- S&P Global Ratings cut Tether’s USDT to its weakest stability score, warning that falling prices of riskier reserve assets like Bitcoin could leave the stablecoin undercollateralized.
- The agency highlights limited transparency, lax regulation in El Salvador and constraints on primary redemptions, despite most reserves being held in short‑term U.S. Treasuries and cash equivalents.
- Tether strongly disputes S&P’s assessment, pointing to its decade‑long track record, massive Treasury and gold holdings and growing global adoption of USDT.
- The downgrade revives broader concerns around stablecoin risk management and the systemic role of USDT at the core of the crypto economy.
For years, USDT has been treated in crypto markets almost like digital cash, a go‑to parking spot for traders who want dollar exposure without touching a bank. But a fresh move by S&P Global Ratings has put the stablecoin’s foundations under a much brighter spotlight, raising questions about how robust that dollar peg really is under stress.
The credit rating agency has lowered its view of USDT’s ability to stay tied one‑to‑one to the U.S. dollar to the bottom of its internal stability scale. In plain language, S&P is saying that market, credit and liquidity risks in Tether’s reserves are high enough that the token’s stability could be challenged if conditions turn rough.
S&P’s downgrade: why the peg is now seen as “weak”
According to S&P Global Ratings, USDT’s current structure justifies the lowest possible score on its stablecoin stability ladder. The rating agency argues that in certain market scenarios, the composition of the reserves backing USDT could undermine its capacity to keep trading at one dollar.
USDT is marketed as a token backed by a mix of cash, U.S. Treasury bills and other assets, so that each unit can be redeemed for a dollar. On paper, Tether’s latest attestation shows a collateralization ratio of about 103.9%, meaning the company reports more assets than liabilities: roughly 181.2 billion dollars in reserves for about 174.4 billion USDT in circulation as of late September 2025.
The problem, from S&P’s perspective, is not only the size of the reserves but their makeup. Around 75% of the backing is held in short‑term U.S. Treasuries and similar low‑risk instruments with an average maturity under 90 days, plus reverse‑repo agreements also secured by Treasuries. The remaining chunk, however, is where the rating agency sees trouble.
S&P stresses that roughly a quarter of USDT’s reserves are tied up in assets it classifies as higher‑risk, with incomplete public detail on the exact breakdown. That risk bucket includes Bitcoin, gold, secured loans, corporate debt and other investments sensitive to swings in credit spreads, interest rates, exchange rates and crypto volatility.
In its analysis, S&P notes that Bitcoin alone represents about 5.4-5.6% of USDT’s reserves, which already exceeds the 3.9% over‑collateralization buffer that sits above the 100% threshold. Their assessment is blunt: if the price of Bitcoin or other volatile assets in the reserve pool drops sharply, the extra cushion could disappear and USDT might slip into an undercollateralized position.
Beyond pure market risk, the agency also flags structural weaknesses. S&P underlines what it calls limited transparency around how reserves are managed, who holds the assets and what the risk appetite really is, along with the absence of a robust regulatory regime comparable to what governs traditional money‑market funds.
Another concern is primary market access. Not every USDT holder can redeem tokens directly with Tether for dollars under any conditions; redemptions typically require going through the issuer with verification and minimum thresholds, or using exchanges and intermediaries. For S&P, those constraints are a vulnerability if a large wave of holders tries to exit at once.
Risky assets, regulation in El Salvador and the role of Bitcoin and gold
One of the central pillars of S&P’s downgrade is the way Tether has reshaped its reserve portfolio over the past year. While low‑risk government paper still dominates, the share of higher‑volatility assets has increased from about 17% of reserves to roughly 24%, according to the data cited in the report.
That shift reflects a deliberate choice by Tether to hold Bitcoin, physical gold, secured lending, corporate bonds and other yield‑bearing or speculative positions, a trend that echoes discussions about reserve strategies and FX management. From a crypto‑native angle, these assets may look like a hedge or a way to diversify away from fiat exposure. From a traditional ratings lens, they simply add layers of risk to something that is supposed to be boring and predictable.
