S&P Downgrades Tether’s Stablecoin Rating to ‘Weak’

The rating agency S&P Global has downgraded its assessment of Tether, the world’s largest stablecoin, to a ‘weak’ rating. This change reflects concerns over the increasing presence of higher-risk assets in Tether’s reserves and ongoing issues with transparency, as announced on March 15, 2023. The new rating system introduced by S&P evaluates stablecoins on a scale from 1 to 5, with Tether receiving a score of ‘5 (weak)’, marking the lowest level of confidence.

Previously rated ‘4 (constrained)’, Tether’s token, known as USDT, has now been classified as posing significant risks. A spokesperson for Tether has not provided a comment regarding this downgrade. The company has previously positioned its token as the “leading digital dollar,” emphasizing its combination of stability, transparency, and global accessibility.

Concerns Over Asset Composition and Disclosure

Tether, which is based in El Salvador, claims to have issued approximately $184 billion worth of its dollar-pegged cryptocurrency. The company asserts that it possesses sufficient reserves in U.S. Treasuries and other assets to allow users to convert their Tether tokens back into dollars. Despite this assertion, S&P noted a significant increase in higher-risk assets within Tether’s reserves over the past year. These assets include bitcoin, gold, secured loans, corporate bonds, and other investments, all of which carry various credit, market, interest-rate, and foreign-exchange risks.

S&P highlighted that Tether continues to offer limited insight into the creditworthiness of its custodians, counterparties, and banking institutions. The agency’s report expressed concern regarding the overall transparency in Tether’s operations, which it deems essential for instilling confidence among token holders.

Tether’s Stability in a Volatile Market

Despite the downgrade, S&P acknowledged that Tether has maintained a “notable level of price stability” even during turbulent periods in the cryptocurrency market. This resilience is a key factor that has kept USDT widely used among investors and traders, despite regulatory scrutiny and market fluctuations.

The implications of this downgrade could be significant for Tether as it navigates an evolving regulatory landscape. As stablecoins continue to attract attention from regulators worldwide, maintaining transparency and stability will be critical for Tether’s future. Investors and market participants will be watching closely to see how Tether responds to these latest challenges and whether it can restore confidence in its stablecoin amidst growing scrutiny.