Tether’s USDT—widely recognized as the largest and most influential dollar-pegged stablecoin in the cryptocurrency ecosystem, with an expansive circulation nearing $185 billion—has recently come under renewed scrutiny from the traditional financial establishment. The latest blow came from S&P Global, one of the most authoritative and long-standing credit rating agencies in conventional finance, which issued a downgrade of USDT’s capacity to maintain its one-to-one dollar peg. The agency lowered its stability assessment from level 4 to level 5, marking the weakest possible rating within its proprietary evaluation system.
S&P first introduced its stablecoin rating methodology back in 2023 as a structured framework for assessing risks inherent in digital tokens intended to mirror real-world fiat currencies. This framework focuses on critical parameters such as liquidity management, transparency of governance, and the reliability of asset backing. In its most recent report dedicated to USDT, S&P emphasized that Tether’s reserve composition has undergone a noteworthy transformation over the past year, with a growing share of its reserves now allocated to more volatile and less predictable assets. These include bitcoin, physical gold, secured lending instruments, and corporate debt obligations—collectively amounting to roughly 24% of the company’s total holdings, compared to 17% a year earlier in 2024. This shift, according to the agency, signals an increasing risk profile relative to the stablecoin’s fundamental objective of maintaining parity with the U.S. dollar.
Among the most pointed critiques within S&P’s downgrade was Tether’s increasing exposure to bitcoin as part of its reserve portfolio. That allocation has risen to 5.6%, significantly surpassing the 3.9% reserve buffer Tether itself disclosed in its most recent quarterly attestation report. S&P argued that such exposure introduces amplified volatility risk, considering bitcoin’s fluctuating market behavior and its reputation for rapid and often unpredictable price swings. The agency contends that this dependency undermines USDT’s nominal stability, as even modest shifts in bitcoin’s price could reverberate through the overall reserve adequacy.
Beyond concerns regarding asset composition, S&P directed attention to enduring transparency issues at Tether. While the company periodically publishes attestations of its reserves, S&P criticized these attestations for their lack of granularity and independent scrutiny. Specifically, they provide high-level overviews but fail to reveal critical details—such as which financial institutions actually hold the assets, how custody arrangements are structured, or what specific counterparties are involved in Tether’s reserve management. This perceived opacity, according to the rating agency, leaves investors without sufficient information to fully evaluate the robustness of Tether’s financial foundation.
Despite these criticisms, S&P did acknowledge that a substantial majority of Tether’s reserves still consist of conservative and highly liquid instruments, namely short-term U.S. Treasury bills and cash equivalents, which account for approximately 75% of the total reserve base. These assets are traditionally regarded as among the safest in global finance, offering immediate convertibility and low credit risk. Furthermore, despite repeated waves of skepticism and numerous episodes of market tumult, USDT has consistently managed to defend its dollar peg—even during moments of acute stress, such as during the dramatic collapse of the FTX cryptocurrency exchange. On that occasion, Tether processed billions of dollars in redemptions smoothly, without destabilizing the broader market or breaking the peg.
In response to the downgrade, a Tether spokesperson told Reuters that the company firmly disagrees with S&P’s evaluation. The spokesperson described the rating model as outdated and ill-suited for assessing a digital asset that has already proven its resilience and functional importance as financial infrastructure, particularly in developing economies and emerging markets where USDT serves as a critical access point to the global dollar system.
Tether’s chief executive officer, Paolo Ardoino, took to social media platform X to add a more defiant tone. He portrayed S&P’s downgrade not as a setback, but rather as a symbolic victory against a legacy financial order that has historically failed its own standards. Ardoino asserted that Tether “wears S&P’s loathing with pride,” positioning the company as an overcapitalized disruptor that challenges the entrenched inefficiencies and biases of the traditional banking system. He went on to note that classical rating methodologies—originally designed for legacy institutions—misled investors during past financial crises by assigning investment-grade ratings to companies that ultimately collapsed, an implicit reminder of S&P’s own blemished historical record.
In a separate post, Ardoino drew attention to Tether’s latest attestation report, which referenced an additional reserve surplus approaching $30 billion. Although this excess capital functions as a form of internal buffer, he clarified that it is not counted directly within the reserves formally backing USDT. He used this point to underscore Tether’s financial strength relative to many traditional institutions that lack such liquidity cushions.
Taking a more philosophical tone, Ardoino posed a provocative question to the public: whom should the market trust—an agency like S&P, whose reputation was irreparably tarnished during the 2008 global financial crisis, or the decentralized transparency of bitcoin itself? He pointed to S&P’s well-documented role in that period, noting that the company ultimately paid a $1.375 billion settlement to the U.S. Department of Justice over allegations that it misled investors in the run-up to the housing market collapse. Ardoino reminded audiences that bitcoin was launched in early 2009, in direct response to that same erosion of faith in financial institutions.
Notably, only a few weeks before scrutinizing Tether, S&P also issued a speculative ‘B-‘ credit rating for a bitcoin-focused holding company, Strategy, whose vast $80 billion-plus bitcoin treasury was cited as both a defining strength and a systemic vulnerability. While S&P’s outlook on the company remains technically stable, it characterized Strategy’s heavy bitcoin concentration and negative cash flow as significant red flags—parallels that echo its broader apprehension regarding USDT’s exposure to digital assets.
Interestingly, while S&P remains doubtful about the prudence of using bitcoin as a reserve component, numerous prominent institutions outside the crypto-native sphere have adopted a strikingly different stance. Esteemed organizations such as the Harvard University Endowment and the state of Texas have incorporated bitcoin into their long-term holdings, viewing it as a non-sovereign, apolitical store of value—an emerging form of digital gold that transcends national currencies and traditional monetary structures.
Ultimately, it is important to recognize the philosophical divergence underlying this debate. S&P’s framework is primarily designed to assess a stablecoin issuer’s capacity to redeem tokens for U.S. dollars in a strict fiduciary sense—essentially, its reliability as a proxy for the banking model. Tether’s operational approach, however, functions more akin to a private issuer of an alternative, crypto-native currency rather than a conventional deposit institution. Consequently, USDT’s negative evaluation by S&P stems at least in part from a structural mismatch: the agency is applying an old-world analytic lens to an entirely new form of financial architecture, one built upon decentralized principles and the utilitarianization of bitcoin as a foundational reserve standard. This tension—between legacy regulatory expectations and innovation-driven monetary systems—continues to define the frontier of global finance.
Sourse: https://gizmodo.com/tether-usdt-sandp-downgrade-2000693464
