While Tether, the leader in the stablecoin sector, continues to set new records, S&P Global Ratings has just downgraded the rating of its flagship token, USDT. The reasons cited include declining over-collateralization and reserves deemed to be managed in an opaque manner. A source of great pride for its CEO, Paolo Ardoino…
Tether: a colossus with clay-like reserves
The path often seems clear for leaders in rapidly developing sectors, such as Tether and its USDT stablecoin, which holds a commanding lead in global market share with a valuation of $184.5 billion. However, its dominance—still estimated at over 60%—now appears to be an obstacle in the face of the rollout of crypto regulatory frameworks around the world.
In fact, the USDT stablecoin has been excluded for several months from major jurisdictions such as the European Union and the United States, much to the delight of its main competitor, Circle, and its USDC, even as Tether has recorded over $10 billion in profits since the start of the year.
It is a sort of paradox, as the regulatory rejection is based primarily on the opacity of its reserve management. This is, in any case, one of the main points highlighted by S&P Global Ratings in a recent report to lower its rating of USDT, even though “its price has remained relatively stable in recent years as well as over the past 12 months.”
S&P Global Ratings has reassessed Tether’s (USDT) ability to maintain its peg to the U.S. dollar at 5 (weak), down from 4 (constrained) previously. This downgrade reflects an increase, since our last analysis, in the proportion of riskier assets backing USDT’s reserves.
“We wear your contempt with pride”
Although it shows a notable weakening, 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 issue, according to experts at S&P Global Ratings, given a glaring lack of “safe assets.”
In fact, only 64% of these reserves are held in short-term U.S. Treasury bills, with an additional 10% in low-risk reverse repos. The remainder consists of corporate bonds, cryptocurrencies, gold, secured loans, and other assets, with 24% classified as high-risk, up from 17% last year.
Breakdown of USDT reserve assets
But that’s not all. In fact, Tether uses BDO Italia to prepare its end-of-quarter reserve snapshots, before adding—without any prior audit—its overall asset and liability figures. Furthermore, its restructuring last year split the company into four divisions, with no transparency regarding their interactions related to the management of USDT.
