Listen to the article
In a significant development for the cryptocurrency market, S&P Global Ratings has downgraded Tether’s USDT to its lowest rating category, citing concerns over the stablecoin’s increasing exposure to high-risk assets. The move has prompted a swift and forceful response from Tether CEO Paolo Ardoino, who dismissed the agency as a “propaganda machine.”
On Wednesday, November 26, S&P Global Ratings lowered USDT’s stablecoin stability assessment from level 4 (constrained) to level 5 (weak), placing it alongside lesser-known stablecoins like Justin Sun’s TrueUSD and Ethena’s USDe. The downgrade represents a notable blow to the world’s largest stablecoin, which serves as a crucial component of the cryptocurrency ecosystem.
According to S&P Global Ratings, the decision reflects Tether’s growing investment in “higher-risk assets” within its reserve portfolio. The agency noted that Tether’s exposure to these assets has increased from 17% last year to 24% currently. S&P classifies assets such as Bitcoin, precious metals, corporate bonds, secured loans, and certain other investments in this higher-risk category, pointing to their “limited disclosures” and exposure to credit and foreign-exchange risks.
“Bitcoin now represents about 5.6% of USDT in circulation, exceeding the 3.9% overcollateralization margin, indicating the reserve can no longer fully absorb a decline in its value,” S&P Global Ratings stated in its report. This suggests that a significant drop in Bitcoin’s value could potentially affect USDT’s ability to maintain its dollar peg.
The credit agency also expressed concern about Tether’s limited transparency regarding its asset management practices. Despite holding over $130 billion in short-term U.S. Treasuries, Tether provides minimal details about its other investments, according to the report.
Market reaction to the downgrade has been notably subdued. Jake Kennis, a research analyst at blockchain analytics firm Nansen, observed that there have been “no meaningful outflows” from exchanges or signs of heavy redemption pressure since the reassessment was announced.
“In short, market behavior suggests participants are largely dismissing the downgrade and continue to treat USDT as reliably redeemable at 1:1, which is consistent with its historical performance through past periods of stress,” Kennis commented.
Tether’s USDT remains the dominant force in the stablecoin market, representing over 60% of the total market capitalization across all USD-pegged stablecoins, which recently surpassed $300 billion for the first time. However, there are signs of shifting dynamics within the sector. While USDT has historically led in monthly transaction volumes, typically processing double the volume of its nearest competitor Circle’s USDC, October marked a significant shift. For the first time, USDC surpassed USDT in monthly transaction volume, with $764.6 billion compared to USDT’s $724.8 billion.
Tether CEO Ardoino responded aggressively to the downgrade on social media platform X, stating that Tether “wears your loathing with pride” and arguing that traditional rating models have misled investors in legacy finance.
“The traditional finance propaganda machine is growing worried when any company tries to defy the force of gravity of the broken financial system. No company should dare to decouple itself from it,” Ardoino wrote.
Now based in El Salvador, Tether provides quarterly attestations through audit firm BDO Italia. As of September 30, the company reported $181.2 billion in assets backing $174.4 billion in circulating USDT, indicating that the stablecoin was overcollateralized at that time.
Tether’s official reserve breakdown shows 77.23% of its holdings are in cash, cash equivalents, and other short-term deposits, with the remainder distributed across corporate bonds, precious metals, Bitcoin, secured loans, and other investments. U.S. Treasury bills make up just over 80% of the cash and cash equivalent portion of the reserves.
Fact Checker
Verify the accuracy of this article using The Disinformation Commission analysis and real-time sources.
5 Comments
The S&P downgrade is certainly a blow to Tether’s credibility, but the CEO’s response suggests they may have a point about the agency’s potential biases. The crypto industry will need to address transparency and risk concerns to gain wider mainstream trust.
The S&P downgrade of Tether USDT is certainly significant news. As a leading stablecoin, any concerns around its stability and reserves could impact the broader crypto market. Transparency and accountability will be key going forward.
This highlights the ongoing challenges around stablecoin regulation and oversight. With Tether being a crucial part of the crypto ecosystem, any doubts about its stability could have ripple effects. It will be interesting to see how this plays out.
The Tether USDT downgrade is certainly an important development to watch. Stablecoins are a critical part of the crypto infrastructure, so any concerns about their stability and transparency need to be taken seriously.
Interesting to see the Tether CEO pushback against the S&P downgrade. It highlights the complexities and lack of transparency around stablecoins. As the crypto market matures, these ratings will become increasingly important for understanding risk.