S&P Global Ratings downgraded Tether's reserve quality rating due to its increasing exposure to high-risk assets. S&P warned that Tether has limited transparency in reserve management and risk appetite, lacks a robust regulatory framework, and does not have an asset segregation mechanism to protect investors from the impact of issuer insolvency.
Due to rising exposure to high-risk assets, S&P Global Ratings downgraded the reserve quality rating of stablecoin issuer Tether and raised questions about its ability to maintain its peg to the US dollar.
In a report released on Wednesday, S&P downgraded its assessment of Tether’s asset quality from 'constrained' to its lowest level, 'weak.' S&P noted that the proportion of high-risk assets backing the stablecoin has increased, including corporate bonds, precious metals, Bitcoin, and secured loans, which accounted for 24% of total reserves at the end of September, significantly higher than 17% a year ago.
Tether operates USDT, the world’s largest stablecoin with a circulation of approximately $184 billion. USDT is a 'digital cash' pegged to the US dollar, primarily supported by high-quality securities such as US Treasuries, and operates outside the banking system.
S&P warned that Tether has limited transparency in reserve management and risk appetite, lacks a robust regulatory framework, and does not have an asset segregation mechanism to protect investors from the impact of issuer insolvency.
S&P also pointed out that Tether has not disclosed information about its custodians, bank account providers, or counterparties, nor has it explained how it decides to purchase certain high-risk assets or what measures it would take if these asset prices were to fall sharply.
S&P analysts wrote: 'A decline in the price of Bitcoin or other high-risk assets could weaken the collateral coverage ratio, potentially leaving USDT in an under-collateralized state. The increase in risky assets makes the token's reserves more vulnerable to market volatility.'
US Commerce Secretary Howard Lutnick previously stated that Cantor Fitzgerald, where he served as CEO, holds Tether’s US Treasuries. However, S&P noted that reports on reserves still do not disclose information about custodians, counterparties, or bank account providers.
Tether said it strongly disagrees with the description in the report, emphasizing that the stablecoin has consistently demonstrated full resilience through banking crises, exchange collapses, liquidity shocks, and extreme market volatility. Tether claims to lead the industry in transparent reserve disclosures, having published real-time data and quarterly independent audits since 2021, exceeding standards set by many regulated financial institutions.
In 2022, Tether briefly lost its peg to the US dollar amid massive selling pressure. During an interview at the time, current CEO Paolo Ardoino refused to disclose details of the company’s government bond reserves, stating that he did not want to reveal proprietary strategies.
The broader cryptocurrency market has fallen sharply in recent weeks as investors, concerned about the valuation of U.S. technology stocks and the direction of U.S. interest rates, have been reducing their exposure to risky assets. Bitcoin has dropped by approximately 30% since hitting a阶段性 high in early October. Despite the Trump administration adopting a more crypto-friendly policy, Bitcoin is still down by about 6% year-to-date.
Tether is one of the largest buyers of U.S. Treasury bonds globally, with U.S. Treasuries accounting for approximately 75% of its collateral, down from 81% at the last review. As of September, the company's net profit for the year reached $10.1 billion, primarily driven by interest income from Treasury bonds.
In September this year, Tether held discussions regarding a private funding round of up to $20 billion. If completed, the deal would value the El Salvador-based group at $500 billion.
Since its founding 11 years ago, Tether has faced scrutiny over insufficient information disclosure and transparency issues. Ardoino has previously stated that hiring auditors was a top priority; however, the company has only released 'attestation reports' reviewed by BDO Italia, rather than conducting a full audit of its stablecoin reserves.
Editor/Liam
