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You can short it on a decentralized exchange if you want to avoid counterparty risk You then have a different risk though, protocol (smart contract) risk. As l

You can short it on a decentralized exchange if you want to avoid counterparty risk You then have a different risk though, protocol (smart contract) risk. As long as the smart contracts don't have exploits, you'll be able to withdraw your collateral after repaying your borrowed Tether. Of course, this also means you have to be fairly overcollateralized. If you want to short say $100 of Tether you'd do well to deposit $200 of funds as collateral, because each asset has its own collateralization ratio that's not 1:1 to protect against liquidity crunches. Aave and Compound (v2) would be safe places to execute a strategy like this, as they've been battle-tested for years at this point and have received multiple audits. There's always risk of course, but I don't think this is any more risky shorting through a centralized exchange, and much more transparent than something like shorting traditional securities

polygamous_bat 4y ago
I am incredibly tired of hearing this same argument, especially because DEXes like AAVE and Compound does not have anywhere close to the liquidity it is needed to short Tether to the point it causes any trouble (or even slight discomfort) for them. I just checked, and it seems like the total size of the borrowing pool of USDT there is about $500MM (~$330MM AAVE, $170MM Compound v2), which, together, makes 0.73% of their total market cap. That could probably cause trouble if Tether was, say 0.5% capitalized? But we know that number is probably above at least 20%, as in, Tether may have ~$13.6B in cash that they can and will spend to defend their peg. So the liquidity is enough for small fishes to take bets that they don't know is actually swindling them out of their money. However, it is not large enough for an institutional/activist investor with a few billion in capital to take up a real position against Tether/Bitfinex.
- pcthrowaway 4y ago
  I'm sure getting to tens of billions of USDT is more difficult, but in general, if borrow interest flows in, supply will chase it, as the supply rate automatically adjusts according to the ratio of the pool which is being borrowed. More people borrowing drives up the supply rate, until more suppliers come in. You can probably only get so much Tether into the protocols that way, maybe $5-10B I didn't realize you were talking about shorts of larger size though. I think you'd have a hard time shorting, say, 20% of the supply of a stock also
  - tsimionescu 4y ago
    The point being made is that no one can profit by shorting USDT to the point where they would be shown not to have anywhere close to the reserves they claim. So the argument "no one has successfully shorted USDT, so Tether must actually hold the needed reserves" is false. This of course doesn't prove that they don't the reserves, it's just that this is a bad argument.
tsimionescu 4y ago
DEXs don't trade money, they trade crypto. So, if you believe that USDT crashing will bring down the value of all other crypto near 0, DEXs are just as bad a place to short Tether as any other part of the ecosystem.

polygamous_bat 4y ago

I am incredibly tired of hearing this same argument, especially because DEXes like AAVE and Compound does not have anywhere close to the liquidity it is needed to short Tether to the point it causes any trouble (or even slight discomfort) for them. I just checked, and it seems like the total size of the borrowing pool of USDT there is about $500MM (~$330MM AAVE, $170MM Compound v2), which, together, makes 0.73% of their total market cap. That could probably cause trouble if Tether was, say 0.5% capitalized? But we know that number is probably above at least 20%, as in, Tether may have ~$13.6B in cash that they can and will spend to defend their peg. So the liquidity is enough for small fishes to take bets that they don't know is actually swindling them out of their money. However, it is not large enough for an institutional/activist investor with a few billion in capital to take up a real position against Tether/Bitfinex.

pcthrowaway 4y ago
I'm sure getting to tens of billions of USDT is more difficult, but in general, if borrow interest flows in, supply will chase it, as the supply rate automatically adjusts according to the ratio of the pool which is being borrowed. More people borrowing drives up the supply rate, until more suppliers come in. You can probably only get so much Tether into the protocols that way, maybe $5-10B I didn't realize you were talking about shorts of larger size though. I think you'd have a hard time shorting, say, 20% of the supply of a stock also
- tsimionescu 4y ago
  The point being made is that no one can profit by shorting USDT to the point where they would be shown not to have anywhere close to the reserves they claim. So the argument "no one has successfully shorted USDT, so Tether must actually hold the needed reserves" is false. This of course doesn't prove that they don't the reserves, it's just that this is a bad argument.

tsimionescu 4y ago

DEXs don't trade money, they trade crypto. So, if you believe that USDT crashing will bring down the value of all other crypto near 0, DEXs are just as bad a place to short Tether as any other part of the ecosystem.