In a stark warning to the cryptocurrency world, S&P Global Ratings has downgraded Tether’s flagship stablecoin, USDT, to the lowest possible score on its stablecoin stability scale. The move, announced on November 26, 2025, highlights growing concerns over USDT’s reserve composition, particularly its exposure to volatile assets like Bitcoin. With Bitcoin’s price recently tumbling 20% in the past month to around $90,000, S&P analysts cautioned that Tether’s buffers may no longer suffice to weather a further drop, potentially leaving the token undercollateralized.
USDT, the world’s largest stablecoin by market capitalization—exceeding $180 billion—has long been a cornerstone of global crypto trading. Pegged 1:1 to the U.S. dollar, it provides a digital proxy for fiat currency in markets where traditional banking access is limited, such as in emerging economies like Turkey and Nigeria. However, the downgrade underscores persistent fears about the token’s backing, reigniting debates over transparency and risk in the stablecoin sector.
The Downgrade: From ‘Constrained’ to ‘Weak’
S&P’s Stablecoin Stability Assessment scale ranges from 1 (strong) to 5 (weak), evaluating factors like reserve quality, liquidity, redemption mechanisms, and regulatory oversight. USDT’s score has now fallen to 5, down from a previous 4 (“constrained”). Analysts Rebecca Mun and Mohamed Damak cited a “rise in exposure to high-risk assets in USDT’s reserves over the past year,” including Bitcoin, gold, secured loans, corporate bonds, and other opaque investments.
As of Tether’s latest third-quarter attestation in late October 2025, high-risk assets now comprise 24% of reserves, up sharply from 17% a year earlier. Bitcoin alone accounts for 5.6% of USDT in circulation—surpassing the 3.9% overcollateralization buffer that Tether claims provides a safety net. “A drop in the Bitcoin’s value combined with a decline in value of other high-risk assets could therefore reduce coverage by reserves and lead to USDT being undercollateralized,” the S&P report starkly warned.
This isn’t just theoretical. Bitcoin’s recent slide has already tested stablecoin resilience, and S&P noted structural vulnerabilities: no segregation of reserve assets from Tether’s own funds, limited redemption options, and scant details on custodians or counterparties’ creditworthiness. These gaps, S&P argued, echo risks seen in traditional finance but amplified by crypto’s opacity.
| Key Reserve Breakdown (as of Q3 2025) | Percentage of Total Reserves |
|---|---|
| U.S. Treasuries & Cash Equivalents | ~76% |
| High-Risk Assets (BTC, Gold, Loans, Bonds) | 24% |
| – Bitcoin Exposure | 5.6% of USDT Circulation |
| Overcollateralization Buffer | 3.9% |
Source: Tether Attestation & S&P Analysis
Tether’s Defense: ‘Legacy Framework’ Ignores Resilience
Tether wasted no time in firing back. In a statement, the company “strongly disagreed” with S&P’s characterization, calling the assessment a product of a “legacy framework that fails to capture the nature, scale, and macroeconomic importance of digitally native money.” CEO Paolo Ardoino took to X (formerly Twitter), dismissing the downgrade as “legacy finance propaganda” and challenging S&P to use “transparent, on-chain data” instead of outdated models. “We wear your loathing with pride,” Ardoino quipped, emphasizing Tether’s decade-long track record of maintaining the peg through crises like the 2022 FTX collapse and 2023 banking turmoil.
Tether highlighted its profitability—surpassing $10 billion in net profits for 2025—and its role as a holder of over $135 billion in U.S. Treasury bills, making it one of the largest non-state buyers of U.S. debt. With a collateralization ratio of 103.9% (reserves of $181 billion backing $174 billion in circulation), the firm argued it remains overcapitalized and resilient. Despite the drama, USDT’s circulation grew by $1 billion in November alone, reaching $184.4 billion, per CoinGecko data.
Broader Implications for Stablecoins and Crypto
The downgrade places USDT in uncomfortable company: S&P now rates it alongside TrueUSD, which has faced severe reserve access issues. In contrast, rivals like Circle’s USDC hold a “strong” rating of 2, thanks to more conservative reserves and better disclosures. Yet USDT dominates with over 70% market share, underscoring its entrenched utility despite the risks.
This comes amid heightened regulatory scrutiny. The U.S. is advancing stablecoin legislation, while global bodies like the EU’s MiCA framework demand stricter reserve rules. Past scandals—such as Tether’s $41 million CFTC fine in 2021 for misleading reserve claims—loom large. A depegging event could ripple through exchanges, DeFi protocols, and even traditional markets, given USDT’s role in $68 billion daily crypto volumes.
S&P suggested a path forward: reducing high-risk exposure and enhancing disclosures could lift the rating. For now, though, the downgrade amplifies “Tether FUD” (fear, uncertainty, doubt), potentially spurring users toward alternatives like USDC or even CBDCs.
Looking Ahead: Stability in Turbulent Times?
As Bitcoin hovers near six-month lows and crypto winter whispers return, Tether’s fate tests the stablecoin model’s limits. Has the issuer overreached with its Bitcoin bets, or is S&P underestimating digital assets’ maturity? One thing is clear: in a market built on trust, transparency isn’t optional—it’s existential. USDT’s peg has held firm so far, but with reserves increasingly tied to crypto’s wild swings, the next downturn could prove S&P’s pessimism prescient. Investors, watch this space closely.