Tether's USDT Faces Downgrade Amid Bitcoin Concerns

Tether's Stability Questioned

S&P Global Ratings has downgraded Tether's USDT, raising alarms over its exposure to volatile assets such as Bitcoin. The agency highlighted that a significant drop in Bitcoin's value could compromise USDT's collateral and its stability.

Reserve Vulnerability Highlighted

The ratings agency adjusted Tether's score from 'constrained' to 'weak', reflecting the increased risks from its diverse reserve mix, which includes Bitcoin, gold, corporate bonds, and secured loans. S&P noted Tether's lack of full reserve disclosure, relying instead on attestations. Despite this, Tether asserts its reserves are backed by secure assets like U.S. Treasury bills.

According to Tether's transparency report, it holds over 87,728 BTC, with Bitcoin representing 5.4% of its total reserves, up from 3.6% previously. This increase raises concerns that a Bitcoin price drop could reduce Tether's reserve coverage.

Analysis of Reserve Strategy

With USDT's market value at approximately $184 billion, S&P analysts Rebecca Mun and Mohamed Damak warn that a significant Bitcoin price decline could lead to undercollateralization, impacting the stablecoin's dollar peg. Tether spreads its reserves across low-risk assets and is reportedly the 17th largest holder of U.S. Treasury bills globally, underscoring its efforts to solidify USDT's foundation.

However, Tether's balance sheet includes some high-risk assets, with reserves about 8% collateralized through secured lending, none of which involves related parties. S&P cautions that this mix could elevate risk exposure.

In response to the downgrade, Tether's Paolo Ardoino expressed confidence in a recent post, criticizing traditional financial ratings for past investor losses and asserting Tether's position as a highly capitalized firm without 'toxic reserves'. He noted Tether's profitability and the demand for an alternative financial model.