S&P Global Ratings has lowered its stability assessment of Tether's
USDT
stablecoin from "constrained" to "weak," assigning it the lowest rating on its 1–5 scale for stablecoin risk evaluation. This action highlights increasing unease about Tether’s involvement with high-risk assets such as
Bitcoin
, gold, secured loans, and corporate bonds, as well as ongoing shortcomings in transparency regarding reserve management and risk strategy. The downgrade brings renewed attention to the world’s largest stablecoin, as its reserves increasingly consist of less liquid and more volatile assets, raising doubts about its capacity to consistently maintain its peg to the U.S. dollar.
The ratings agency pointed out that Bitcoin now makes up about 5.6% of USDT’s $184.4 billion supply,
exceeding the 3.9% overcollateralization buffer
. According to S&P, this means the reserves are no longer sufficient to fully offset potential drops in Bitcoin’s value. Analysts Rebecca Mun and Mohamed Damak cautioned that a decline in Bitcoin prices, together with losses in other risky holdings, could reduce the coverage ratio and leave USDT “undercollateralized.” This vulnerability is heightened by Bitcoin’s recent 30% fall from its record highs, marking its weakest monthly performance since the 2022 crypto downturn.
In addition to Bitcoin, Tether’s reserves include $12.9 billion in gold and corporate bonds, all of which present credit, market, and liquidity risks.
S&P called attention to the lack of transparency
regarding the credit quality of Tether’s custodians, banking partners, and counterparties, as well as the absence of asset segregation to safeguard against insolvency. The agency also criticized restrictions on direct redemption of USDT tokens and the lack of comprehensive regulatory oversight for the stablecoin’s operations.
This downgrade comes at a time when
Tether
is diversifying its reserves beyond cash and U.S. Treasuries, a move that has attracted increased scrutiny from regulators worldwide. Although the company has managed to keep USDT’s price relatively stable during periods of crypto market turbulence, the pivot toward riskier assets raises the potential for systemic risk, especially if market conditions worsen. Tether has not issued a public statement regarding the downgrade, but has previously claimed that USDT offers “stability, transparency, and global accessibility.”
The consequences for the stablecoin sector are considerable. USDT’s leading role in cross-border payments and decentralized finance (DeFi) means that any loss of trust in its stability could spark broader liquidity issues.
Regulators are already investigating
stablecoin reserves, with the U.S. Securities and Exchange Commission (SEC) and the European Union’s MiCA regulations both pushing for tighter collateral standards. S&P’s evaluation could intensify demands for regulatory transparency as investors seek stronger assurances about the security of stablecoin reserves.
At present, Tether’s ability to manage these risks will depend on how well it can balance the pursuit of higher-yielding assets with the imperative of maintaining stability. The downgrade acts as a warning that the crypto sector’s dependence on opaque collateral arrangements may not be viable in a market that is increasingly risk-averse.
