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S&P Global’s New Stablecoin Risk Meter: Tether Scores Poorly
- S&P Global has ranked eight major stablecoins based on their reliability.
- Gemini Dollar, Pax Dollar and USD Coin all scored well.
- Industry giant Tether (USDT) received one of the worst ratings among stablecoins due to a history of scandals and poor transparency.
Stablecoins aren’t the most attractive topic for the average investor. By design, these cryptocurrencies are intended to not generate a profit (or a loss). So those looking for big, long-term performers in their portfolio tend to avoid stablecoins.
However, in reality, stablecoins are the lifeblood of the crypto industry. Such assets – especially those pegged to the U.S. dollar – regularly see by far the highest daily trading volume across centralised and decentralised exchanges. They are the gateway between traditional and digital currencies, and will likely lead the charge into widespread blockchain adoption by institutional investors and businesses.
That’s why, whenever a major U.S. company says something about a stablecoin project, it’s worth paying attention.
As we look to the future, we see stablecoins becoming further embedded into the fabric of financial markets, acting as an important bridge between digital and real-world assets. Nonetheless, it’s important to acknowledge that stablecoins are not immune to factors such as asset quality, governance, and liquidity. Our evaluations consider a variety of elements that can cause them to depeg below or above their targeted value.
Lapo Guadagnuolo, senior analyst at S&P Global Ratings Eight Stablecoins Ranked By S&P Global
S&P Global, one of the largest financial institutions in the world, has released a new metric to determine the risk factor of eight major stablecoins. The goal here is to inform investors and other businesses which assets are the most reliable (i.e., least likely to de-peg from its underlying asset). The assessment is incredibly important given a report from Moody’s analytics found that “large fiat-backed stablecoins depegged 600+ times in 2023”.
S&P Global’s scale is based on a few factors, including:
- Market, quality and custody risks
- How such risks are mitigated through liquidation and collateralisation methods
- The project’s track record, governance structure, liquidity and so on.
Putting it all together, the company then rates each stablecoin’s reliability out of five, with one being the strongest and five being the weakest.
- None of the major cryptocurrencies managed to pull off a rating of one, with Gemini dollar (GUSD), Pax Dollar (USDP) and USD Coin (USDC) all scoring a two.
However, perhaps the most surprising was seeing the rating of the crypto industry’s third-largest token by market cap. USD Tether (USDT) was on the receiving end of a 4 (or constrained) rating.
Tether Has Previously Been Embroiled in Controversy
Given the coin’s popularity, S&P Global’s rating may come as a bit of a surprise to some. However, the Tether stablecoin has often been in the crypto community’s spotlight – and not always for a good reason.
Perhaps the biggest scandal occurred in 2021, when the company was fined by regulators for only maintaining full reserve backing USDT for 27.6% of the days between 2016-8. This means that Tether was dishonest about its holdings for several years, and if a liquidation issue (or other problem) were to arise, the entire ecosystem may have crumbled. The business has also come under fire for a lack of transparency around audits.
This doesn’t necessarily mean that Tether is inherently untrustworthy – it is still the most traded cryptocurrency for a reason. But investors should think twice about whether they want to hold onto USDT in favour of other, potentially more reliable stablecoins.
Author
Ben Knight
Ben Knight is a writer and editor from Melbourne with a passion for all things music and finance. He enjoys turning complex topics – especially the technical details of cryptocurrency – into digestible bites that anybody can understand. He acquired his Master’s in Writing, Editing and Publishing from RMIT in 2019 and has run his own creative writing business ever since.
