Crypto’s Most Trusted Stablecoin Given Lowest Possible ‘Weak’ Rating By Major TradFi Agency

Tether’s USDT, the dominant dollar-pegged stablecoin with roughly $185 billion in circulation, took a hit from traditional financial rating powerhouse S&P Global, as it lowered its assessment of USDT’s ability to maintain its peg from 4 to 5, the weakest rung on the scale it is tied to.

S&P originally launched the stablecoin rating framework in 2023 to measure risks such as liquidity, governance and asset backing in the emerging sector. According to their recent report on USDT, Tether reserves have shifted towards more volatile holdings over the past year. These riskier assets, such as bitcoin, gold, collateralized loans and corporate bonds, now make up 24% of the reserve mix, up from 17% in 2024.

One of S&P’s sharpest criticisms of USDT’s downgrade lies in its increasing reliance on Bitcoin in particular as a reserve asset, which now makes up 5.6% of the support, much higher than the 3.9% reserve reserve that Tether itself indicated in its latest quarterly report (PDF). According to S&P, this exposure amplifies the risks associated with Bitcoin’s notorious volatility.

S&P also sees serious issues with transparency in Tether, where stablecoin certificates of issue offer little more than high-profile snapshots, with no details about who holds these assets, how they are held, or what counterparties are lurking in the shadows.

However, Tether’s reserves still rely heavily on short-term US Treasuries and cash equivalents, accounting for 75% of reserves. Despite alleged red flags from S&P, USDT has maintained its $1 peg during several crypto road trips over the years, most notably handling billions in redemptions without a hitch during the collapse of cryptocurrency exchange FTX.

A Tether spokesperson said Reuters The company “strongly disagrees” with S&P’s assessment, which uses an outdated model that ignores USDT’s track record and its role as critical infrastructure in emerging markets.

Tether CEO Paolo Ardoino went even further on X, framing the downgrade as a badge of honor: Tether “wears the S&P disgust with pride,” and thrives as an “overcapitalized” outsider to a flawed old system. “Classic rating models designed for legacy financial institutions have historically led private and institutional investors to invest their wealth in companies that have failed despite having investment-grade ratings,” Ardoino added.

In another post, Arduino pointed to Tether’s recent certification announcement, where the company also claimed to have an excess reserve reserve approaching $30 billion; However, this does not explicitly form part of the current reserves of USDT.

In another post, Ardoino referenced Standard & Poor’s failures during the 2008 financial crisis, depicted by a blind woman in the related film The Big Short. Standard & Poor’s paid a $1.375 billion settlement in a related case with the U.S. Department of Justice regarding allegations that the ratings agency defrauded investors with its ratings of financial products in the run-up to the housing crisis. Notably, Bitcoin itself was originally launched in January 2009, almost as a direct response to the collapse in confidence resulting from the financial crisis.

The S&P would be like https://t.co/gGBOPhrVFX

– Paolo Ardoino 🤖 (@paoloardoino) November 27, 2025

Just weeks before scrutinizing Tether, S&P also assigned a “B-” issuer speculative credit rating on Bitcoin treasury firm Strategy, highlighting the company’s $80 billion-plus bitcoin hoard as a weakness that could cripple debt payments amid market declines. The agency’s outlook remains stable for now, but it points to the strategy’s negative cash flow and Bitcoin concentration as red flags, as do the volatility risks hidden in USDT reserves.

While S&P sees issues with Tether and Strategy uses Bitcoin as a reserve asset, several other well-known institutions, such as the Harvard University Foundation and the State of Texas, are purchasing crypto assets for long-term holding and finding them useful as an apolitical digital store of value.

It’s also worth noting that the S&P index largely focuses on the ability of stablecoin issuers to redeem tokens for dollars in their valuations, so an asset like USDT where the issuer operates more like a bank issuing its own currency doesn’t necessarily fit the mold exactly. In other words, USDT may be viewed negatively by many in the traditional financial system because it operates according to a new standard built on Bitcoin rather than the traditional dollar-based system.