S&P Lowers Tether Rating: Concerns Over Risky Reserves and CEO's Claims of Innovation

Tether’s USDT Receives Lowest Stability Rating from S&P Global

S&P Global Ratings has reduced the stability rating of Tether’s USDT stablecoin to its lowest level, citing growing concerns over the coin’s exposure to riskier assets and a lack of transparency. In a report released Wednesday, the agency downgraded USDT from a “constrained” (4) to a “weak” (5) rating on its stability scale.

The downgrade was attributed to changes in Tether’s reserve portfolio. Notably, Bitcoin now makes up 5.6% of USDT’s circulating reserves—surpassing the company’s stated 3.9% overcollateralization margin. Additional holdings in gold, secured loans, and corporate bonds further contribute to the volatility of the reserve assets. S&P Global cautioned that a significant drop in the value of these assets could result in USDT being undercollateralized, threatening its 1:1 peg with the U.S. dollar.

Tether’s Response to the Downgrade

Paolo Ardoino, Tether’s CEO, pushed back against S&P’s assessment, characterizing it as a manifestation of traditional finance’s skepticism toward digital currencies. In a statement posted on X, Ardoino argued that Tether’s business model—described as the first “overcapitalized” entity in finance—operates independently from the conventional banking sector. He pointed to Tether’s consistent profitability and resilience during previous market disruptions, claiming that S&P’s evaluation is based on outdated standards that do not fit the realities of digital assets.

Ongoing Concerns Over Transparency

S&P Global highlighted ongoing issues with Tether’s disclosure practices, particularly the limited visibility into its custodians, counterparties, and the management of its reserves. Although USDT’s reserves include $113 billion in short-term U.S. Treasury securities, the absence of clear asset segregation and comprehensive regulatory oversight remains a concern. The agency noted that Tether’s rating could improve if the company reduces its exposure to volatile assets and enhances its transparency.

Market Impact and Reactions

The downgrade has generated significant discussion in global markets, especially in China, where USDT is widely used in the underground cryptocurrency sector. Despite a government ban on crypto transactions in 2021, more than 20 million users continue to trade with USDT. Chinese traders have voiced mixed reactions online, with some dismissing the downgrade as inconsequential and others expressing worry about potential systemic risks in the absence of regulatory protections, according to market observers.

USDT’s Market Position and Regulatory Scrutiny

Despite the downgrade and ongoing regulatory challenges, Tether’s USDT maintains a strong market capitalization of $184 billion, as reported by CoinGecko. The company has previously faced legal action over the transparency of its reserves and is currently pursuing an independent audit by one of the world’s leading accounting firms.