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

Caixin News, November 27 (Editor: Shi Zhengcheng). Rating agency S&P Global said in a report released Wednesday that, based on Tether—the world’s largest stablecoin issuer—having continuously increased its allocation to high-risk assets in recent years, it has downgraded the rating for the stablecoin’s ability to be pegged 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 tokens was $174.4 billion. Meanwhile, the published reserve report showed a value of $181.2 billion, corresponding to a collateral ratio that fell from 106.1% a year earlier to 103.9%.

Compared with the collateral ratio, S&P is more concerned about the composition of the reserve assets. The analysis points out that only 64% of Tether’s reserves are short-term U.S. Treasury bills, and another 10% is in low-risk overnight reverse repos. At the same time, “other assets”—representing Bitcoin, corporate bonds, gold, mortgage loans, and other unidentified assets—have already accounted for 24% of USDT reserves, up from 17% a year earlier.

In the report, S&P analysts Rebecca Mun and Mohamed Damak gave an example, saying: “Bitcoin currently makes up about 5.6% of USDT reserve assets and has already exceeded the 3.9% overcollateralization coverage ratio. This means its reserves can no longer fully absorb the impact caused by a decline in asset values. Therefore, if the value of Bitcoin falls and other high-risk assets also lose value, it could weaken reserve coverage and lead to a situation where USDT becomes 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 audited reports, but 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 restructuring last year, the company was able to make speculative investments in the South American agricultural company Adecoagro and the video platform Rumble. Regarding how to separate these investment activities from the core stablecoin business operations, there has been no public disclosure so far;

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 United States. 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 assets to be isolated and held in custody.

In response to 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: “This report uses an outdated analytical framework and cannot reflect the characteristics, scale, and macroeconomic importance of digital-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 continuously published quarterly independent audited certification reports, and it has never rejected any redemption requests from verified users.

(Editor: Wen Jing)

Keywords:

                                                            stablecoins