FatMan

But the /potential/ for a problem is there, which is causing some worries. In particular let's talk about that $24 bn of commercial paper.

No one knows what it is. Tether certainly isn't saying. There's been plenty of speculation that it's loans to Chinese property developers, but that's just pure speculation. I don't believe it myself.

It's vastly more likely that it's loans to other crypto companies. In the past we tended to see more USDT being created when there were big dislocations in crypto markets. To me, that reads as Tether lending USDT to trading firms to take advantage of the dislocation.

That could mean market buying crypto if they think it's been oversold, but most firms are more sophisticated than that. More likely IMO that they would be doing cross exchange arbs, cex-dex arb, spot/perp arbs etc all of which are very capital intensive, so there would be ...

clear demand to borrow USDT to use as collateral during a period of stress, which helps to juice the profits of trading firms. Do I know that's what happened? No. But I think it's a decent guess.

That *might* be a problem now because I expect there are some big losses rn in firms that had exposure to Terra and Luna, and it's *possible* that some of these firms might not be able to make good on their loans any more, which would leave Tether in a bit of a hole.

It would essentially be a mini version of the Lehman or LTCM crises. A lot of leverage built up, and lots of firms have credit exposure to each other, possibly in ways that aren't completely obvious, which raise the risk of contagion and *could* lead to more losses down the line.

Anyway I have exactly zero evidence for any of this but it's fun to think about. Stay safe out there, don't take unnecessary risks, and remember it's always ok to take off some of your positions and wait to see what happens.