S&P Downgrades USDT to Worst Possible Rating

S&P Global Ratings just downgraded USDT to the lowest stable level. A rare decision that targets the world’s most used stablecoin and casts doubt on its ability to maintain its peg to the dollar. At a time when regulators are tightening the noose around cryptocurrencies, the assessment reignites debates about the strength of Tether’s reserves and the systemic risks stablecoins pose to the entire market.

USDT stability challenged

S&P Global Ratings assigned USDT, the stablecoin issued by Tether, the lowest rating on its stability scale, highlighting risks that are seen as structural in the company’s reserve model, while the issuer would target a $500 billion valuation.

The agency questions Tether’s ability to maintain parity with the dollar under certain market conditions, especially during times of stress. It states that the reserve portfolio includes a proportion of volatile or illiquid assets considered too high.

 

“A decline in the price of Bitcoin or the value of other risky assets could reduce collateral coverage», specifies the overview. In particular, this statement focuses on Tether’s exposure to certain assets whose stability is uncertain.

Here are the main elements included in the S&P analysis:

• 5.6% of reserves are invested in Bitcoin, exceeding the estimated margin of 3.9%, in a model with 103.9% collateral;

• Presence of risk assets in reserves: gold, loans, corporate bonds, all more volatile than US Treasuries;

• The absence of a full independent audit, which is considered problematic for an asset of this size;

• Lax Regulation: Tether is regulated in El Salvador through the National Commission for Digital Assets (CNAD), whose standards are considered acceptable by S&P.

Despite this, the report acknowledges that 75% of USDT reserves are invested in US Treasuries and other short-term instruments considered low-risk.

However, this is not enough to offset the aforementioned elements of vulnerability, especially in the context of market instability or liquidity crises. The decision is the first public assessment of the strength of a stablecoin of this size by a major financial rating agency.

Tether defends its model and rejects traditional evaluation criteria

Faced with this symbolic setback, Tether reacted strongly, calling the S&P report “misleading.” In a press release, the company states that “categorically rejects the characterization presented in the report” with the fact that he “it does not reflect the nature, scale or macroeconomic significance of digital native money“.

CEO Paolo Ardoino also criticized the relevance of the rating models used by traditional agencies, recalling that the same methods assigned favorable ratings to institutions that subsequently failed: “Classical models built for traditional financial institutions have historically led investors to put their money into companies that failed despite their ratings“, he said.

Tether puts up massive numbers to justify its power: more than $112 billion in US Treasury bills, making it the 17th stablecoin issuer.^Thursday the largest global holder of US national debt ahead of economic powers such as Germany or South Korea.

The company also holds 116 tons of gold, which, combined with its ability to issue and buy back digital dollars on a global scale, makes it function more like a true central bank, some analysts say. This data, while partially factored into the S&P report, is significantly undervalued in Tether’s analysis of its ability to maintain parity with the dollar, according to Tether.

S&P’s downgrade of USDT exposes the tension between the promise of stability and the reality of reserves. In an increasingly scrutinized market, stablecoins will now need to combine transparency, robustness and trustworthiness to remain at the center of digital exchanges.

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