The agency takes a particularly dim view of the Bitcoin allocation, which has grown from around 4% to more than 5.5% of circulating USDT. Because that slice alone is larger than the entire over‑collateralization margin, a steep drawdown in BTC prices could erase the buffer and put pressure on the peg if redemptions spike at the same time.
Gold, which Tether has accumulated to the tune of about 116 tonnes held in reserve, is also cited as a double‑edged sword. On the one hand, gold is a centuries‑old store of value. On the other, its price can move significantly over short periods, especially in times of macro turmoil—precisely when a stablecoin is expected to be most reliable.
On the regulatory side, S&P points out that Tether is now headquartered in El Salvador and licensed by the National Commission of Digital Assets (CNAD). The agency argues that these rules are more permissive regarding what qualifies as acceptable reserve assets than regimes currently under discussion or in force in the United States or the European Union.
Unlike some regulated stablecoin issuers that must provide monthly reserve reports, Tether publishes attestations on a quarterly basis, most recently reviewed by BDO Italia. S&P acknowledges these steps but still considers the level of disclosure “limited”, especially when it comes to the solvency of custodians, counterparties and banking partners, and how reserves would be handled in the event of an issuer insolvency.
Past frictions with regulators also weigh on sentiment. U.S. commodities authorities have previously fined Tether after concluding that earlier claims about its backing were misleading, noting that reserves at times included loans and other crypto assets rather than being fully in cash or cash equivalents. For S&P, that history, combined with today’s complex mix of assets, reinforces the need for stronger oversight and clearer separation between client assets and the issuer’s own balance sheet.
Tether’s response: “misleading report” and confidence in USDT’s track record
Tether has pushed back forcefully against S&P’s downgrade. In statements to the press, the company said it “strongly disagrees” with the agency’s characterization of USDT and considers the report misleading in how it portrays the stablecoin’s resilience and importance.
According to the issuer, USDT has been live for more than a decade and has weathered banking crises, exchange failures, liquidity crunches and violent market sell‑offs without breaking down. Tether emphasizes that throughout this period, the token has kept its peg in secondary markets and that verified users have always been able to redeem when they needed to.
The firm insists that no verified customer has ever had a redemption request denied, arguing that real‑world redemption behavior is a more meaningful signal of stability than a theoretical model run by a rating agency. In its view, the practical capacity to meet outflows during stress events speaks louder than external scores.
Chief executive Paolo Ardoino has gone further, questioning the relevance of traditional rating methodologies when applied to digital money. On social platform X, he remarked that Tether “wears their disdain with pride”, pointing out that legacy rating models once handed investment‑grade labels to institutions that later collapsed, triggering questions from regulators about the agencies’ independence and objectivity.
To counter the image of fragility, Tether underscores its scale in traditional markets. Ardoino highlights that the company is now the 17th‑largest holder of U.S. Treasuries globally, with more than 112 billion dollars in short‑term U.S. government securities—placing it ahead of several advanced economies such as Germany, South Korea or Saudi Arabia in terms of Treasury exposure.
The issuer also leans on USDT’s steadily growing adoption across exchanges and everyday use cases. Trading volumes remain enormous: on a typical day, tens of billions of dollars’ worth of USDT change hands worldwide, and its circulating supply has continued to climb, even after the downgrade. For Tether, that persistent demand reflects market confidence that goes beyond the view of any single rating house.
USDT’s central role in crypto markets and past de‑pegs in the sector
USDT today is not just another token; it is the most traded digital asset on the planet and the third‑largest crypto by market capitalization. On many exchanges, it is the main quote currency, functioning as the base asset against which thousands of trading pairs are priced.
