S&P Global Ratings has issued a significant downgrade to Tether’s USDT, placing the world’s largest stablecoin at the lowest level of its stability scale. The rating agency stated that USDT’s ability to reliably maintain its one-to-one dollar peg is now considered “weak,” marking one of the most serious assessments the stablecoin has received from a major financial institution.
According to S&P, the downgrade stems from structural risks within Tether’s reserve composition. While USDT is marketed as a dollar-backed digital asset, S&P found that its reserves contain a growing share of volatile and non-traditional investments. These include exposure to Bitcoin, gold, secured loans, corporate credit instruments, and other potentially unstable assets. This evolving reserve mix, S&P argues, moves USDT further away from the low-volatility, high-liquidity foundation expected of a strictly pegged stablecoin.
A particularly concerning detail highlighted by the agency is the size of Tether’s Bitcoin holdings. The proportion of Bitcoin in USDT’s reserves has climbed to a level that exceeds what S&P considers a safe buffer for absorbing sudden price swings. If Bitcoin were to experience a major downturn, the knock-on effect could leave USDT’s backing temporarily weakened or, in extreme cases, insufficient during times of market turbulence.
In addition to the composition of reserves, S&P’s report criticized what it called “insufficient transparency” from Tether. Analysts noted that the company does not provide the level of disclosure typically expected in traditional financial markets. Details such as the identity of custodians holding the assets, the full list of counterparties involved in reserve management, and the degree to which customer funds are segregated remain unclear. S&P emphasized that without this information, it is difficult to properly evaluate the true risk profile of the stablecoin.
The agency warned that these factors create vulnerabilities that could become more apparent during periods of financial stress. If volatile assets such as Bitcoin or certain corporate instruments were to drop sharply in value, Tether could face a scenario where its reserves fall short of its circulating supply—raising questions about redemption reliability and price stability.
Tether strongly rejected S&P’s assessment, calling the downgrade misleading and unreflective of the company’s actual performance. In its response, Tether argued that USDT is fully backed and has proven its resilience repeatedly, even during times of severe market volatility. The company pointed to its long-running redemption record and high global usage as evidence that USDT continues to function reliably despite criticism.
Tether further argued that the rating does not consider the real-world liquidity and adoption that the stablecoin has gained across multiple regions and industries. According to the company, USDT remains a critical tool for millions of users, including traders, remittance providers, and individuals in emerging markets who rely on stablecoins as a buffer against inflation and currency instability.
Still, S&P’s downgrade lands at a time when regulators and policymakers are increasingly scrutinizing stablecoins. Concerns around reserve quality, transparency, and systemic risk have intensified as stablecoins grow in size and become more interconnected with global markets. The assessment of USDT—given its dominance in trading volume and market share—could influence how regulators approach oversight of the broader stablecoin sector.
The downgrade also raises broader questions for investors and institutions that rely on USDT for liquidity. While the stablecoin remains widely used across exchanges and decentralized platforms, a lower stability rating may prompt some market participants to diversify into alternative stablecoins perceived as more transparent or conservatively backed.
Overall, S&P’s report highlights a growing tension within the stablecoin industry: the balance between profitability, transparency, and the strict risk-management frameworks required to maintain public confidence. Whether Tether will adjust its practices in response remains unclear, but the latest assessment will likely fuel ongoing debate about the reliability and long-term sustainability of USDT in a rapidly evolving crypto ecosystem.
Source: Cointelegraph Edited by Sonarx