S&P Global Ratings downgrades Tether’s USDT stablecoin to ‘weak’, citing exposure to high-risk assets, disclosure issues
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S&P Global Ratings has downgraded to the lowest level the ability of Tether’s USDT stablecoin to maintain its peg to the US dollar, citing an increase in high-risk assets in its reserves and disclosure issues.
The ratings firm assigned the token a rating of “weak”, downgrading it from “constrained”.
It said the assessment “reflects the rise in exposure to high-risk assets in USDT’s reserves over the past year”, including Bitcoin, gold, secured loans and corporate bonds.
Disclosure
Bitcoin now represents about 5.6 percent of USDT in circulation, exceeding the 3.9 percent overcollateralisation margin, meaning USDT’s reserve can no longer fully absorb a drop in Bitcoin’s value, the analysts said.
“A drop in the Bitcoin’s value combined with a decline in value of other high-risk assets could therefore reduce coverage by reserves and lead to USDT being undercollateralised,” the firm’s report said.
Stablecoin issuers undertake to maintain a token’s peg to a government-issued currency, while typically investing their reserves to make a profit.
A crash in Bitcoin’s price in November has put it on track for its worst monthly decline since a string of bankruptcies caused the token to lose a large portion of its value in 2022.
The S&P analysts also said Tether provides limited information on the creditworthiness of its custodians, counterparties or bank account providers, but it noted that Tether had maintained a “notable” level of price stability during crypto market volatility.
Stability
Tether said it “strongly disagrees” with the characterisation presented in the report, which it said applies a legacy framework and overlooks data that demonstrate USDT’s resilience and transparency.
It added that it has published quarterly independent attestations on its reserves since 2021.
