Tether Faces Scrutiny as Stablecoin Receives Low Rating from S&P

Tether's USDT, the dominant dollar-pegged stablecoin, has recently faced scrutiny after S&P Global downgraded its rating from 4 to 5, marking it as the lowest possible score. This downgrade, which raises concerns about Tether's ability to maintain its peg, reflects significant shifts in the company's reserves, with more volatile assets now comprising 24% of the mix, a rise from 17% in 2024.

Among these, Bitcoin has become a notable component, now making up 5.6% of Tether's reserves, which S&P regards as a risk factor due to Bitcoin's notorious volatility. S&P's report also criticized Tether for a lack of transparency, stating that the company's attestations provide insufficient detail on asset holdings and custodianship, leaving investors with unanswered questions about potential risks.

In response, Tether's CEO, Paolo Ardoino, firmly disagreed with S&P's assessment, arguing that the agency's rating model is outdated and fails to consider Tether's robust track record and its vital role within the crypto infrastructure.

Ardoino emphasized that Tether's reserves primarily consist of short-term U.S. Treasuries and cash equivalents, accounting for 75% of the total reserves, and highlighted the company's excess reserve buffer approaching $30 billion.

He framed the downgrade as a 'badge of honor,' suggesting that the traditional financial system's skepticism toward Tether stems from its innovative nature rather than actual instability. Furthermore, Ardoino pointed out that Tether's total assets at the end of Q3 2025 reached about $215 billion, significantly overshadowing its stablecoin liabilities of approximately $184.5 billion.

Analysts, however, remain divided on Tether's financial health. Some, like market analyst Arthur Hayes, speculate that Tether's investments in Bitcoin and gold are compensatory measures due to declining U.S.

Treasury yields, warning that a steep correction in these assets could lead to insolvency. Conversely, former Citi analyst Joseph Ayoub defended Tether, stating that it operates with excess assets beyond what it publicly reports and generates substantial profits, making it better collateralized than traditional banks.

The stark contrast in opinions highlights the ongoing debate about Tether's stability and the implications of S&P's downgrade for the broader cryptocurrency market.