While stablecoin leader Tether continues to break records, S&P Global’s rating agency has just downgraded its flagship USDT token. The reason: declining over-collateralization and reserves that are considered opaque. A source of great pride for its CEO, Paolo Ardoino…
Tether: a colossus with clay reserves
The path often seems clear for leaders in rapidly developing sectors, such as Tether and its stablecoin USDT, which is well ahead in terms of global market share, with a valuation of $184.5 billion. However, its dominance, still estimated at over 60%, now appears to be an obstacle to the deployment of crypto regulatory frameworks around the world.
In fact, the USDT stablecoin has been excluded for several months from leading jurisdictions such as the European Union and the United States, much to the delight of its main competitor Circle and its USDC, even though Tether has recorded more than $10 billion in profits since the beginning of the year.
This is something of a paradox, as the regulatory rejection is based primarily on the opacity of its reserve management. In any case, this is one of the main points highlighted by S&P Global Ratings in a recent report to downgrade its rating of USDT, even though “its price has remained relatively stable in recent years and over the last 12 months.”
S&P Global Ratings has reassessed Tether’s (USDT) ability to maintain its peg to the US dollar at 5 (low), down from 4 (constrained) previously. This downgrade reflects an increase since our last analysis in the proportion of riskier assets backing USDT reserves.
“We wear your contempt with pride.”
Although it has weakened significantly, the over-collateralization of USDT reserves—estimated at $181.2 billion—still stands at 103.9%, down from 106.1% a year ago. This decline is not the main problem, according to experts at S&P Global Ratings, given the acute shortage of “safe assets.”
In fact, only 64% of these reserves are invested in short-term U.S. Treasury bills, with an additional 10% in low-risk reverse repos. The rest involves corporate bonds, cryptocurrencies, gold, secured loans, and others, with 24% considered high risk, compared to 17% last year.
But that’s not all. For example, Tether uses BDO Italia to prepare its end-of-quarter reserve snapshots, before adding its overall asset and liability figures without any prior audit. In addition, last year’s restructuring split the company into four divisions, with no visibility on their interactions in relation to USDT management.
