[ S ]
[ M ]
[ I ]
[ D ]
[ G ]
[ E ]
USDT is the longest surviving and largest stablecoin in circulation. It has lived through multiple stress tests, regaining its dollar peg each time it was tested. USDT's issuer has consistently fulfilled all redemptions, despite widespread accusations of USDT not being fully backed by reserves. It continues to hold its dominant position as the preferred stablecoin for trading.
No stranger to controversy, USDT has been the subject of intensive regulatory scrutiny and penal actions from the likes of the New York Attorney General and the CFTC for falsely claiming that every unit of USDT is backed by a US Dollar. Instead, USDT is backed by a wide variety of assets held by the Tether Group, ranging from cash deposits to Bitcoin.
Among the major fiat-backed stablecoins, USDT is less transparent and has inferior reserves due to the inclusion of reserve assets such as corporate bonds, secured loans, Bitcoin and miscellaneous investments whose exact nature and liquidity profiles are undisclosed.
In our assessment, USDT is not a safe stablecoin. However, it may still be of interest to some users. It is most appropriate for institutional users, high net worth individuals and advanced traders who (a) rely on USDT's industry-leading liquidity depth, market share and breadth of trading pairs and (b) who have direct access to USDT's redemption mechanism. The majority of retail stablecoin holders and traders who tend to be less active market participants are better served by safer, more transparent and more regulated alternatives, both from the perspective of user protection and the comparatively limited monitoring effort required from holders.
USDT's rating can be upgraded from D to C by:
disclosing the names of its banks and custodians OR
lowering the minimum redemption value from $100K to $5K AND
performing a complete financial audit by an independent auditor OR
incorporating transparent and reasonable timelines for redemption in the Terms of Service, similar to conditions imposed by the NYDFS on stablecoin issuers under its authority.
The Stability factor is evaluated on the following:
1. Reserves Management - Quality, quantity, storage and segregation of reserve assets
2. Market Feedback - Indicators of market's confidence in a stablecoin derived from price and trade data
3. Mechanism - Stabilization methods that protect the stablecoin
The Management factor is evaluated on the following:
1. Restrictions - What deterrents exist to prevent key personnel of stablecoin projects from unethical and illegal behavior?
2. Negative Track Record - Have key personnel been involved in scams, frauds or other illegal activities?
This factor aims to assess risks arising from technical implementations – i.e, smart contract code and oracles. It is currently not assessed, but we plan for it to be evaluated in the future.
The Decentralization factor is evaluated on the following:
1. Platform Censorship Risk
2. Custodian Risk
3. Type of Collateral
4. Diversified voting Power
5. User Censorship Risk
The Governance factor for fiat-backed stablecoins is evaluated on the following:
1. Holder Protection - What rules, statutes or code exist to protect interests of stablecoin holders?
2. Reserves Verification - What checks are done to ensure existence of reserves?
3. Redemptions - Do issuers have transparent and reasonable redemption terms?
This factor seeks to incorporate external feedback mechanisms such as market and social sentiment into our internal ratings. It is currently not assessed, but we plan for it to be evaluated in the future.