody's going to spend too much money from their reserves to support a price over US$1. But it's possible for the reserves to run dry in which case the price goes down and you win.

axlee 4y ago
You end up paying the transaction fees, which are insane. On top of the interest.
- hoschicz 4y ago
  You don't on chains such as Polygon, Fantom, etc etc etc. Really only Ethereum is very expensive; you don't have to use it.
  - louracryft 4y ago
    I'm just a lurker on crypto issues, but if you're avoiding transaction fees by trading on a company's private chain, aren't your assets also held by that private company? So if you wanted to redeem your assets from a private chain, wouldn't those trades need to interact with the company's holdings, rather than the wider marketplace?
tremarley 4y ago
The funding rate could get expensive
acjohnson55 4y ago
It's probably a little tough to find an instrument that gives you exactly the short exposure you want. You could sell BTCUSDT perpetuals and buy BTCBUSD perpetuals to hedge your BTC exposure. But holding that position isn't free. You could bleed fees for years until you finally get proven right.
dropnerd 4y ago
i have been interested in shorting tether since 2017. if i had gone through with it, i would have paid 5 years of interest for close to no return, including in 2018 when crypto fell 90%. also, if enough people are levered short, crypto traders could short squeeze you. the price just needs to go up temporarily. also, there's counterparty risk. is the exchange you're trading on going to stay up if tether goes to 0? depends on which one.
- hoschicz 4y ago
  See my sibling comment. You can do a permissionless short on Tether on the blockchain for a varying interest rate difference between USDC and USDT. I've been paying approx 2 % a year for the last year now.
whimsicalism 4y ago
If you think Dai will collapse but not eth, you could "short" it by minting Dai with an eth vault, selling it immediately for USD, then buying back the Dai when it collapses and using it to unlock your eth vault. My guess is you would want to short it without exposure to eth and then idk.. You could do the same with USDC.
kasey_junk 4y ago
Don’t forget counterparty risk. What venue are you going to short the stablecoin on? If they go to zero who pays out on your short?
hoschicz 4y ago
Yes, there is essentially no downside. I do it; on Aave you can deposit USDC and borrow USDT against it, earning an interest on USDC and paying interest on the USDT. It currently costs me about 3 APR to short Tether. What's nice is that you can iterate the strategy, e.g. deposit 1000 USDC, borrow 950 USDT, swap this USDT for USDC, deposit the USDC, borrow more USDT... https://app.aave.com/ https://app.aave.com/ offers "E-mode", which lets you borrow stablecoins worth up to 99 % of the stablecoins you deposited.
- dropnerd 4y ago
  levered shorts do have a liquidation downside, while any short has an implicit opportunity cost downside over time. the fact that defi shorting is available is a great improvement. now there's only smart contract risk, which for aave is negligible compared to exchange risk.

axlee 4y ago

You end up paying the transaction fees, which are insane. On top of the interest.

hoschicz 4y ago
You don't on chains such as Polygon, Fantom, etc etc etc. Really only Ethereum is very expensive; you don't have to use it.
- louracryft 4y ago
  I'm just a lurker on crypto issues, but if you're avoiding transaction fees by trading on a company's private chain, aren't your assets also held by that private company? So if you wanted to redeem your assets from a private chain, wouldn't those trades need to interact with the company's holdings, rather than the wider marketplace?

tremarley 4y ago

The funding rate could get expensive

acjohnson55 4y ago

It's probably a little tough to find an instrument that gives you exactly the short exposure you want. You could sell BTCUSDT perpetuals and buy BTCBUSD perpetuals to hedge your BTC exposure. But holding that position isn't free. You could bleed fees for years until you finally get proven right.

dropnerd 4y ago

i have been interested in shorting tether since 2017. if i had gone through with it, i would have paid 5 years of interest for close to no return, including in 2018 when crypto fell 90%. also, if enough people are levered short, crypto traders could short squeeze you. the price just needs to go up temporarily. also, there's counterparty risk. is the exchange you're trading on going to stay up if tether goes to 0? depends on which one.

hoschicz 4y ago
See my sibling comment. You can do a permissionless short on Tether on the blockchain for a varying interest rate difference between USDC and USDT. I've been paying approx 2 % a year for the last year now.

whimsicalism 4y ago

If you think Dai will collapse but not eth, you could "short" it by minting Dai with an eth vault, selling it immediately for USD, then buying back the Dai when it collapses and using it to unlock your eth vault. My guess is you would want to short it without exposure to eth and then idk.. You could do the same with USDC.

kasey_junk 4y ago

Don’t forget counterparty risk. What venue are you going to short the stablecoin on? If they go to zero who pays out on your short?

hoschicz 4y ago

Yes, there is essentially no downside. I do it; on Aave you can deposit USDC and borrow USDT against it, earning an interest on USDC and paying interest on the USDT. It currently costs me about 3 APR to short Tether. What's nice is that you can iterate the strategy, e.g. deposit 1000 USDC, borrow 950 USDT, swap this USDT for USDC, deposit the USDC, borrow more USDT... https://app.aave.com/ https://app.aave.com/ offers "E-mode", which lets you borrow stablecoins worth up to 99 % of the stablecoins you deposited.

dropnerd 4y ago
levered shorts do have a liquidation downside, while any short has an implicit opportunity cost downside over time. the fact that defi shorting is available is a great improvement. now there's only smart contract risk, which for aave is negligible compared to exchange risk.