S&P Global Ratings Downgrades Tether’s USDT Stability: Cites High-Risk Reserves and Transparency Issues

S&P Global Ratings has announced a significant downgrade to the stability assessment of Tether’s flagship dollar-pegged stablecoin, USDT. The rating for “USDT’s ability to maintain its peg to the US dollar” has been lowered to the lowest possible grade, “5 (Weak).” This critical re-evaluation stems from a growing proportion of high-risk assets within USDT’s reserves, which S&P warns could leave the stablecoin vulnerable during periods of significant market downturns, particularly a sharp drop in Bitcoin prices.

According to S&P, Bitcoin currently constitutes approximately 5.6% of USDT’s reserves. This figure notably surpasses the 3.9% excess reserve buffer that Tether’s quarterly reports suggest. In essence, S&P indicates that Tether’s exposure to Bitcoin is now so substantial that it exceeds the very buffer designed to absorb market volatility.

Under-Collateralization Risk and Rising High-Risk Assets

The rating agency issued a stark warning: should Bitcoin and other high-risk assets experience a simultaneous decline, USDT could face the risk of under-collateralization, potentially failing to fully support its circulating supply. Tether’s “high-risk assets” category, as defined by S&P, includes Bitcoin, gold, secured loans, corporate bonds, and certain investments with limited disclosure. As of September 30th, these assets comprised 24% of Tether’s total reserves, a notable increase from 17% just one year prior.

The “Black Box” Problem: A Call for Transparency

Adding to its concerns, S&P highlighted Tether’s long-standing “black box” issue: a persistent lack of transparency. The report emphasized that external parties continue to lack clear insight into the custodians holding Tether’s assets, the specific counterparties involved, and the intricate details of the asset composition. It is precisely these uncertainties that prompted S&P to lower USDT’s rating from “4 (Limited),” assigned in 2023, to the current lowest grade of “5 (Weak).”

While short-term U.S. Treasury bills and other cash equivalents remain the primary components of USDT’s reserves, S&P criticized this structure for lacking fundamental protective mechanisms typically found in regulated financial markets. Specifically, Tether has not clearly segregated reserve assets from its own corporate funds, and users reportedly lack broad, direct redemption channels.

However, S&P did outline a potential path for an upgrade. Should Tether reduce its exposure to high-risk assets and provide more comprehensive disclosure regarding its reserve details and the creditworthiness of its banking partners, an improved rating could be considered.

Tether’s Fiery Rebuttal: “Proud to be Loathed”

In response to the international credit rating agency’s skepticism, Tether CEO Paolo Ardoino swiftly took to social media, stating that Tether is “proud” to be “loathed” by S&P. He vehemently criticized “traditional rating models” as being inherently designed for what he termed a “broken old financial system.”

Ardoino asserted that Tether is currently “over-capitalized” and “extremely profitable,” suggesting that the company frequently faces unfair treatment simply because it operates outside the confines of traditional finance.

to S&P regarding your Tether rating:

We wear your loathing with pride.

The classical rating models built for legacy financial institutions, historically led private and institutional investors to invest their wealth into companies that despite being attributed investment grade…

— Paolo Ardoino 🤖 (@paoloardoino) November 26, 2025

Tether subsequently issued an official statement, declaring its strong opposition to the qualitative descriptions within the report. The company argued that the report applies an “outdated framework” that “completely fails to capture the essence, scale, and macroeconomic importance of digital-native currencies,” while ignoring “real data demonstrating USDT’s resilience, transparency, and global adoption.”

S&P’s Broader Scrutiny: Bitcoin Liquidity Risk

This is not the first instance of S&P taking aim at companies with significant Bitcoin exposure. The agency has recently intensified its focus on “Bitcoin liquidity risk” across the entire industry. Last month, S&P assigned MicroStrategy a “B-” rating, categorizing it as a non-investment grade “junk bond.” This decision was primarily due to the company’s substantial holdings in Bitcoin, rendering it highly susceptible to market liquidity and severe price fluctuations.

USDT’s Unwavering Market Dominance

Despite the persistent scrutiny from S&P and other critics, Tether’s dominant position in the stablecoin market remains largely unchallenged. USDT currently boasts a circulating market capitalization approaching $185 billion, significantly outpacing its closest competitor, Circle’s USDC, which holds a market cap below $75 billion. This disparity underscores the market’s continued heavy reliance on this often-controversial stablecoin giant.