S&P downgrades Tether's USDT stability to "weak" due to concerns about backing in Bitcoin

Source: PortaldoBitcoin Original Title: S&P downgrades Tether's USDT stability to “weak” due to collateral concerns Original Link: S&P Global Ratings warned that Tether's stablecoin, USDT, may lose its 1:1 peg to the US dollar due to some of the assets backing it, mainly Bitcoin, which has declined in recent weeks.

The credit rating agency stated that USDT could become “under-collateralized” if the assets backing the industry-leading stablecoin depreciate. S&P downgraded the currency's ability to remain stable, assigning it a “weak” rating.

The agency added that Tether does not provide sufficiently clear information about its custodians, counterparties, or banking account providers.

“A drop in the value of Bitcoin, combined with a depreciation of other high-risk assets, could therefore reduce the coverage by reserves and lead to a under-collateralization of USDT,” the report said.

“A large portion of USDT reserves remains invested in short-term U.S. Treasury securities and other dollar equivalents,” the company stated. “However, Tether continues to provide limited information regarding the solvency of its custodians, counterparties, or banking providers.”

S&P Global also added: “We observed other weaknesses. These include limited transparency in reserve management and risk tolerance, lack of a robust regulatory framework, absence of asset segregation for protection against the issuer's insolvency, and limitations on the primary recoverability of USDT.”

USDT is the most traded cryptocurrency in the world and the third largest digital asset by market value. According to CoinGecko, $76.9 billion in USDT tokens were traded on exchanges worldwide in the last 24 hours.

Issued by the company Tether, the stablecoin is mainly used by traders to enter and exit cryptocurrency transactions without using traditional banks.

USDT is sold as a digital dollar, as Tether states that reserves of dollars, treasury bonds, and other assets back the token, thus maintaining its stable value relative to the dollar. Stablecoins are widely considered the backbone of the crypto economy.

Regulatory bodies have opened investigations into Tether for allegedly not being transparent enough about the origin of its reserves. The company has already stated that it is open to an independent audit conducted by one of the four largest accounting firms.

Tether rebate criticisms

In a released statement, Tether stated that it “vehemently disagrees” with the S&P Global classification.

“USDT has been operating for over a decade and has consistently maintained total resilience amid banking crises, exchange bankruptcies, liquidity shocks, and extreme market volatility,” the statement said.

“Throughout its history, Tether has never refused a request for a Gate from a verified user,” he added.

The CEO of the company wrote on social media saying he is not upset with the evaluation:

“We proudly flaunt your hatred. The classic risk rating models, created for traditional financial institutions, have historically led private and institutional investors to invest their wealth in companies that, despite receiving investment-grade ratings, went bankrupt, prompting regulators around the world to question such models, as well as the independence and objective assessment of all major credit rating agencies.”

A spokesperson for Tether stated that the adoption of USDT is increasing as more people find use cases for the token.

Decoupling History

Stablecoins have lost their peg to the dollar in the past. In 2023, the USDC stablecoin, the fourth most traded cryptocurrency by market value, fell to 87 cents, after the company behind the token, Circle, announced that it held cash reserves backing the asset, which were held in a bank that was shut down by financial regulators after a bank run.

And in 2022, the Terra cryptocurrency project collapsed after its algorithmic stablecoin UST failed to maintain its stable peg, leaving a $40 billion hole in the cryptocurrency industry and causing a series of bankruptcies in the sector.