SS #52 - Bitcoin Risk Pushes S&P to Downgrade USDT to 'Weak'

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Good morning.

As the month draws to a close, the stablecoin market is defined by contrasting events: S&P Global Ratings officially downgraded Tether’s USDT to its weakest stability score of 5 ('weak') from 4 ('constrained'), specifically citing the increased risk posed by high-volatility assets like Bitcoin within its reserves. While this raises new concerns over the world's largest stablecoin, the market also saw movement in regional digital currencies as KakaoBank, the digital banking arm of South Korean tech giant Kakao, advanced its local currency-pegged stablecoin initiative to the technical development stage, signaling a serious push for a domestic Korean Won stablecoin ecosystem.

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In Today's Edition:

• Headline: Bitcoin Risk Pushes S&P to Downgrade USDT to 'Weak'

• Quick Bites: South Korea’s Kakaobank Advances Stablecoin Initiative to Development Stage

• Yield of the Week: 21.36% APY on Strata

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HEADLINE

Bitcoin Risk Pushes S&P to Downgrade USDT to 'Weak'

State of play: S&P Global Ratings downgraded Tether's USDT to the weakest stability score of 5 ('weak') from 4 ('constrained') due to the risk posed by high-volatility assets like Bitcoin in its reserves.

• USDT’s exposure to Bitcoin (5.6% of its backing) now exceeds its 3.9% overcollateralization margin, meaning a sharp BTC price drop could render the stablecoin undercollateralized.

• The reserves include other risky assets like gold and secured loans (8% of backing, despite a planned phase-out), which, combined with limited disclosure, raise concerns about reserve valuation.

• The reserve composition, which includes non-cash/Treasury assets is increasingly out of step with emerging U.S. laws like the GENIUS Act, which mandates 1:1 backing with highly liquid, short-term government bonds.

What’s Next: This downgrade will likely intensify regulatory scrutiny globally, cause a temporary flight of capital toward more conservatively backed stablecoins, and lead to Tether defending its resilience while potentially accelerating its reduction of high-risk assets.

Why it Matters: This S&P downgrade matters because it is a formal validation by a major financial institution that Tether's reserve composition introduces quantifiable systemic risk to the entire global crypto market, which heavily relies on USDT for liquidity.

Our Take: The downgrade confirms that USDT’s risky reserve strategy is a competitive liability that is structurally inferior to regulatory standards like the GENIUS Act. Tether must prioritize institutional-grade transparency over profit to secure its long-term dominance against safer, compliant rivals.

QUICK BITES

• Paxos acquires Fordefi.

• US Bancorp tests stablecoin on Stellar.

• Klarna announces USD stablecoin on Stripe.

• Ripple’s RLUSD stablecoin wins key regulatory green light in UAE.

• Naver Financial to launch local stablecoin wallet amid Upbit merger.

• Exodus primed for more stable, fintech-like revenue after W3C acquisition.

• South Korea's KakaoBank advances stablecoin initiative to development stage.

• Tether-pegged USDT0 omnichain stablecoin passes $50B in cumulative transfers.

• Yield compression triggers 50% TVL drop in USDe despite rising onchain usage.

• MegaETH’s USDm stablecoin pre-deposit launch hits 'turbulence' amid outages and cap flip-flops.

YIELD OF THE WEEK

Drift JLP Delta Neutral V5: 27.67% APY

• Drift’s JLP delta-neutral (USDC) vault is designed to generate returns from trading, borrowing, and liquidation fees on the Jupiter Perps DEX, while systematically maintaining minimal directional risk exposure to JLP.

• Although the strategy targets stable yields, potential risks include smart contract vulnerabilities, market volatility, imperfect hedging, liquidation during sharp price movements, and variability in funding rates.

• The vault applies a 25% performance fee on accrued profits and a 0% annual management fee, with fees calculated monthly or upon withdrawal.

Midas msyrupUSD: 13.53%

• msyrupUSD is a tokenized certificate designed to passively reflect the aggregate return profile of a specific, predefined leveraged lending structure within the Maple Finance ecosystem.

• Returns are generated from two core components: the base yield of the underlying Maple product and a variable spread resulting from the difference between the base yield and the applied borrow rate.

• The structure incorporates Pendle Finance to optimize yield, enabling the vault to earn and distribute Drips rewards via Merkl, all while the strategy is overseen by M1 Capital, the designated Risk Manager.

Strata jrUSDe: 21.36% APY

• jrUSDe is a yield-bearing investment product that serves as the junior risk tranche in Strata's structure, designed to offer leveraged upside to the sUSDe APY while acting as a liquid insurance pool for the senior tranche (srUSDe).

• This junior tranche absorbs the sUSDe APY volatility, receiving the residual yield after srUSDe is paid and covering any shortfalls if the sUSDe APY drops below the senior tranche's guaranteed minimum (benchmark rate). Consequently, it delivers higher yields in high-performing environments but is subject to underperformance or even negative returns when sUSDe APY is low.

• The exchange rate (NAV) of jrUSDe can fall below 1 during extended periods of negative yield, as reserves may be allocated to stabilize srUSDe; however, its yield can also be tokenized and traded on Pendle for hedging or speculative purposes.

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Disclaimer: All the information presented in this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.