Key Takeaways
S&P Global Ratings recently conducted an assessment on Tether and other stablecoins, revealing some key findings:
- Tether’s ability to maintain its peg is considered “constrained” due to concerns about reserve transparency, regulatory framework, and risk appetite.
- USD Coin has been assessed as “Strong” by S&P Global Ratings, positioning it favorably among stablecoins.
Tether’s Current Situation
Tether (USDT), the largest stablecoin by market capitalization, faces challenges in maintaining its peg to the U.S. dollar. S&P Global Ratings has highlighted several areas of concern, including:
- Lack of transparency regarding entities managing USDT’s reserves.
- Presence of significant exposure to riskier assets in Tether’s reserves.
- A rating of 4 out of 5 by S&P Global Ratings, indicating a “constrained” situation for Tether.
Concerns Raised by S&P Global Ratings
S&P’s assessment of Tether points out specific issues that raise red flags:
- Reserves primarily held in low-risk assets without transparent information on custodians or counterparties.
- Double-digit exposure to riskier assets like corporate bonds, precious metals, and bitcoin.
- Lack of regulatory framework, primary redeemability, and asset segregation.
Previous Scrutiny on Tether’s Reserves
Tether’s reserves have faced scrutiny in the past, including enforcement actions by regulatory authorities in 2021 for inadequate information disclosure.
Assessment of Other Stablecoins
S&P Global Ratings also evaluated other stablecoins:
- USD Coin (USDC), Pax Dollar (USDP), and Gemini Dollar (GUSD) received favorable scores indicating strength.
- FRAX (FRAX) and TrueUSD were rated as the weakest stablecoins with a score of 5 or “Weak.”
- DAI (DAI) and First Digital USD (FDUSD) obtained similar ratings to Tether in the assessment.
