American credit rating agency S&P Global has made a notable decision concerning Tether, the world's largest stablecoin.
On Wednesday, S&P Global downgraded Tether's stablecoin stability assessment, citing an increase in high-risk assets within its reserves and persistent gaps in its disclosures.
In its report, S&P downgraded Tether's stablecoin stability assessment to the lowest level, designated as "level 5 – vulnerable, weak," a decrease from its previous rating of "level 4 – constrained."
Tether's Response to the Downgrade
Tether has voiced its objection to the downgrade, asserting that S&P Global "does not understand the nature of digital native currency, USDT."
S&P Global specifically pointed to the high presence and growth of risky assets, including Bitcoin (BTC), within Tether's reserves as a primary reason for the downgrade.
The agency stated that a significant decline in the price of Bitcoin, in particular, could heighten Tether's risk of a collateral shortfall and increase its volatility.
"There are many risky assets in reserves. Bitcoin's share in reserves has increased. A sudden drop could lead to a collateral shortage," S&P Global noted.
A spokesperson for Tether responded, stating, "S&P applied an existing framework that does not reflect the nature, scale, and macroeconomic significance of digital native currency, and ignored data that clearly demonstrates the durability, transparency, and global utility of USDT."
The Tether spokesperson further emphasized the stablecoin's consistent resilience, highlighting its ability to maintain stability amid banking crises, liquidity shocks, and extreme market volatility.
Tether CEO Paolo Ardoino also commented on social media, suggesting that the S&P report reflected the traditional financial world's discomfort with Tether. Ardoino added, "The independence and objectivity of these rating agencies are now being questioned."
Previous S&P Global Action on MicroStrategy
This development follows a similar action by S&P Global in late October. At that time, S&P Global assigned a "B- rating," classifying it as junk, to MicroStrategy, the largest institutional investor in Bitcoin (BTC).
This rating placed MicroStrategy in the "high risk" category. The agency based its assessment on the company's substantial reliance on Bitcoin, its weak capital structure relative to its risk profile, and its fragile US dollar liquidity.