American Credit Ratings Firm Assesses Tether Stability
S&P Global Inc., an American credit ratings firm, has initiated an assessment of Tether’s ability to maintain its peg to the U.S. dollar. The firm has given Tether a “constrained” rating of 4, indicating potential risks.
Tether Under Scrutiny
Tether is a stablecoin that has been under scrutiny for several years. It was issued in 2014 and is the longest-standing stablecoin with the largest volume in circulation. Despite its relatively stable price in recent years, S&P notes that there are concerns about the lack of information disclosed by Tether.
Weak Rating Due to Lack of Information
“Our asset assessment of 4 (constrained) reflects a lack of information on entities that are custodians, counterparties, or bank account providers of USDT’s reserves. This is not withstanding that a large share of USDT’s reserves comprise short-term U.S. treasury bills and other U.S. dollar cash equivalents. There is also significant exposure to higher-risk assets with limited disclosure. Such assets could be subject to credit, market, interest rate, or foreign currency risks,” said S&P.
Possible Improvements and Worsening Assessment
S&P suggests that the stability assessment of Tether could improve if there is increased disclosure of underlying assets and information about custodians, counterparties, and bank account providers. Additionally, regulation or supervision by an authoritative body could support a stronger assessment. However, if there is a shift to higher-risk assets, such as cryptocurrencies, the stability assessment could worsen.
Criticisms from J.P. Koning
J.P. Koning, a CoinDesk columnist, highlighted several serious criticisms of Tether on Twitter. These include the failure to segregate assets, lack of disclosure about custodians and bank account providers, absence of regulatory licensing, and investment in high-risk assets with limited disclosure.
Tether’s Recent Actions
Earlier this month, Tether froze wallets of individuals sanctioned by the U.S. Office of Foreign Asset Controls (OFAC) as part of its efforts to prevent potential misuse of its tokens and enhance security measures.
The Impact of Terra Luna Collapse
The collapse of Terra Luna last year, which resulted in the loss of billions for investors, has increased scrutiny on stablecoins. Investors are now closely monitoring the stability and credibility of stablecoins like Tether.
Hot Take: Tether’s Stability Assessment Raises Concerns
S&P Global’s assessment of Tether’s stability raises significant concerns about the lack of information disclosed by the stablecoin. With a “constrained” rating and criticisms from experts, Tether’s ability to maintain its peg to the U.S. dollar is under scrutiny. Increased disclosure and regulation could potentially improve the stability assessment, but any shift to higher-risk assets could worsen it. As investors navigate the volatile cryptocurrency market, the credibility and transparency of stablecoins like Tether are crucial for maintaining trust and stability.
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