The agency moved its assessment of Tether’s (USDT) ability to keep its U.S. dollar peg from “constrained” to “weak,” according to a Wednesday (Nov. 26) report.
Tether did not respond to PYMNTS’ request for comment.
“Our asset assessment of 5 (weak) reflects the rise in exposure to high-risk assets in USDT’s reserves over the past year and persistent gaps in disclosure,” the S&P Global Ratings report said. “These 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.”
Bitcoin now accounts for around 5.6% of USDT in circulation, higher than the 3.9% overcollateralization margin, a sign that the reserve can no longer fully absorb a decrease in its value, per the report.
That means a dip in bitcoin’s value, coupled with a decline in the value of other high-risk assets, could thus reduce coverage by reserves and cause USDT to be undercollateralized, according to the report. A “large share” of USDT’s reserves is invested in short-term U.S. treasury bills and other U.S. dollar cash equivalents.
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“However, Tether continues to provide limited information on the creditworthiness of its custodians, counterparties or bank account providers,” the report said.
S&P also pointed out other weaknesses in the report, such as “limited transparency on reserve management and risk appetite,” and “lack of a robust regulatory framework.” The assessment could improve with less exposure to high-risk assets.
In other stablecoin news, although the GENIUS Act, a stablecoin-focused piece of legislation, was signed into law in July, it has yet to be implemented.
This has placed “cryptocurrency firms, stablecoin issuers and would-be stablecoin issuers in limbo,” PYMNTS reported Wednesday.
The holding pattern is happening because the law’s most important provisions cannot function until the U.S. Department of the Treasury releases implementing regulations that cover reserve composition, disclosures, affiliate relationships and the exact definition of “yield.”
“That vacuum is now producing follow-on consequences,” PYMNTS wrote. “Arrangers, banks, FinTech lenders and crypto-native issuers are racing to test the boundaries of the statute before regulators have locked down the guardrails and their corresponding definitions.”
