If there was no leverage, then yes, a 1:1 backed stablecoin would hold it's value.
EDIT: I mean the story here is far from clear, you also need to consider arbitrage bots that act between exchanges, etc. etc.
If they engage in fractional reserve issuance (which it appears they do) then all holders of the coin will be subject to losses if they can’t cash out before the reserves run out. Pretty much guaranteed run by that point.
edit: more likely held by some holding company controlled by those two companies.
https://ag.ny.gov/press-release/2021/attorney-general-james-...
> In the face of persistent questions about whether the company actually held sufficient funds, Tether published a self-proclaimed ‘verification’ of its cash reserves, in 2017, that it characterized as “a good faith effort on our behalf to provide an interim analysis of our cash position.” In reality, however, the cash ostensibly backing tethers had only been placed in Tether’s account as of the very morning of the company’s ‘verification.’
> On November 1, 2018, Tether publicized another self-proclaimed ‘verification’ of its cash reserve; this time at Deltec Bank & Trust Ltd. of the Bahamas. The announcement linked to a letter dated November 1, 2018, which stated that tethers were fully backed by cash, at one dollar for every one tether. However, the very next day, on November 2, 2018, Tether began to transfer funds out of its account, ultimately moving hundreds of millions of dollars from Tether’s bank accounts to Bitfinex’s accounts. And so, as of November 2, 2018 — one day after their latest ‘verification’ — tethers were again no longer backed one-to-one by U.S. dollars in a Tether bank account.
An attestation tells you what the bank balance is. An audit tells you where it comes from, who has claim on it, etc.
Is that a guarantee? No, but I don't understand why anyone would use USDT instead of USDC.
[edit: s/UST/USDT]
> No, but I don't understand why anyone would use UST instead of USDC.
That's fair, I just don't understand using either.
It's only ~$0.2B of a ~$160B market, though.
Let’s imagine that I have 1000 cans of beer in my warehouse and I give out 1000 tickets to exchange for a beer.
Let’s further imagine you have infinity dollars to “break the peg”. So you buy tickets, trade tickets, give them away for free after re-buying them… doesn’t matter. As many times as you want.
Everyone who has a ticket at the end can still visit my warehouse to claim a beer — no matter the financial manipulations you engaged in.
If I start with 1000 tokens I distribute and 1000 dollars in my vault, no matter what you do with the tokens, I can exchange a token for a dollar — because your manipulation of the tokens doesn’t remove dollars from the vault. Those only change when: 1. I receive a new dollar, so issue a token; or 2. I destroy a token and release a dollar.
“Shorting” doesn’t impact that: if you borrow someone’s ticket, then sell it for $0.85, that doesn’t create a new ticket — there is still one ticket and one beer… and one IOU. What happens to the original owner is either the borrower buys a ticket back and returns that (canceling out the IOU) or else that original owner no longer has a ticket — they’re owed the value of a ticket by the borrower.
In the case of tokens/dollars, that value is easy to assess: the person borrowing your stable coin token who fails to return it owes you $1… but that doesn’t come out of my vault, because you don’t own a token. You’ll have to get that $1 by suing the borrower over failure to deliver.
Typically, people who want a 1-1 backed coin are uncomfortable with that model… so you instead take profit on the issuance: you charge $1.05 to issue $1 in tokens (while keeping $1 in the vault) — a process called seigniorage.
The usual expectation is that arbitrage opportunities vanish as the rush of risk-free profit takers closes the price gap. As such, it doesn't matter what other participants are in the market; the arbitrage buyer is always going to be the best bid below 1.
You might see temporary breaks from the arbitrage-free price due to liquidity (e.g. in a thin market, there might not be enough buyers initially).
If you keep selling, you'll eventually get to a situation where no Tether are in circulation, but every last Tether will sell for ~1.
How do you get the idea that leverage matters here?
If you're long on an asset and are not lending it out, neither short selling nor leverage can hurt you with a fully backed stablecoin – you can always just go to its issuer and redeem it.
As an analogy, consider owning shares of some publicly traded corporation. No matter what happens on the stock market, this doesn't impact your ownership of the actual, physicaly corporation, which entitles you to dividend payments, a proportional share of its assets when liquidated etc.