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

Caixin Global, Nov 27 (Editor Shi Zhengcheng) — Rating agency S&P Global said in a report released on Wednesday, citing S&P Global Wednesday: based on Tether, the issuer of the world’s largest stablecoin USDT, which has continued to increase its allocation to high-risk assets in recent years, it has downgraded the stablecoin’s rating for its ability to maintain a dollar peg to “weak,” which is also the worst tier in the agency’s five-level rating system.

S&P said that as of the end of September this year, the circulating token value of USDT was $174.4 billion. At the same time, the published reserve 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 noted that only 64% of Tether’s reserves are short-term U.S. Treasury bills, and another 10% is allocated to low-risk overnight reverse repos. Meanwhile, “other assets,” representing Bitcoin, corporate bonds, gold, mortgage loans, and other unidentified assets, have already accounted for 24% of USDT’s reserves, up from 17% a year earlier.

S&P analysts Rebecca Mun and Mohamed Damak cited examples in the report, saying: “Bitcoin currently makes up about 5.6% of USDT’s reserve assets and has exceeded the 3.9% overcollateralization buffer. This means the reserves can no longer fully absorb the shocks brought by a decline in asset values. Therefore, if Bitcoin’s value falls while other high-risk assets also depreciate, it could weaken the reserve coverage ratio and lead to a situation in which USDT becomes undercollateralized.”

By way of 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 audited reports; instead, it hires BDO Italia to prepare a reserve snapshot at the end of each quarter, including data on assets and liabilities, and none of it has been audited;

After the company underwent restructuring last year, it was able to make speculative investments in South American agricultural company Adecoagro and video platform Rumble. As for how to separate these investment activities from its core stablecoin business, there is currently no public disclosure;

This year, Tether moved the company to El Salvador and applied for the country’s digital asset license. However, El Salvador’s regulatory requirements are lower than those in Europe and the U.S.: it only requires Tether to maintain at least 1:1 reserve support, and at least 70% of the reserves must be liquidated within 30 days, and it does not require asset segregation in custodial arrangements.

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

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

Tether also emphasized that since 2021 the company has continued to publish quarterly independent audited certification reports, and it has never rejected any redemption requests from verified users.

(Editor: Wen Jing)

Keywords:

                                                            Stablecoin