If Tether implodes after the FTX crash, it is game over for the whole industry

• Analysts reveal their fears concerning the level of exposure Tether has to the FTX’s crash.
• Meanwhile, Tether has released a blog statement explaining how the failure of Alameda Research doesn’t pose any risk to Tether.

Prominent Twitter user, @coffeezilla, believes that Tether would be the biggest casualty in the FTX crash.

Tether is the 60 billion pound elephant in the room of this crypto crash.

It still can get much worse. Don’t forget Alameda Research was the biggest user of Tether.

— Coffeezilla (@coffeebreak_YT) November 17, 2022

The self-styled internet detective revealed that the situation could get worse given that Alameda Research was the biggest user of Tether. Using a short Twitter thread, @coffeezilla posted a chart showing crypto firms that uses Tether the most. Unsurprisingly, Alameda research topped the list with $36.65 billion.

Without providing further details, @coffeezilla believes that Alameda Research was utilizing USDT for profits. Meanwhile, @coffeezilla isn’t the only one having fears of a possible risk of Tether to the FTX contagion. Another prominent Twitter user, @metabad, provided further insights regarding the matter.

@metabad argued that it is more difficult to track Tether inflows than outflows. He further explained that over 80 percent of USDT that ever returned to Tether’s treasury were from crypto exchanges. By comparison, there have been outflows of more than 70 percent of USDT ever issued.

According to @metabad, it makes it practically impossible to identify the sender of those transactions. He cited examples of how bankrupt crypto firms, Three Arrows, and Nexo were also using USDT for profits before the crash of the Terra network, where they had invested huge sums.

My mission is to warn everyone invested in crypto about #Tether so they don’t get REKT. Tether loans huge amounts of Tether to Market Makers so they can liquidate your leveraged positions. With the complicity of the exchanges you trust.

— Metabad (@Metabad) November 18, 2022

Tether refutes allegations of FTX risk exposure

In the meantime, Tether released a blog post today to clear the air regarding its exposure to the FTX/Alameda failure. In the blog post, Tether admitted that the FTX/Alameda failure has resulted in a chain of failures for different crypto industries. The blog post further said more companies would declare bankruptcy in the next few weeks.

Then, it went further to dismiss any allegation the Alameda failure represents a massive risk to Tether or its issued token, USDT. Tether explained that it fully collateralizes all USDT and the USDT is redeemable 1-for-1 with the USD.

Hence, Tether is still in possession of any USDT it issues to Alameda, and the collateral backing the USDT is not on the trading firm’s balance sheet. It also clarified that Alameda couldn’t do anything else with their USDT except redeem them for the USD. The blog post also claimed that Tether never lent Alameda USDT for any purpose.

Hence, Alameda or FTX is in no way indebted to Tether or any of its funds. Tether further explained that companies having holes in their balance sheets are those that Alameda several crypto assets and accepted illiquid assets as collateral. The USDT issuer added that this isn’t the way it operates.

Tether further said it only lends USDT to some of its clients with over-collateralization and highly liquid assets. The blog post also said there is no inherent risk to Solana USDT despite the recent suspension of USDC and USDT deposits on the Solana blockchain by Binance and OKX. Finally, the post ended by restating that the FTX failure poses no risk to USDT or its issuers, Tether.