Tether Defends USDT After S&P Downgrade Amid Growing Calls for Transparency

The stablecoin Tether (USDT) has existed for over ten years and has maintained its 1:1 peg to the US dollar even during crypto crises like the FTX bankruptcy in 2022. However, Tether is also the subject of ongoing discussions about whether the private company has sufficient financial reserves to convert USDT into dollars in every conceivable situation.

Just a few days ago, the rating agency S&P downgraded USDT’s stability rating to 5, the lowest possible score, signifying “weak.” Tether is not taking this lying down, and CEO Paolo Ardoino is presenting his perspective on the situation.

CEO Ardoino considers the calculation of USDT reserves to be incomplete

According to S&P, its calculations of Tether’s reserves only considered funds and investments earmarked for USDT. Crypto personality Artur Hayes also used this method as a starting point for questioning USDT’s stability on X. Tether publishes quarterly reports on its USDT reserves; as of September 30th, these reserves consisted of 77 percent cash and comparable asset classes, primarily US Treasury bonds.

However, roughly 20 percent of the USDT reserves also comprise Bitcoin, gold, secured loans, and other investments. Hayes, like S&P, argues that price drops of around 30 percent in Bitcoin and gold would render Tether unable to guarantee USDT’s stability.

Crypto celebrity Arthur Hayes’ criticism of USDT seems to fall short

Tether CEO Paolo Ardoino considers this calculation grossly misleading and labels it “FUD” (a deliberate attempt to discredit) on X. He argues that S&P made the typical mistake of examining USDT reserves in isolation and ignoring Tether as a company.

According to Ardoino, it’s also important to consider that Tether has accumulated retained earnings of approximately $23 billion, receives roughly $500 million in monthly interest income from its US Treasury bonds, and has an additional $7 billion in equity. Ardoino therefore accuses critics of either not paying attention in math class or of waging a campaign against Tether.

Arthur Hayes, whose pessimistic X-Post about Tether and USDT reached more than 2 million readers, has so far refused to back down despite massive criticism. Analyst Joseph, for example, also writes on X that Hayes omitted “key points” in his assessment of Tether’s financial stability. In addition to Tether’s own reserves, which are supplemented by the UST reserves, the crypto company could, in a worst-case scenario, also sell company shares or take out a loan, according to Joseph. CEO Ardoino thanked Joseph for his post and reposted it.

Demands on Tether: Independent audit of USDT should create security

But Tether will likely not be able to completely quell the renewed discussion about USDT’s reliability. Venture capitalist Jason Calacanis found considerable support on X for his suggestion that Tether should divest its Bitcoin reserves and fully back USDT with US Treasury bonds.

Calacanis also proposed that Tether commission two American accounting firms to conduct an audit in order to regain trust. A blog post by Quoth the Raven echoes this sentiment. The financial blogger writes that if a company like Tether blocks independent auditors, one has to assume that it has something to hide. “Markets have a long and bloody history of devouring the naive,” warns Quoth the Raven.

Conclusion: Tether under public pressure – but is USDT really a risk?

So far, Tether has fared well by maintaining its organizational structure as a private company. According to its quarterly report, it has already generated $10 billion in profit this year, with USDT being the primary contributor.

However, the Genius legislation passed in the US this July created a legal framework specifically tailored to stablecoins, which USDT currently does not meet because Tether is headquartered in El Salvador and only allows transparency according to its own self-imposed rules. The crypto industry is unlikely to be interested in USDT’s problems, as massive domino effects would be inevitable if the most important global stablecoin were to falter. Tether, however, needs to earn trust, as the recent controversies demonstrate.

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