S&P Global, a leading international rating agency, recently downgraded Tether (USDT)’s stablecoin rating from "Restricted (4)" to "Weak (5)," the lowest level in its rating system.
In its report, S&P cited the main reason for the downgrade as the rising proportion of high-risk assets—such as Bitcoin, gold, and corporate bonds—in Tether’s reserve portfolio, along with an ongoing "information disclosure gap."
Tether CEO Paolo Ardoino responded, "We are proud to be disliked by you." He directly criticized S&P for using "a traditional framework that fails to capture the nature, scale, and macroeconomic significance of digitally native currencies."
01 S&P’s Downgrade: High-Risk Assets and Lack of Transparency
On Wednesday, S&P Global released a ratings report officially lowering Tether’s stablecoin rating to "5 (Weak)," the lowest grade in its assessment framework.
This move publicly highlights the divide between traditional financial rating agencies and major players in the crypto industry.
Since launching its 1-to-5 stablecoin rating system in 2023, S&P has never taken such a tough stance against an industry leader.
The downgrade centers on changes in Tether’s reserve asset structure. S&P’s report specifically notes that, over the past year, Tether has significantly increased the share of Bitcoin, gold, secured loans, corporate bonds, and other investments in its reserves.
S&P classifies these as "high-risk assets" due to their exposure to "credit risk, market risk, interest rate risk, and foreign exchange risk."
More importantly, S&P points out that Tether provides very limited disclosure on these high-risk assets, making it difficult for investors to assess the company’s actual risk exposure.
02 Tether Responds: Critique of Traditional Financial Models
Tether’s response to the rating was notably fierce. In an emailed statement, the company’s spokesperson directly criticized S&P for relying on "a traditional framework that fails to capture the nature, scale, and macroeconomic significance of digitally native currencies."
They also accused S&P of ignoring "clear data demonstrating USDT’s resilience, transparency, and global utility."
Ardoino views S&P’s critical approach as part of a broader resistance from traditional finance toward companies operating outside what he calls a "broken" system.
"When any company tries to challenge the gravity of a broken financial system, the traditional finance PR machine starts to get nervous," Ardoino wrote.
He insists that Tether is fundamentally different, claiming the company is "the first overcapitalized firm in the financial industry" and emphasizing that its reserves contain no "toxic" assets.
Ardoino also defended David Sacks in a social media post, calling attacks against him "baseless."
He noted that the groups targeting Sacks are the same ones that have gone after Elon Musk and Tether, further reinforcing his critical view of the traditional financial system.
03 Reserve Asset Analysis: Strategic Logic and Risks of High-Risk Allocations
Tether’s shift toward high-risk assets is not accidental—it’s a deliberate strategy in response to today’s macroeconomic environment.
With the Federal Reserve maintaining high interest rates, yields on safe assets like U.S. Treasury bonds have risen sharply, which should boost the profitability of stablecoin issuers.
However, Tether has taken a different approach, steadily increasing its allocation to Bitcoin and other alternative investments within its reserves.
This strategy may be driven by a need to maximize returns—as USDT’s circulation exceeds $180 billion, even small increases in yield can translate to substantial absolute profits.
A closer look at the details reveals Tether’s growing Bitcoin holdings are particularly notable. According to Tether’s quarterly attestation report, as of Q1 2025, its Bitcoin holdings surpassed $5 billion.
That’s more than a fivefold increase from less than $1 billion two years ago.
While this allocation delivered significant gains during Bitcoin’s bull run over the past two years, it also introduces risks that run counter to the traditional stablecoin design philosophy.
BitMEX co-founder Arthur Hayes has warned that if the value of Tether’s Bitcoin and gold holdings were to fall by 30%, the company could face bankruptcy risk.
04 Market Impact and Reactions: Capital Flows and Changing Competitive Landscape
S&P’s downgrade has had an immediate impact on the $184 billion USDT market.
Although the USDT price remains firmly pegged at $1, on-chain data shows that within 24 hours of the announcement, there was a notable shift in funds between the USDT/USDC trading pair on centralized exchanges.
Approximately $350 million moved from USDT to USDC. While this capital flow did not trigger panic selling, it indicates that institutional investors and cautious traders are reassessing the relative risks of the two leading stablecoins.
Looking at the broader stablecoin market, S&P’s downgrade may accelerate market fragmentation.
USDT has long maintained its dominance thanks to its first-mover advantage, wide exchange listings, and deep liquidity, but these strengths are now being challenged.
On one hand, regulatory jurisdictions such as the EU, UK, and Singapore are pushing stablecoin issuers to comply with stricter disclosure and reserve requirements.
On the other, institutional investors are increasingly relying on traditional risk assessment frameworks when allocating stablecoins, and S&P’s ratings provide just such a reference point.
05 Transparency Battle: Tether’s History of Controversy and the Current Situation
Tether’s struggle with transparency requirements has persisted for years, and S&P’s downgrade is just the latest chapter.
Looking back, concerns over Tether’s reserve asset verification surfaced as early as 2017, when the company claimed that every USDT was fully backed by one U.S. dollar but failed to provide audit evidence.
In 2019, the New York Attorney General’s office launched an investigation into Tether and its affiliate Bitfinex, resulting in an $18.5 million settlement.
The settlement required regular disclosure of reserve composition. This event marked a turning point for Tether’s transparency, prompting the company to begin publishing quarterly attestation reports in 2021.
However, S&P’s latest assessment shows that Tether’s improvements still fall short of traditional financial market expectations.
S&P specifically notes that "Tether continues to provide limited information on the credit quality of its custodians, counterparties, or bank account providers."
This criticism gets to the heart of the issue—in traditional finance, investors care not only about the quality of the assets themselves, but also about who holds them, under which jurisdiction, and what regulatory protections are in place.
06 Regulatory Outlook: Accelerating Global Stablecoin Standards
S&P’s downgrade of Tether comes as global regulatory frameworks for stablecoins are rapidly taking shape.
The EU’s Markets in Crypto-Assets (MiCA) regulation took effect in June 2024, imposing strict requirements on stablecoin issuers for reserve assets, liquidity management, and information disclosure.
While the U.S. has yet to pass comprehensive federal crypto legislation, the House Financial Services Committee is advancing the Payment Stablecoin Act, with a vote expected in 2025.
These regulatory developments point to a clear trend: stablecoins will face regulatory scrutiny similar to that of banks.
Specifically, reserve asset transparency will be a core focus. Under MiCA, stablecoin issuers must publish monthly reserve audit reports from EU-recognized audit firms.
These reports must detail asset types, credit quality, maturity structure, and custody arrangements.
For Tether, regulatory compliance presents significant challenges. As a company registered in El Salvador, Tether already faces limited direct market access.
With MiCA in force, its operations in the U.S. and Europe will encounter major legal obstacles.
Outlook
The stablecoin market is undergoing a transformation. Data shows that after S&P downgraded USDT, around $350 million shifted from USDT to its competitor USDC. While this movement hasn’t triggered widespread panic, it does signal that the market is reassessing the relative risks of these two major stablecoins.
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