Austin Campbell, founder of Zero Knowledge Consulting, highlighted a claimed discrepancy in market sensitivity between the pegs of USD Coin (USDC) and Tether (USDT). Campbell mentioned one behavior when one would buy coins with USDT, swap for USDC incrementally, and then redeem for USD.
Campbell claimed that by doing this, people could sell an unlimited amount of USDT into the market without impacting prices. He said, “This is the claim being made here: that the market is somehow very sensitive to the USDC peg but has zero sensitivity to the USDT peg.” He questioned, “If this USDT is “unbacked” as alleged, then where is the demand to buy it coming from?”
In a scenario where Tether has no reserves or partial reserves, people can easily break the peg by shorting Tether at scale and then starting to redeem, according to Campbell. He said:
You just need to keep round-tripping the thing. Take $50 million and redeem it. Mint USDC with the $50 million. Buy USDT with the USDC. Redeem it. Continue until Tether is dead.
Per Campbell, the demand for USDC and the demand for USDT are independent. He added that the demand could be “driven by differential access to dollars, given the U.S. skew of USDC holders and the non-U.S. skew of USDT holders.”
Campbell noted that this strategy is profitable; however, if Tether is not reserved, “why has nobody done this? It was 100% done to UST, after all.” Campbell mentioned another possibility, in which Tether is seeing larger redemptions than the people are aware of.
To explain this, he said, “What they are doing is not burning the USDT returned to their treasury and instead leaving it in some kind of control account to release later if they get deposits.” He called on-chain sleuths to investigate this probability.
Interestingly, Campbell noted a scenario where a scam could be happening, calling it “the single most hilarious scam in the history of crypto, if true.” He claimed that crypto exchange Binance could be selling its customers’ crypto to buy USDT and have a reserve interest sharing agreement with USDT. Campbell stated that he didn’t believe in this scenario; however, he claimed it was a “plausible explanation of what is happening.”
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