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

Caixin Media Information (Caijing Society) November 27 news (Editor: Shi Zhengcheng) A ratings company, S&P Global, said in a report released Wednesday that, based on the fact that Tether, the world’s largest USDT stablecoin issuer, has been steadily increasing its allocation to high-risk assets in recent years, S&P has downgraded the stablecoin’s rating for its ability to maintain a peg to the US dollar to “weak,” which is also the worst tier in its five-level rating system.

S&P said that as of the end of September this year, the token value in circulation of USDT was $174.4 billion. At the same time, the published reserves report showed a value of $181.2 billion, corresponding to a collateralization ratio that fell from 106.1% a year earlier to 103.9%.

Compared with the collateralization ratio, S&P is more concerned about the composition of the reserve assets. An analysis said that in Tether’s reserves, only 64% is in short-term US Treasury bills, and another 10% is in low-risk overnight reverse repurchase agreements. Meanwhile, “other assets” — representing Bitcoin, corporate bonds, gold, mortgage loans, and other unidentified assets — have already accounted for 24% of USDT reserves, compared with 17% a year earlier.

In the report, S&P analysts Rebecca Mun and Mohamed Damak gave an example: “Bitcoin currently makes up about 5.6% of USDT’s reserve assets, which is above the 3.9% overcollateralization threshold. This means the reserves can no longer fully absorb the shock from a decline in asset value. Therefore, if the value of Bitcoin falls and other high-risk assets also decline in value, it could weaken the reserve coverage ratio and lead to a scenario where USDT is undercollateralized.”

For reference, since Bitcoin entered the fourth quarter, it has fallen by more than 20%.

S&P also raised multiple concerns, for example:

Tether does not publish audit reports; instead, it hires BDO Italia to compile a reserves snapshot at the end of each quarter, including data for assets and liabilities, all of which have not been audited;

After the company underwent a reorganization last year, it was able to make speculative investments in South American agriculture company Adecoagro and video platform Rumble. Regarding how these investment activities are separated from the core stablecoin business, there has been no publicly disclosed information so far;

This year, Tether moved the company to El Salvador and applied for a digital asset license in that country. However, El Salvador’s regulatory requirements are lower than those in Europe and the US; it only requires Tether to maintain at least 1:1 reserve support, and at least 70% of the reserves must be liquidatable within 30 days, and it does not require asset isolation and custody.

Regarding S&P’s report, Tether said in a statement that it “strongly denies the descriptions in the report.”

The world’s largest stablecoin issuer responded: “The report uses outdated analytical frameworks and cannot reflect the characteristics, scale, and macroeconomic importance of digital-native money, while it also ignores data that clearly shows the resilience, transparency, and global usage value of USDT.”

Tether also emphasized that since 2021, the company has continuously published quarterly independent audit and certification reports, and it has never refused any redemption requests from users that have been verified.

(Editor: Wen Jing)

Keywords:

                                                            Stablecoin