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

Lianhe Information (11月27日讯) (Editor: Shi Zhengcheng) Rating agency S&P Global said in a report released on Wednesday that, based on Tether, the issuer of the world’s largest stablecoin USDT, having steadily increased its allocation to high-risk assets in recent years, it has downgraded the stablecoin’s rating for its ability to maintain a peg to the U.S. dollar to “Weak,” which is also the worst tier in the five-level rating system.

S&P said that as of the end of September this year, the value of USDT’s circulating token supply was $174.4 billion. At the same time, its published reserve report showed a value of $181.2 billion, implying that the collateralization ratio 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. Analysis indicates that only 64% of Tether’s reserves are short-term U.S. Treasury bills, and another 10% is allocated to low-risk overnight reverse repurchase agreements. Meanwhile, “other assets,” representing Bitcoin, corporate bonds, gold, mortgage loans, and other unidentified assets, already account for 24% of USDT reserves, compared with 17% a year earlier.

In its report, S&P analysts Rebecca Mun and Mohamed Damak gave an example, saying: “Bitcoin currently accounts for about 5.6% of USDT reserve assets and has already exceeded the 3.9% overcollateralization threshold. This means the reserves cannot fully absorb the impact of a decline in asset values. Therefore, if the value of Bitcoin falls, and at the same time other high-risk assets also depreciate, it could weaken the reserve coverage ratio and lead to a situation where USDT is undercollateralized.”

For reference, Bitcoin has fallen by more than 20% since entering Q4.

S&P also raised multiple concerns, for example:

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

After a reorganization last year, the company was able to make speculative investments in Adecoagro, a South American agricultural enterprise, and video platform Rumble. As to how these investment activities are separated from the 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 reserves of at least 1:1, and at least 70% of the reserves must be monetizable within 30 days, and it does not require assets to be isolated for 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 an outdated analytical framework that cannot reflect the characteristics, scale, and macroeconomic importance of digitally native currencies, and it ignores data that clearly shows USDT’s resilience, transparency, and global usage value.”

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

(Editor: Wen Jing)

Keywords:

                                                            Stablecoin