S&P Global Ratings has downgraded Tether's USDt to the lowest tier of its stablecoin stability scale, raising doubts about the token’s capacity to reliably maintain its one-dollar peg. The agency flagged Tether’s reserve composition, limited transparency, and regulatory environment as primary drivers behind the "weak" rating.
According to S&P, a significant portion of Tether’s reserves include assets that carry materially higher volatility than cash or short-term government securities. The agency highlighted Bitcoin, gold, corporate bonds, and secured loans as sources of structural risk. It noted that Bitcoin accounts for 5.6% of the total assets backing USDt—an amount that exceeds Tether’s 3.9% overcollateralization margin. In its assessment, S&P wrote that a sharp decline in Bitcoin or other volatile assets could materially reduce collateral coverage, narrowing the buffer that protects the peg.
While Tether maintains that 75% of USDt’s backing is comprised of low-risk assets such as U.S. Treasurys and short-term financial instruments, the absence of full audits and insufficient proof-of-reserve disclosures contributed heavily to the downgrade. Tether rejected the report as "misleading," arguing that S&P overlooked USDt’s real-world durability, scale, and global relevance. CEO Paolo Ardoino questioned the usefulness of traditional rating methodologies, pointing out that highly rated legacy financial institutions have collapsed despite receiving strong scores from agencies.
Investor Takeaway
S&P’s downgrade highlights an old fault line: USDt remains the dominant liquidity engine in crypto, but its reserve mix and audit gaps continue to raise institutional concerns.
Risks Highlighted in USDt’s Reserve Structure
The ratings agency provided a detailed breakdown of USDt’s backing, emphasizing that several reserve components are inherently sensitive to market swings. Among the factors cited:
- •Bitcoin exposure above buffer limits: Bitcoin holdings now exceed the margin designed to preserve a 1:1 peg during stress.
- •Gold reserves subject to macro volatility: Tether holds 116 tons of gold—assets that, while valuable, carry price risk.
- •Private loans remain opaque: S&P flagged Tether’s lending practices as insufficiently transparent and potentially higher-risk.
- •Corporate bonds and non-cash assets: Bond market fluctuations can impact short-term liquidity backing USDt.
The agency also pointed to the regulatory framework surrounding Tether. The company is headquartered in El Salvador and subject to oversight by the National Commission of Digital Assets (CNAD), which maintains lighter requirements for reserve composition compared to the U.S. or EU. Despite these concerns, S&P acknowledged that Tether’s core backing—mainly U.S. Treasurys—remains largely low-risk. The issue, it said, lies in the "incremental vulnerabilities" created by volatile components layered on top of that base.
The Significance of the Timing: A Landmark Year for Stablecoins
The downgrade lands during one of the most consequential periods in stablecoin history. The global market cap has surpassed 300 billion dollars, and regulatory frameworks are accelerating across the U.S., Europe, and parts of Asia. In the U.S., the Trump administration has begun prioritizing stablecoins as tools for maintaining global dollar influence while encouraging private-sector participation. This political and economic backdrop adds weight to S&P’s rating.
Analysts note that as stablecoins increasingly intersect with macroeconomic policy, the transparency and quality of reserve assets will face heightened scrutiny. The rating comes at a moment when USDt remains the backbone of global crypto liquidity. With roughly 184 billion dollars in circulation, it dwarfs competitors and serves as the primary settlement asset across offshore exchanges, OTC desks, and cross-chain ecosystems. Any sustained erosion of confidence in USDt’s collateral strength could have broad effects on market structure, liquidity, and pricing dynamics across trading pairs.
Investor Takeaway
Tether’s scale makes it systemically important to crypto markets. Even minor questions about reserve composition can affect liquidity conditions across exchanges worldwide.
Tether's Growing Macroeconomic Influence
Beyond the downgrade, Tether’s balance sheet reveals a powerful macroeconomic footprint. CEO Paolo Ardoino noted that the company now holds more than 112 billion dollars in U.S. Treasurys, making it the 17th-largest holder globally—surpassing sovereign nations including Saudi Arabia, Germany, and South Korea. The firm also maintains substantial gold reserves and operates one of the most active mint-and-redeem facilities in the digital asset space.
These developments have led some observers to argue that Tether increasingly resembles a synthetic central bank—one capable of influencing liquidity flows, collateral markets, and cross-border dollar demand. Tether rejects that analogy but acknowledges that its role continues to expand as stablecoins become more deeply integrated into global financial networks. The S&P downgrade is unlikely to affect USDt’s immediate market dominance. But as the stablecoin sector matures—and as regulators move to standardize disclosures and reserve quality—Tether’s portfolio composition will remain under the microscope.