Bottom of the rankings, why does S&P not recognize USDT?

Written by: KarenZ, Foresight News

On the evening of November 26, S&P Global Ratings released a stability assessment report on Tether, downgrading the rating of Tether (USDT) from level 4 (restricted) to level 5 (weak).

This rating is at the lowest level of the S&P 1-5 rating assessment system, marking a new height of concern regarding the safety of this stablecoin with a circulation exceeding $180 billion.

Why the adjustment?

The downgrade by S&P is not unfounded, but rather based on multiple hidden risks in Tether's reserve asset structure and information disclosure.

1. Bitcoin exposure exceeds the safe buffer.

The core issue lies in the uncontrollable growth of Bitcoin exposure. As of September 30, 2025, the value of Bitcoin held by Tether accounts for 5.6% of the circulating USDT, exceeding the 3.9% excess collateral corresponding to its 103.9% collateralization ratio.

This comparison is particularly thought-provoking: on September 30, 2024, the same indicator was only 4%, lower than the 5.1% excess collateral implied by the then 105.1% collateralization ratio. In other words, Tether's safety buffer is being eroded year by year.

When Bitcoin experienced a significant monthly decline in October and November, this risk transformed from a theoretical threat into a real hazard. If Bitcoin continues to undergo a deeper correction, the value of Tether's reserves may fall below the total value of the issued USDT, leading to an under-collateralization situation. This is no longer a hypothetical scenario for the S&P, but a real risk that needs to be objectively assessed.

2. The proportion of high-risk assets has surged.

From September 30, 2024, to September 30, 2025, the proportion of high-risk assets in Tether's reserves surged from 17% to 24%. These high-risk assets include corporate bonds, precious metals, Bitcoin, secured loans, and other investments, which face credit, market, interest rate, and foreign exchange risks, yet relevant information disclosure remains limited.

At the same time, low-risk assets (short-term U.S. Treasury bills and overnight reverse repos) decreased from 81% to 75%, while high-risk assets expanded accordingly. This intuitively reflects the increasing sensitivity of Tether's reserve portfolio to market volatility.

It is worth mentioning that Tether's enthusiasm for gold is particularly noteworthy. The company purchased 26 tons of gold in the third quarter of 2025, and as of the end of September, it held approximately 116 tons in total. Surprisingly, the gold reserves (12.9 billion USD) have surpassed the Bitcoin reserves (9.9 billion USD), making it its largest non-USD bond asset. Behind this rapid expansion is Tether's strategic intention to hedge against fiat currency devaluation and seek value preservation and appreciation.

Source: Financial Times

3. The regulatory framework is relatively weak.

Tether has moved from the British Virgin Islands to El Salvador and is now regulated by the National Digital Assets Commission of El Salvador (CNAD). Although the CNAD requires a minimum reserve ratio of 1:1, S&P believes there are critical flaws in this framework.

First, the definition of the rules is too broad. CNAD allows relatively high-risk instruments such as loans and Bitcoin to be included in the reserve assets, as well as gold, which has a wide range of price fluctuations. Secondly, there is a lack of requirements for the isolation of reserve assets.

4. Opaque management and lack of information disclosure

S&P has once again emphasized the old adage:

Lack of credit rating information about custodians, counterparties, and bank account providers.

The transparency of reserve management and risk appetite is limited.

After the company expanded into the fields of finance, data, energy, and education, there has been limited public disclosure regarding governance at the group level, internal controls, and the isolation of these activities.

There is no public information regarding the asset isolation of USDT.

Tether CEO's Counterattack

In response to the downgrade, Tether CEO Paolo Ardoino showed his consistent “fighting stance”, with his core logic being: S&P's rating model is designed for the fractured traditional financial system.

He pointed out, “We regard your disdain as an honor. The classic rating models designed for traditional financial institutions have historically misled both private and institutional investors to funnel wealth into certain companies—companies that, although rated investment grade, ultimately collapsed. This situation has forced global regulators to question these models, as well as the independence and objective assessment capabilities of all major rating agencies. Tether, on the other hand, has created the first over-capitalized company in the history of the financial industry, and still maintains a very high level of profitability. Tether is living proof that the traditional financial system has broken down to a degree that makes those hypocritical rulers feel fear.”

This rebuttal is not without reason. In the past, Tether has survived every FUD event. By the first three quarters of 2025, Tether's net profit had reached 10 billion dollars, making it one of the largest holders of U.S. Treasury bonds in the world, with over 135 billion dollars in U.S. Treasury securities—this scale itself is a form of credit endorsement.

Deep thinking

What do stablecoins stabilize?

Tether's strategy to increase exposure to Bitcoin and gold is essentially betting on “fiat currency depreciation.” If future inflation of the dollar spirals out of control, this diversified reserve structure may actually provide more purchasing power stability than a stablecoin backed solely by U.S. Treasury bonds.

However, under the current accounting standards pegged to the US dollar, this practice is destined to be labeled as “high risk.” This exposes a fundamental issue: what exactly should a stablecoin stabilize? The face value of the stable currency, or the actual purchasing power?

The traditional rating system chose the former, while Tether pursued the latter. The evaluation criteria of the two are inherently misaligned.

The confusion between the roles of private enterprises and central banks.

When a private company tries to play the role of a central bank, it inevitably faces the dilemmas that central banks encounter. Tether needs to maintain the safety of its reserves while also pursuing profitability.

Tether's accumulation of Bitcoin and gold is not only a rational choice to hedge against fiat currency risks but also a business consideration for asset appreciation. However, this mixed motivation contradicts the stablecoin's commitment to “ensuring principal safety.”

The parallel worlds of institutions and retail investors

For retail investors, the S&P rating may just be another brief moment of FUD; but for traditional institutions, this could be an insurmountable compliance red line.

Large funds and banks pursuing compliance may turn to USDC or PYUSD, as the latter's assets primarily consist of cash and short-term U.S. Treasury securities, aligning with traditional risk control models. S&P's criticisms of USDT closely align with the requirements of the new U.S. regulatory framework for emerging stablecoins. This difference in standards is directly reflected in the rating differences: S&P assigns a “strong” (level 2) rating to it in December 2024.

Generational differences in rating standards

The crypto world places more importance on “liquidity and network effects”—this is the logic of digital finance in the 21st century. USDT has already proven the resilience of its network effects through 10 years of operation. However, whether a rating system more suited to the characteristics of crypto-native assets will emerge is an open question worth discussing.

Summary

S&P's downgrade of Tether's rating is a warning about the future risks of Tether. As the “liquidity pillar” of the crypto market, any risk exposure of USDT not only concerns its own survival but also affects the healthy development of the entire industry.

However, this will not collapse Tether in the short term, as its massive network effect has created a moat. But it also plants a long-term concern for the market: when a private company tries to support a global value anchoring tool with excessive risky assets, can it still ensure the absolute safety of the principal for its holders?

This issue not only concerns the future of Tether but also involves the sustainability of the entire stablecoin ecosystem. The answer can only be revealed by time.