S&P cuts Tether stablecoin rating to 'weak' on disclosure gaps

By Elizabeth Howcroft

PARIS (Reuters) -S&P Global (SPGI) downgraded its rating of Tether, the world's largest stablecoin on Wednesday, citing an increase in higher-risk assets in its reserves and "persistent gaps in disclosure".

Tether said it "strongly disagrees with the characterization presented in the report" by S&P which said that it now rated the company's token, known as USDT, as "5 (weak)", which is the lowest possible score, downgrading it from "4 (constrained)".

Ratings agency S&P created a scale from 1 to 5 in 2023 to assess the risk of various stablecoins, a type of cryptocurrency pegged to mainstream currencies, usually the U.S. dollar.

A Tether spokesperson said in an emailed statement that S&P had applied "a legacy framework that fails to capture the nature, scale, and macroeconomic importance of digitally native money and overlooks data that clearly demonstrate USDT's resilience, transparency, and global utility".

El Salvador-based Tether says it has issued around $184 billion worth of its dollar-pegged cryptocurrency, and says it?holds enough reserves in U.S. Treasuries and other assets to allow token-holders to swap their tokens back for dollars.

S&P CITES TETHER RAISING BITCOIN, GOLD, BOND RESERVES

S&P said there had been an increase in high-risk assets in Tether's reserves over the past year, including bitcoin, gold, secured loans, corporate bonds and other investments.

It said all had "limited disclosures" and were "subject to credit, market, interest-rate, and foreign-exchange risks".

"Tether continues to provide limited information on the creditworthiness of its custodians, counterparties, or bank account providers," S&P added.

However, Tether has maintained "a notable level of price stability" even during crypto market volatility, S&P said.

Tether said it had "processed billions in redemptions while maintaining uninterrupted stability" during market shocks.

It also said in response to the S&P report that its stablecoin functioned as "systemically important financial infrastructure" in emerging market countries where it says it is used as a form of money.

(Reporting by Elizabeth Howcroft; Editing by Tommy Reggiori Wilkes and Alexander Smith)