Key Takeaways
Why was USDT downgraded?
Due to limited disclosure and rising reserve exposure to ‘high risk’ assets like BTC and gold.
How did Tether react?
Per the CEO, the negative rating was an attack on the firm for exposing the ‘broken system’ that relies on ‘toxic’ reserve assets.
S&P Global downgraded Tether’s USDT stablecoin from “constrained” to a “weak” rating. The agency cited rising exposure of the USDT reserve backing to “high-risk” assets like Bitcoin and limited transparency.
It added,
“These (high-risk) assets include Bitcoin, gold, secured loans, corporate bonds, and other investments, all with limited disclosures and subject to credit, market, interest-rate, and foreign-exchange risks.”
Source: S&P Global Ratings
The downward revision meant that USDT could struggle to maintain its peg to the US dollar in case of broader market fluctuations, according to the rating agency. It noted that stronger disclosures and reduced risk exposure might support a higher rating later.
Tether’s CEO pushes back
But a section of the community slammed the negative rating, including Tether CEO Paolo Ardoino.
For Ardoino, S&P Global Ratings was “upset” with his firm’s increased exposure to gold and BTC.
According to him, the system was broken and their choice of Bitcoin [BTC] and gold as reserve backing exposed the system and has irked the rating agency.
He called the downgrade as S&P Global Ratings’ “loathing” of Tether and added,
“We wear your loathing with pride. Tether is living proof that the traditional financial system is so broken that it’s becoming feared by the emperors with no clothes.”
Source: X
Chris Pavlovski, CEO of Rumble, echoed a similar stance and called the rating an “attack on Tether” for challenging the old financial system.
Tether is the world’s largest stablecoin issuer, and its USDT flagship product has grown to a market supply of $184 billion, adding $44 billion in just one year.
As an offshore product, USDT does not fall under the U.S. stablecoin guidelines, which require a 100% 1:1 backing with government bonds or cash equivalents.
But its U.S.-based stablecoin offering, USAT, will have to adhere to these standard guidelines, alongside the increased transparency, noted analyst Novacula Occami.
For critics like Occam’s Razor, the downgrade was not about USDT but rather about the parent firm, Tether, whose transparency and audit were being questioned.
How Tether reported its reserves
Tether reported 77% of USDT reserves sat in short-term Treasury bills and cash-equivalent assets. The remainder included Bitcoin, gold and secured lending positions.
Source: S&P Global Rankings
In fact, in Q3, the firm became the largest independent gold buyer, rivalling central banks across the globe.
Tether continued expanding into infrastructure, data, AI and energy ventures under its long-term strategy.