Tether’s Unconventional Reserve Strategy Raises Eyebrows
Tether, the issuer of the USDT stablecoin, has been making waves in the financial world with its unconventional reserve strategy. Over the past year, the company has been accumulating Bitcoin and gold at a pace that rivals several government bonds. In fact, in the last quarter alone, Tether bought more gold than all central banks combined, increasing its total holdings to 116 tons of physical gold bars.
This move has not gone unnoticed by traditional financial institutions. On November 26, credit rating firm S&P Global lowered its assessment of USDT’s ability to maintain its dollar peg to 5, the lowest value in its stablecoin rating structure. The agency pointed to increasing allocations to Bitcoin, collateralized loans, and other riskier instruments, saying these risks create uncertainty around reserve liquidity.
Why S&P Took a Dim View of Tether’s Strategy
S&P’s downgrade stems from concerns about liquidity and reserve clarity rather than asset quality. The agency’s model assesses whether a stablecoin issuer can execute redemptions quickly and smoothly during times of market stress. According to the company, Tether’s increasing allocation to Bitcoin and collateralized loans results in price volatility and counterparty risk. As of its latest quarterly attestation report, the company holds about $10 billion in BTC and has around $15 billion worth of collateralized loans.
At the same time, gold is also a key component of its reserves, with assets worth around $13 billion. While the precious metal is a hard asset with long-term value, it is harder to liquidate in the short term and cannot process a large redemption as easily as a Treasury bill. This has led S&P to conclude that the reserve mix is less suitable for a product that promises immediate one-to-one repayment.
The Crypto Market’s Different Perspective
Despite S&P’s concerns, the crypto market seems unfazed by Tether’s unconventional strategy. USDT has maintained its dollar peg through ten years of market cycles, including collapses in exchanges, lenders, and rival stablecoins. This track record has shaped user trust more than a formal review ever could. Additionally, USDT liquidity is high on global trading venues, and the digital asset remains the base pair for much of crypto trading and is often used for payments in emerging markets that do not have stable access to the dollar.
As a result, demand for stablecoins continues to rise, and USDT’s market cap is at an all-time high of more than $184 billion. The most important feature of Tether’s balance sheet is its earning power, with more than $130 billion in short-term U.S. notes, generating about $15 billion per year. This return creates a rapidly growing equity cushion that can absorb price fluctuations in Bitcoin or collateralized loans more effectively than standard risk models assume.
Transparency: The Key to Building Trust
While Tether’s performance has reassured the crypto market, the need for clearer disclosures remains. The biggest weakness in Tether’s structure is not its gold allocation or Bitcoin exposure but the lack of detailed insight into how reserves are held, how counterparties are selected, and how collateralized loans are managed. Even a balance sheet supported by significant equity buffers and hard assets is more difficult to evaluate without transparent reporting.
For institutional users and regulators, this is the key unsolved problem. Greater transparency would reduce uncertainty for large holders and align USDT with the standards expected of a global settlement asset. As the crypto market continues to evolve, it is essential for companies like Tether to prioritize transparency and build trust with their users.
Source: https://cryptoslate.com/why-tethers-gold-and-bitcoin-mix-alarms-sp-but-reassures-the-crypto-market/
