S&P Global Ratings has recently reduced Tether’s USDt rating to the lowest point on its scale for stablecoin stability, raising concerns about the token's ability to maintain its value relative to the dollar.

Key Takeaways

S&P Global Ratings has downgraded Tether’s USDt to the lowest score on its stability scale.
The rating is due to Tether backing USDt with higher-risk assets.
75% of USDt’s reserves are made up of US Treasuries and low-risk instruments.
Tether disagrees with the downgrade, stating it misunderstands the significance of digitally native money.
Tether has amassed substantial holdings in US Treasuries and gold, leading some analysts to compare it to a central bank.

Tether’s assessment from S&P was categorized as "weak," primarily because the company utilizes "higher-risk" assets, including Bitcoin and corporate bonds, to back USDt. This information was highlighted in the report from S&P Global.

Tether, Stablecoin

Tether operates from El Salvador and is subject to oversight by the National Commission of Digital Assets (CNAD), which imposes less stringent regulations on the reserve assets that support stablecoins. The report underscored the absence of comprehensive audits or proof of reserves as significant contributors to Tether's low stability rating.

Despite these concerns, S&P has pointed out that a substantial portion of USDt’s backing—around 75%—comes from US Treasuries and other short-term financial instruments, which are generally viewed as low risk. In response to the report, Tether called it "misleading," asserting that it does not accurately reflect the nature and stability of USDT, and overlooks data that demonstrates the token's resilience and utility in the global market.

Tether, Stablecoin

Tether’s CEO, Paolo Ardoino, also expressed his disagreement with the downgrade and criticized the reliance on traditional financial ratings agencies. He noted that historical rating models have misled investors into supporting companies that later failed despite holding investment-grade ratings.

The report coincides with a significant year for stablecoins, marked by new US regulations and an increased focus on stablecoins by the administration of former President Donald Trump, alongside the stablecoin market cap surpassing $300 billion.

S&P downgrades USDT’s dollar peg rating to lowest score

The downgrade was attributed to Tether’s choice to back USDt with riskier assets like Bitcoin, gold, loans, and corporate bonds, which have a tendency to experience higher volatility. Despite this weak assessment, S&P noted that 75% of USDt’s reserves consist of US Treasuries and other short-term assets that are considered low risk. Tether has responded to the report, claiming it is misleading and does not accurately reflect the stability and utility of USDT.

Tether’s Status in the World of Government Securities

Tether Mimics Central Bank Behavior with Significant Gold Reserves

According to Ardoino, Tether is now the 17th largest holder of US Treasuries globally, owning more than $112 billion in short-term US government securities, which is greater than the holdings of many nations, such as South Korea, Saudi Arabia, and Germany.

Tether, Stablecoin

Additionally, Tether has accumulated 116 tons of gold in reserve, which puts it in competition with some nation-states and central banks. This strategy of accumulating gold alongside US government securities and its ability to mint and redeem digital dollars have led some analysts to suggest that Tether is functionally acting like a central bank in the cryptocurrency landscape.