Tuesday, May 17, 2022
$62 - $63 million of WL treasury funds are parked in Tether (USDT).
Considering recent events leading up to the collapse of Luna and its algorithmic stable coin, UST, it would be prudent to divest the treasuries excessive and over-concentrated position in USDT. (See TLDR below if preferred). I begrudgingly submit this proposal because as a professional trader , I would not be happy if someone told me how to position my book.
This “position” in Tether was not supposed to be a directional risk to the WL fund. On the contrary, it was a way to avoid directionality until a viable trade/investment was discovered. Suddenly, the entire position is one giant concentrated bet on the solvency of Tether and the position’s explicit view that every Tether is backed by at least one USD.
Until seeing the coordinated bear raid on UST and the ramifications of a successful raid on the entire crypto ecosystem, any concerns involving Tether not being backed 1:1 were merely “fringe thinking”.
The WL fund has close to half of its reserves in USDT, exposing it to significant idiosyncratic risk that is asymmetrically skewed to the downside (i.e., the risk of going to zero was not being offset with the potential for upside gains, being that it’s a pegged stable coin, which actually makes it a wonderful short idea ) What is important for everyone reading this to remember is that at the end of the day, it matters little what the true backing of USDT is. All that is needed is a spark that ignites the fuse of panic which grows into hysteria and becomes a stampede for the exits, causing the herd to essentially commit self-inflicted annihilation following a modern-day version of a classic bank run.
If there is substantial risk of loss with zero potential for appreciation, it makes absolutely no sense to hold this kind of risk for even a minute longer.