Tether Faces Downgrade Amid Asset Concerns

By: Eva Baxter

The stablecoin issuer Tether has come under scrutiny following a downgrade by credit rating agency S&P Global. The firm, renowned for its issuance of USDT, the largest stablecoin by market capitalization, saw its risk score downgraded from '4 (constrained)' to '5 (weak)'. This reflects concerns over 'persistent gaps in disclosure' and the allocation of Tether's reserves to high-risk assets, including Bitcoin, gold, corporate bonds, and secured loans.

Responding to the downgrade, Tether's CEO Paolo Ardoino did not shy away from defending the company, pointing to its ability to maintain stability and redemption capabilities through various financial crises. Tether emphasizes its claim as an 'overcapitalized' organization, with sufficient resources to back its substantial issuance of USDT, exceeding $184 billion. Despite these reassurances, S&P Global's concerns primarily hinge on Tether's lack of transparency regarding the creditworthiness of its custodians and counterparties.

Further fueling this debate is Tether's recent financial activities, such as its acquisition of 26 tons of gold, making it the largest independent gold holder globally, according to reports from sources like the Financial Times. However, S&P Global has perceived Tether's growing reserves in Bitcoin and gold alongside secured loans as contributors to liquidity uncertainties, arguing for more straightforward, dollar-denominated reserve assets to ensure stability.

On the contrary, while S&P Global prioritizes traditional financial metrics, the crypto market remains largely unfazed by the downgrade. Many crypto users value USDT for its consistent dollar peg and liquidity across global trading venues and emerging markets, irrespective of conventional credit ratings. The divergence in viewpoints underscores the evolving dynamics between traditional financial models and innovative crypto assets.