Tether Scores Second-Lowest Rank in S&P Global Stablecoin Stability Assessment

Ratings company S&P Global introduced a stablecoin stability assessment on Tuesday, assigning scores from 1 (very strong) to 5 (weak) as a measure of how capable the cryptocurrency is at keeping to its fiat-currency peg.

None of the eight stablecoins assessed warranted a 1. Three – Gemini dollar (GUSD), USD Coin (USDC) and Pax Dollar (USDP) – scored 2 and Tether (USDT), the largest stablecoin by market cap, was assigned 4 (constrained). The lowest rank was assigned to TrueUSD (TUSD) and Frax (FRAX).

Stablecoins are often digital assets backed by real-world assets like the U.S. dollar and are meant to hold their value against those assets. Some, however, are not physically backed, and attempt to use mathematical algorithms to maintain their value. S&P's assessment considered quality risks, including credit, market value and custody risks as well as liquidation and overcollateralization among other criteria.

"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," Lapo Guadagnuolo, a senior analyst at S&P Global Ratings said in a statement. "Nonetheless, it's important to acknowledge that stablecoins are not immune to factors such as asset quality, governance, and liquidity."

USDT is the third-biggest crypto after bitcoin (BTC) and ether (ETH), with a market capitalization of over $90 billion, according to CoinGecko. Last November, as concerns circulated over the ability of crypto exchange FTX to continue functioning, it dropped 3% below its peg. The company attributed the drop to market volatility.

Last month, the Bank for International Settlements – the global organization of central banks – said that most stablecoins have not managed to stay stable. To serve as a medium of exchange, stability is essential, the bank said.

The BIS cited concerns over "transparency regarding the availability and quality of these reserves," an issue echoed by S&P.

Feedback from participants in decentralized finance (DeFi) and traditional finance (TradFi) show "the market has little transparency or insight into the inherent risks of the different stablecoins," S&P said.

Tether had not responded to a request for comment by publication time.

See also: Basel Committee Seeks to Consult on Stablecoins Risk Treatment

UPDATE (Dec. 13, 16:05 UTC): Changes lead photo