Key Highlights
- S&P downgrades Tether’s stability assessment to 5 (“weak”), citing increased risk exposure.
- Tether CEO rejects the methodology, citing strong excess reserves and Treasury holdings.
- The downgrade follows S&P’s new collaboration with Chainlink to publish stablecoin ratings on-chain.
S&P Global Ratings has downgraded its stability assessment of Tether’s USDT from 4 (“constrained”) to 5 (“weak”), citing an expanded share of higher-risk assets in the stablecoin’s reserve portfolio.
The agency’s stablecoin framework measures a token’s ability to maintain its peg to fiat money. Its latest report states that USDT’s growing exposure to Bitcoin, gold, secured loans, and corporate bonds has pushed it into the weakest category.
The rating change
According to the S&P official report, riskier assets now make up 24% of Tether’s reserves, up from 17% last year. Bitcoin alone accounts for 5.6% of USDT in circulation, exceeding the stablecoin’s estimated 3.9% overcollateralization buffer.
S&P warned that sharp drops in these assets could leave USDT undercollateralized, citing “persistent gaps” in disclosures around custodians, valuations, and risk management.
Tether CEO Paolo Ardoino responded on X, calling S&P’s models outdated:
Lower ratings and mixed allocations
Tether’s latest stability downgrade arrives as USDT supply climbed to new highs last month and market activity accelerated. The stablecoin has maintained its $1 peg despite renewed scrutiny, but analysts caution that short-term price stability does not address longer-term questions about reserve composition or risk exposure.
The reassessment comes as Tether shifts its reserve mix, increasing allocations to Bitcoin and gold and restarting secured lending after a temporary reduction. These shifts have renewed debate over whether a larger share of higher-volatility assets raises collateral risks for a stablecoin that now dominates global trading liquidity.
Recent efforts
The downgrade comes weeks after S&P expanded its crypto presence. In mid-October, S&P Global Ratings began publishing its Stablecoin Stability Assessments on-chain through Chainlink’s DataLink, delivering real-time ratings data directly to smart contracts and DeFi platforms.
The collaboration aims to help automated systems manage collateral risk and integrate institutional-grade analytics.
What to watch next
With the updated assessment, S&P says Tether’s score could improve if it reduces exposure to high-risk assets and strengthens transparency around reserves and counterparties. For now, USDT remains the most widely used stablecoin, but the downgrade is likely to intensify ongoing questions about how its backing holds up under stress.
Also read: Tether Partners With Parfin to Drive USDT Adoption in Latin America
