Simply put
- S&P Global Ratings has lowered its outlook on USDT’s ability to maintain a 1:1 value with the dollar, assigning it a “weak” rating.
- This downgrade comes as Tether, the issuer of USDT, is reported to back the token with high-risk assets.
- Tether has criticized the rating, highlighting that USDT has successfully navigated financial turbulence in the past.
S&P Global Ratings indicates that Tether’s USDT may face challenges in maintaining its 1:1 value with the dollar, especially due to backing assets like Bitcoin, which has seen a decline lately.
The credit rating agency noted that USDT might risk being “undercollateralized” if the value of its backing assets decreases, thus dropping its rating.
Additionally, S&P mentions that Tether lacks sufficient transparency regarding its custodians and asset management.
“If Bitcoin’s value drops, along with other volatile assets, this could impact the reserves and lead to an undercollateralization of USDT,” the report stated.
Despite this, the report also noted that a significant portion of USDT’s reserves is invested in U.S. Treasury bills and cash equivalents, though Tether’s clarity regarding the reliability of its asset managers remains limited.
It further points out several weaknesses, including inadequate transparency about reserves and an absence of a robust regulatory framework.
USDT stands as the leading traded digital currency and ranks third by market cap, with a striking $76.9 billion transacted in the last 24 hours, according to CoinGecko.
This stablecoin, issued by Tether—based in El Salvador—is primarily utilized by traders to engage in cryptocurrency exchanges without relying on traditional banking systems.
Tether markets USDT as a digital dollar, backed by reserves to ensure stable value relative to the dollar. Stablecoins are often viewed as crucial to the crypto economy.
Regulatory bodies have scrutinized Tether, pointing out a lack of transparency regarding its reserves, prompting legal actions against the company. However, Tether has expressed willingness to undergo an independent audit.
In a statement, Tether strongly disagreed with the recent ratings from S&P Global.
“USDT has been operational for over a decade and has proven its resilience through various market crises,” the company stated.
It emphasized its track record of fulfilling redemption requests, never denying a verified user’s request.
Paolo Ardoino, Tether’s CEO, mentioned that they weren’t perturbed by the ratings.
“We accept your antics with pride,” he remarked, adding that traditional rating models have, at times, misled investors into risking their wealth on firms that later failed.
A spokesperson for Tether noted an increase in USDT’s adoption as users find more practical applications for the token.
Interestingly, some stablecoins, including USDC, have lost their dollar peg before. This year, USDC’s value fell to 87 cents after the revelation of its cash reserves connected to Silicon Valley Bank following regulatory measures.
In 2022, the collapse of the Terra project resulted in a significant loss after its UST stablecoin could not maintain its peg, leading to a massive void in the market and prompting several bankruptcies.
