S&P Global Ratings has downgraded USDT, the world’s largest stablecoin, to its lowest stability score, citing heightened risk exposure and transparency issues, a move vehemently rejected by issuer Tether.
The agency reclassified USDT’s capacity to maintain its dollar peg to “weak,” assigning it a Category 5 rating. This marks a decline from its previous Category 4 (“with restrictions”) assessment issued in December 2023.
S&P pointed to increased exposure to Bitcoin and other assets carrying credit and market risk within Tether’s reserves. The ratings firm also highlighted a persistent lack of transparency regarding the valuation of these assets and the credit quality of their custodians.
Tether representatives swiftly criticized S&P’s analysis, calling its methodology “obsolete.” The company defended USDT’s resilience, transparency, and global utility, asserting that the report failed to account for the digital asset’s unique nature and scale.
According to S&P, 5.6% of Tether’s funds are allocated to Bitcoin, exceeding the stablecoin’s 3.9% over-collateralization margin. The agency warned that a sharp decline in Bitcoin’s price, or other risk-bearing assets like gold, corporate bonds, and secured loans, could potentially lead to USDT becoming under-collateralized. S&P’s reference report cited Bitcoin’s price at USD $89,900.94.
Despite recurring market concerns, often dubbed “Tether FUD,” S&P acknowledged that USDT has consistently maintained its parity with the U.S. dollar. This consistent peg has been a key argument for Tether in defending its product to analysts and regulators.
USDT currently boasts a market capitalization exceeding USD $180 billion. It functions as a critical bridge between the U.S. dollar and the broader cryptocurrency ecosystem, particularly in regions where direct access to U.S. currency is limited.
Tether’s most recent reports indicate that U.S. Treasury bonds and other highly liquid assets constitute 77% of its reserves. The company had previously pledged to remove secured loans from its reserve composition by the end of 2023. However, these loans still represent 8% of the backing, totaling more than USD $14 billion, according to a recent certification by BDO Italia.
This continued presence of alternative assets raises potential challenges for Tether’s compliance with new U.S. legislation. The GENIUS Act, approved this year, mandates that stablecoins maintain a 1:1 backing in short-term government bonds or other highly liquid market assets.
Tether argued that S&P’s assessment overlooks USDT’s significant macroeconomic role and its widespread global adoption. The company insists that its diversified reserve structure is a deliberate architecture designed to support operations across expanding crypto markets, not an uncontrolled risk.
The downgrade intensifies an ongoing debate within the cryptocurrency ecosystem about the fundamental soundness of dominant stablecoin backing mechanisms. It also adds pressure on issuers as international regulators increasingly push for more stringent standards. Any sustained deviation from USDT’s dollar peg could trigger systemic impacts across global cryptocurrency markets.