Because of that ubiquity, traders rely on USDT as a bridge in and out of volatile positions without needing to wire fiat through banks. In a large part of the world, from Latin America to parts of Asia and other emerging markets, the token also serves as a de facto vehicle for accessing U.S. dollars when local currencies are unstable or capital controls make official dollar accounts expensive or inaccessible.
As a result, the stability of USDT is not just a technical curiosity—it is a systemic issue. Any sustained loss of the peg would ripple across exchanges, lending platforms and DeFi protocols that treat the token as a near‑risk‑free asset. S&P’s downgrade therefore taps into a much broader question: how much risk can a core stablecoin carry before it stops being perceived as “cash‑like”?
The industry has already seen what happens when confidence in a stablecoin erodes. In 2023, USDC—another major dollar‑pegged token—briefly traded down to around 87 cents after its issuer, Circle, revealed that part of its cash reserves were held at Silicon Valley Bank, which was shut down by California regulators following a bank run. Although the peg was eventually restored, the episode showed how quickly sentiment can turn.
Even more dramatic was the collapse of Terra’s algorithmic stablecoin UST in 2022, which failed to maintain its dollar peg and triggered roughly 40 billion dollars in losses across the ecosystem. That failure set off a chain reaction of bankruptcies and forced regulators around the world to pay far closer attention to the systemic risks posed by stablecoins.
USDT is structurally very different from an algorithmic design like UST, since it is backed by external assets rather than relying solely on market incentives. Still, S&P’s message is that the combination of riskier reserves, limited transparency and constrained redemption channels could leave USDT exposed if global markets were to experience a sudden shock.
Transparency gaps, reporting frequency and regulatory blind spots
In its commentary, S&P goes beyond market risk and dwells on governance. The agency lists several concerns: limited visibility into reserve management policies, an unclear risk appetite, and no comprehensive segregation of client assets to shield them from issuer insolvency.
Tether’s quarterly reserve reports—while more detailed than what it used to publish in its early years—are still considered insufficient by many in the traditional finance world. S&P contrasts this with other stablecoin issuers that must produce monthly breakdowns under specific regulatory regimes, arguing that faster and more granular disclosures would give investors more confidence.
The agency also highlights that Tether is not currently covered by major frameworks like proposed U.S. stablecoin laws or the European MiCA regulation. After relocating its legal base from the British Virgin Islands to El Salvador in 2025 and securing a digital asset service provider license there, Tether now operates under a set of rules that S&P deems less stringent on reserve composition and investor protections.
One illustration of this regulatory mismatch is Europe. Because USDT does not align with MiCA’s reserve and disclosure requirements, the token has been delisted from several European platforms, shrinking its formal footprint in the region even as it continues to thrive elsewhere.
For S&P, that patchwork of jurisdictions and the absence of an overarching supervisory framework raise questions about how redemptions, asset liquidation and investor claims would be prioritized in a stress or default scenario. Without clear, enforceable rules, much would depend on Tether’s discretionary decisions and the legal environment of the moment.
Supporters of stricter oversight argue that a token with such outsized importance for global crypto liquidity should be subject to standards closer to those of regulated money‑market funds or even narrow banks, particularly regarding daily liquidity, eligible collateral and reporting obligations.
Why many users still trust USDT despite ratings and regulatory warnings
All of this raises an obvious question: if agencies and regulators keep sounding alarms, why does USDT remain so dominant and continue to grow? The answer lies largely in how people actually use the token on the ground.
In regions hit by inflation, currency devaluation or capital controls, USDT often plays the role of an accessible, fast and relatively cheap gateway to dollar stability. For small businesses, freelancers and savers in these markets, holding USDT on a phone can feel more practical than maintaining a traditional bank account subject to fees, delays and unpredictable rules.
For professional and retail traders alike, USDT functions as the default liquidity hub. It is listed on almost every major exchange and integrated into countless trading pairs, making it simple to move in and out of positions around the clock. As long as the token continues to trade very close to one dollar on open markets, most users tend to privilege convenience and accessibility over the finer points of reserve composition or credit models.
