Tether Slapped With 'Constrained' Stability Assessment Over Transparency Concerns

S&P Global Ratings assigned a "constrained" stability assessment to stablecoin issuer Tether USDT/USD, raising concerns due to limited transparency in its reserve management and asset composition.

What Happened: The firm's assessment of '4' reflects concerns over the lack of detailed information about the custodians, counterparties, or bank account providers of USDT's reserves.

Benzinga has reached out to Tether CEO Paolo Ardonio for a comment.

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Although a significant portion of USDT’s reserves consists of short-term U.S. treasury bills and other U.S. dollar cash equivalents, there is also notable exposure to higher-risk assets with limited disclosure, according to the rating agency.

The report highlights that these assets could be subject to various risks, including credit, market, interest rate, or foreign currency risks.

Why It Matters: The lack of clarity on the entities managing these assets and the composition of riskier assets in the reserves has led to the constrained rating.

Despite these concerns, Tether has not adjusted its asset assessment, as the observed weaknesses align with the stablecoin stability assessment of '4'.

The report points out several issues:

• Limited transparency on reserve management
• An absence of a regulatory framework
• No asset segregation to protect against the issuer's insolvency
• And limitations to USDT's primary redeemability.

Improvements in the stablecoin stability assessment could be seen with increased disclosure and a shift to lower-risk assets.

Enhanced regulation or supervision of USDT's issuance and management by an authoritative body could also support a stronger assessment.

Conversely, a shift to higher-risk assets, such as cryptocurrencies, could worsen the assessment.

The reserves consist of short-term U.S. treasury bills, reverse repos, money market funds, cash, bank deposits, and a mix of riskier assets like corporate bonds, precious metals, Bitcoin BTC/USD, and secured loans.

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