S&P Global Downgrades Tether's USDT Stability Rating, Questioning Dollar Peg

S&P Global Downgrades Tether's USDT Stability Rating

S&P Global Ratings has lowered its assessment of Tether's USDt stablecoin to the lowest rung on its stability scale, raising doubts about the token's ability to maintain its peg to the U.S. dollar. The decision reflects a cautious evaluation of the risks inherent in the reserve assets backing USDt.

The “weak” assessment stemmed from several factors, including Tether backing USDt (USDT) with “higher-risk” assets such as Bitcoin, gold, loans, and corporate bonds, which are subject to greater volatility, according to S&P Global. The report stated: “Bitcoin accounts for 5.6% of USDT in circulation, exceeding the 3.9% overcollateralization margin associated with a collateralization ratio of 103.9%. Therefore, a decline in the price of bitcoin or the value of other higher-risk assets could diminish collateral coverage.”

Tether is headquartered in El Salvador and regulated by the National Commission of Digital Assets (CNAD), which S&P noted has more lenient requirements for reserve assets backing stablecoins. The report also cited the absence of sufficient audits or proof-of-reserve reports as a key factor in the weak stability rating.

Despite the low rating, S&P stated that 75% of USDT's backing comes from US Treasurys and other low-risk, short-term financial instruments.

In a statement to Cointelegraph, Tether dismissed the report as misleading, asserting its strong disagreement with the report's characterization. The company argued that the report fails to account for the nature, scale, and macroeconomic significance of digitally native money and overlooks data that clearly demonstrate USDT’s resilience, transparency, and global utility.

Tether CEO Paolo Ardoino also challenged the new rating and the general usefulness of financial ratings agencies. Ardoino stated that traditional rating models built for legacy financial institutions have historically led private and institutional investors to invest their wealth into companies that, despite being assigned investment-grade ratings, ultimately collapsed.

The report comes amidst a landmark year for stablecoins, following the passage of regulations in the U.S., the prioritization of stablecoins by the U.S. administration as a means of maintaining U.S. dollar dominance, and the stablecoin market capitalization exceeding $300 billion.

Tether is increasingly behaving like a central bank, accumulating significant gold reserves. Tether is now the 17th largest holder of US Treasurys globally, possessing over $112 billion in short-term US government securities, surpassing numerous countries, including South Korea, Saudi Arabia, and Germany, according to Ardoino. The company also holds 116 tons of gold in reserve, rivaling the holdings of nation-states and central banks. Tether’s accumulation of gold, US government securities, and its capacity to mint and redeem digital dollars have led some analysts to suggest that Tether is now operating much like a central bank.