S&P Global Ratings has downgraded its rating for Tether, the largest stablecoin in the world, to ‘5 (weak)’, the lowest grade on its scale, due to concerns regarding an increase in high-risk assets within its reserves and ongoing transparency issues. This decision, announced on November 26, comes as Tether has reportedly shifted its portfolio towards more volatile assets like bitcoin and gold.
The downgrade from ‘4 (constrained)’ highlights what S&P describes as “persistent gaps in disclosure.” The ratings agency introduced a new scale in 2023 to evaluate stablecoins, which are cryptocurrencies tied to stable assets, typically the U.S. dollar.
In response to the announcement, Tether expressed strong disagreement with S&P’s assessment. A spokesperson emphasized that the agency utilized a dated framework that does not adequately reflect the current dynamics of digital currency and fails to recognize data that showcases USDT’s stability, transparency, and global applicability.
Tether, based in El Salvador, asserts that it has issued approximately $184 billion worth of its dollar-pegged cryptocurrency. The company maintains that it possesses sufficient reserves in U.S. Treasuries and other assets to facilitate conversions of its tokens into dollars for its users.
S&P highlighted in its report that Tether’s reserves have included various high-risk investments over the past year, including secured loans, corporate bonds, and other assets. The agency pointed out that these investments typically come with “limited disclosures” and are exposed to various risks, such as credit, market, interest-rate, and foreign-exchange fluctuations. Furthermore, S&P criticized Tether for not providing adequate information regarding the creditworthiness of its custodians, counterparties, and banks.
Nevertheless, S&P acknowledged that Tether has exhibited a “notable level of price stability” amid fluctuating conditions in the cryptocurrency market. Tether countered this claim by highlighting its ability to process billions in redemptions while maintaining consistent stability during periods of market upheaval. The company also asserted its role as a critical component of financial infrastructure in emerging markets, where its stablecoin is increasingly utilized as a form of currency.
