Key Takeaways
Why was USDT lowered?
Due to limited disclosure and increasing reserve exposure to high-risk assets such as BTC and gold.
How did Tether react?
According to the CEO, the negative rating was an attack on the company because it exposed the “broken system” that relies on “toxic” reserves.
S&P Global downgraded Tether’s USDT stablecoin from ‘constrained’ to ‘weak’. The agency cited increasing exposure of the USDT reserve to “risky” assets such as Bitcoin and limited transparency.
It added,
“These (risky) assets include Bitcoin, gold, secured loans, corporate bonds and other investments, all with limited disclosure and subject to credit, market, interest rate and currency risks.”
Source: S&P Global Ratings
The downward revision meant that USDT could struggle to maintain its peg to the US dollar in the event of broader market swings, the rating agency said. It noted that stronger disclosures and reduced risk exposure could support a higher rating later.
Tether’s CEO is pushing back
But some of the community denounced the negative review, including Tether CEO Paolo Ardoino.
For Ardoino, the S&P Global Ratings was “angry” with his company’s increased exposure to gold and BTC.
According to him, the system was broken and their choice for Bitcoin [BTC] and gold as a reserve backer has exposed the system and irritated the rating agency.
He blamed the downgrade on Tether and S&P Global Ratings added,
“We wear your horror with pride. Tether is living proof that the traditional financial system is so broken it is feared by emperors without clothes.”
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Chris Pavlovski, CEO of Rumble, echoed took a similar stance, calling the rating an “attack on Tether” because it challenged the old financial system.
Tether is the world’s largest stablecoin issuer, and its flagship product USDT has grown to a $184 billion market offering, adding $44 billion in just one year.
As an offshore product, USDT is not subject to US stablecoin guidelines, which require 100% 1:1 backing with government bonds or cash equivalents.
But the US-based stablecoin offering, USAT, will have to adhere to these standard guidelines, in addition to greater transparency. noted analyst Novacula Occami.
For critics like Occam’s Razor, the cut wasn’t about USDT, but rather its parent company Tether, whose transparency and auditing were questioned.
How Tether reported its reserves
Tether reported 77% of USDT reserves were in short-term government bonds and cash equivalent assets. The rest included Bitcoin, gold and secured credit positions.
Source: S&P Global Rankings
In the third quarter the company even became the largest independent company gold copperrival central banks around the world.
Tether continued to expand into infrastructure, data, AI and energy projects as part of its long-term strategy.