S&P Global has downgraded its rating of Tether, the world’s largest stablecoin, citing an increase in higher-risk assets within its reserves and ongoing concerns about transparency. The rating agency announced that it classified Tether’s token, USDT, as a “5 (weak)”, the lowest score possible, down from a previously assigned “4 (constrained)”.
S&P introduced a rating scale from 1 to 5 in 2023 to evaluate the risks associated with various stablecoins, which are cryptocurrencies pegged to more established currencies like the U.S. dollar. In response to the downgrade, Tether expressed strong disagreement with S&P’s assessment. A spokesperson for the company argued that the rating agency applied an outdated evaluation framework that does not accurately reflect the complexities surrounding digital currencies. Tether insisted that the available data demonstrates USDT’s resilience, transparency, and utility on a global scale.
Tether has issued approximately $184 billion worth of its dollar-pegged cryptocurrency, asserting that it maintains sufficient reserves in U.S. Treasuries and other assets to enable token holders to redeem their tokens for dollars.
In its report, S&P highlighted the rise of high-risk assets in Tether’s reserves over the past year, noting the inclusion of bitcoin, gold, secured loans, and corporate bonds among other investments. The agency flagged the limited disclosures associated with these assets and pointed out that they come with various risks, including credit, market, interest rate, and foreign exchange risks.
Despite the downgrade, S&P acknowledged that Tether has demonstrated a significant level of price stability even amid cryptocurrency market fluctuations. The company reported processing billions of dollars in redemptions while maintaining consistent stability during periods of market stress.
Furthermore, Tether contended that its stablecoin serves as an essential financial infrastructure in emerging markets, where it is utilized as a form of currency. As the situation evolves, the implications of the downgrade for Tether’s standing in the cryptocurrency market remain to be seen.
