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Two major financial institutions, S&P and HSBC, are once again warning of potential issues with the stablecoin Tether (USDT). This is significant news, as USDT is the world’s largest stablecoin and serves as the backbone for a large portion of the crypto market. If this coin were to ever lose its peg to the dollar, it could have major consequences for all other cryptocurrencies.
S&P and HSBC Sound the Alarm on USDT #
S&P Global Ratings has lowered its assessment of the financial reserves backing Tether. According to S&P, these reserves—the money Tether holds as collateral for USDT—are not classified as strong enough.
In a report, HSBC analysts Daragh Maher and Nishu Singla stated that this once again highlights a risk of a ‘de-peg’ with USDT. This means tether could temporarily be worth less or more than a dollar, even though the coin is supposed to always remain exactly one dollar.
The idea behind a stablecoin is simple. You should always be able to redeem it for one dollar. But this only works if the issuer has enough safe and readily available funds on hand.
Why This Matters #
USDT is used everywhere: on exchanges, in trading pairs like Bitcoin/USDT, and in the deeper regions of the crypto world. If confidence in Tether wanes, the entire market feels it immediately. According to S&P, the composition of the reserves is a particular point of concern.
Tether is reportedly parking more money in risky, low-liquidity investments. This makes it more difficult to pay out quickly if many people want to redeem their USDT at the same time.
HSBC analysts say this is precisely what increasingly strict regulations worldwide are targeting. Stablecoins must have transparent, secure reserves. Large companies and financial institutions therefore prefer stablecoins with better ratings, such as Circle’s USDC.
According to HSBC, a shift could occur. The more professional parties use crypto, the greater the chance that money will flow toward more stable or better-regulated stablecoins. Nevertheless, Tether remains enormously important to the market. The company is even working on a new, fully American version that must comply with strict regulations.
Tether CEO Questions the System #
Tether CEO Paolo Ardoino reacted fiercely to the downgrade, emphasizing that the company has been under a microscope for years. He noted that traditional credit rating agencies previously gave high ratings to companies that later collapsed, putting these models into question now.
According to Ardoino, the financial sector gets nervous when a company, like Tether, breaks away from that old system. Tether would be strongly capitalized and profitable, thereby showing how vulnerable the traditional system is.
Tether has survived past unrest, and as long as the reserve issues are addressed, there is no reason for panic. However, it is wise to keep a close eye on such signals.