The world's largest stablecoin faces skepticism; S&P downgrades its rating to the "worst grade"

Crypto News Agency, November 27 (Editor: Shi Zhengcheng) - Standard & Poor’s Global Ratings released a report on Wednesday, lowering the rating of the USDT stablecoin’s ability to peg to the US dollar to “Weak,” the lowest tier in the 5-level rating system. This downgrade is based on Tether’s recent increase in high-risk asset allocations.

S&P stated that as of the end of September this year, the circulating USDT tokens were valued at $174.4 billion, while the reserve report showed a value of $181.2 billion, with the collateralization ratio decreasing from 106.1% a year ago to 103.9%.

Compared to the collateralization ratio, S&P is more concerned about the composition of the reserve assets. Analysis indicates that only 64% of Tether’s reserves are in short-term US Treasury bills, with another 10% in low-risk overnight repurchase agreements. Meanwhile, “Other Assets,” representing Bitcoin, corporate bonds, gold, mortgages, and other unspecified assets, now account for 24% of USDT reserves, up from 17% a year earlier.

S&P analysts Rebecca Mun and Mohamed Damak cited as an example: “Bitcoin currently accounts for about 5.6% of USDT reserves, exceeding the 3.9% over-collateralization rate, which means the reserves are unable to fully absorb the impact of asset value declines. Therefore, if Bitcoin’s value drops and other high-risk assets also depreciate, it could weaken the reserve coverage and lead to under-collateralization of USDT.”

As a reference, Bitcoin has fallen over 20% since entering the fourth quarter.

S&P also expressed several concerns, such as:

• Tether does not publish audited reports but hires BDO Italia to prepare quarterly reserve snapshots, including assets and liabilities, which are not audited;
• After restructuring last year, the company was able to make speculative investments in South American agricultural company Adecoagro and video platform Rumble. How these investments are separated from the core stablecoin business has not been publicly disclosed;
• This year, Tether relocated its headquarters to El Salvador and obtained a digital asset license in the country. However, El Salvador’s regulatory requirements are lower than those in Europe and the US, only requiring Tether to maintain at least 1:1 reserves, with at least 70% of reserves liquid within 30 days, and no requirement for asset segregation.

In response to the S&P report, Tether issued a statement strongly denying the descriptions in the report.

The world’s largest stablecoin issuer responded: “The report relies on outdated analytical frameworks that fail to reflect the characteristics, scale, and macroeconomic importance of digital native currencies, and it overlooks data that clearly demonstrate USDT’s resilience, transparency, and global utility.”

Tether also emphasized that since 2021, it has continuously published quarterly independent audit reports and has never refused any verified redemption requests.

(Edited by: Wen Jing)

Keywords: Stablecoin