USDT's Stability Questioned By S&P Global Ratings

S&P Global Ratings assesses stablecoins; USDT's transparency issues lead to lower rating.

What determines a stablecoin's stability rating?

S&P Global Ratings, a prominent financial analytics firm, recently conducted a comprehensive assessment of the stability of various stablecoins, including USDT, which has raised concerns due to its transparency issues.

A Brief History Of Stablecoins
Stablecoins offer stability within the volatile crypto market, marrying blockchain’s convenience with fiat currency consistency, but their history is marked by innovation and notable failures.

Stablecoin Stability Assessment

S&P Global Ratings embarked on a detailed study to evaluate the stability of eight major stablecoins. The analysis involved a range of criteria, including asset quality, risk mitigation, asset management, legal and regulatory framework, redeemability, liquidity, underlying technology, third-party dependencies, and historical performance. Each stablecoin was rated on a scale from 1 to 5, with 1 being the highest and 5 the lowest. Remarkably, none of the stablecoins analyzed achieved the top rating.

USDT Under Scrutiny

The largest stablecoin by capitalization, Tether (USDT), received a “constrained” rating of 4, primarily due to transparency concerns regarding the issuer’s assets. This rating highlights significant trust issues in the stablecoin, which is a crucial player in the digital asset market.

USDT Market Cap chart: $90 billion
Is $90 billion in Tether all just empty air? (Source: Messari.io)

Ratings Of Other Major Stablecoins

The study also revealed varying levels of stability among other prominent stablecoins. First Digital USD (FDUSD) and Dai (DAI) were rated similarly to USDT for reasons including lack of creditworthiness information and limited liquidity risks, respectively.

TrueUSD and Frax scored even worse at 5, with concerns over public information availability and algorithmic reliance. On the positive side, Gemini Dollar (GUSD), Pax Dollar (USDP), and USD Coin (USDC) received favorable ratings for their asset quality, earning them a "strong" score of 2. Notably, GUSD and USDP are regulated by the NYC Department of Finance.

USDT, when will the big bang happen?
No stablecoin received a score of 1 in the analysis (Source: S&P Global Ratings)

Implications And Future Monitoring

Senior Analyst at S&P Global Ratings, Lapo Guadagnuolo, emphasized the growing integration of stablecoins in financial markets, highlighting their role as a bridge between digital and fiat currencies. He noted that their stability is heavily dependent on the issuers' liquidity management and asset quality. S&P Global Ratings plans to regularly update their Stablecoin Stability Assessments. Additionally, Chief DeFi Officer Chuck Mounts stressed the agency’s commitment to staying ahead in digital asset market trends, assisting clients in making informed decisions. This analysis comes on the heels of Moody’s recently-introduced AI service for predicting stablecoin devaluation within 24 hours.


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