This gap between institutional risk metrics and user behavior creates a kind of paradox. From S&P’s vantage point, USDT carries enough embedded risk to warrant a “weak” rating on peg stability. From the perspective of many market participants, the token keeps doing its job: it holds around a dollar, redemptions work, and liquidity is deep.
Tether’s management seems acutely aware of this divide. The company has gradually moved from providing simple “certifications” to commissioning more detailed attestation reports from recognized accounting firms, but it has stopped short of delivering the full, continuous audits demanded by some critics and agencies. In practice, the firm appears to be betting that user trust—earned through day‑to‑day usability—matters more to its future than external ratings.
At the same time, Tether is exploring new products that would fit into stricter frameworks. Paolo Ardoino has mentioned plans to launch a U.S.‑compliant stablecoin tailored to emerging American regulations, even as he has repeatedly argued that the company has no intention of seeking authorization under Europe’s MiCA rules, which he considers too restrictive on reserves.
That dual approach suggests that Tether is trying to balance two worlds: a crypto‑native environment comfortable with some volatility and experimentation, and a more tightly regulated financial system that prioritizes capital preservation and risk controls over yield or innovation.
A stablecoin caught between risk, hedging and systemic importance
Behind the downgrade there is also a philosophical clash over what a stablecoin should be. For S&P and most of traditional finance, the ideal design is straightforward: reserves concentrated in ultra‑liquid, low‑risk instruments like short‑term government debt and cash, minimal exposure to market swings, and highly predictable behavior under stress.
Tether, by contrast, has increasingly embraced Bitcoin and gold as part of its strategic reserve mix. Supporters of this approach argue that adding scarce, non‑sovereign assets can act as a hedge against the long‑term debasement of fiat currencies, especially in a world of aggressive money printing and rising public debt levels.
From that viewpoint, a reserve made up only of Treasuries and cash would fall in value along with the dollar if confidence in fiat money were to deteriorate, while a blend including BTC and gold could, in theory, retain or even enhance its purchasing power in a systemic fiat crisis. In other words, short‑term volatility is the price paid for potential long‑term resilience.
Critics counter that this logic is ill‑suited to something that calls itself a “stable” coin. They warn that if Bitcoin or gold were to experience a deep and sudden crash, the very assets meant to hedge against fiat weakness could amplify short‑term losses, undermining the peg at the worst possible moment—during a panic.
That tension—between serving as a conservative cash proxy and acting as a hedge against fiat risk—sits at the heart of today’s debate. As stablecoins grow and their combined market capitalization exceeds 300 billion dollars, they increasingly resemble systemic financial utilities rather than niche crypto tools, which naturally draws scrutiny from regulators, rating agencies and central banks.
Meanwhile, USDT continues to expand its footprint. Estimates suggest that Tether now accounts for more than 60% of the entire stablecoin market, and its supply has recently climbed again, with an increase of roughly one billion dollars reported in a single month. Price‑wise, the token has remained relatively close to one dollar in recent years, even though it has occasionally wobbled during sector‑wide shocks like the Terra/Luna meltdown in 2022.
Legal disclaimers attached to many of the analyses around USDT underscore a final point: none of these reports or opinion pieces constitute investment advice. Every participant—from retail users to large institutions—has to weigh the benefits of liquidity and accessibility against the risks associated with the underlying structure and governance of the stablecoin.
Viewed together, S&P’s downgrade, Tether’s robust rebuttal, and the unshaken popularity of USDT paint a picture of a market at a crossroads: a dominant stablecoin operating with a growing mix of traditional and crypto‑native reserves, a ratings industry applying legacy frameworks to digital money, and a global user base that seems, at least for now, more persuaded by daily functionality than by formal scores. How that balance evolves will be crucial for the broader crypto ecosystem, where the line between “stable” and “risky” is being redrawn in real time.
