S&P downgrades Tether's rating and cites risks in reserves

Source: Exame Original Title: S&P downgrades Tether's rating and cites risks in 'digital dollar' reserves Original Link: The S&P announced that it downgraded the rating of USDT, the largest stablecoin in the market. According to Standard & Poor's, the decision was motivated by increasing “risks” surrounding the reserves used by Tether to maintain the peg of the cryptocurrency to the US dollar.

The downgrade resulted in the worst possible rating that S&P can grant to a company. Tether was rated 5, equivalent to a “weakness” classification. Previously, the company's rating was 4. The assessment also mentioned “consistent gaps in transparency.”

The classification of stablecoins was initiated by S&P in 2023, covering only cryptocurrencies pegged to the dollar. In the case of USDT, the company's main concern is the growing expansion of high-risk assets in the reserves used by Tether.

S&P's assessment is that, between 2024 and 2025, the presence of assets such as bitcoin, loans, corporate debt securities, gold, and other investments has increased. All assets are classified as high risk, which would undermine the stability of reserves in S&P's view.

Reserves are one of the most important aspects of any stablecoin, as it is the value of the assets that ensures the parity between the cryptocurrency and the dollar. For S&P, the expansion of risky assets in the reserve brings instabilities and opens the door to potential parity issues.

Furthermore, the company claims that Tether “continues to provide limited information” regarding the custodians of the reserve assets, counterparties, and banking providers used by the company. S&P acknowledged the stability of the USDT price but decided to downgrade the rating.

Tether rebutted the claims made by S&P and stated that it “strongly disagrees with the characterization presented in the agency's report.” The company highlighted that it “processed billions in redemptions” of its dollar-pegged stablecoin with “uninterrupted stability.”

The company also stated that USDT is already a “systemically important financial infrastructure” in emerging countries and that it is already used as a form of money, which would corroborate the security around the asset and would not justify the downgrade by S&P.