S&P Slashes Tether’s Stability Rating Amid Growing Reserve Concerns

S&P just dropped the hammer on Tether—their stability score got chopped as reserve risks escalate.

Reserve Roulette

The rating agency isn't buying the stablecoin narrative anymore. Not when those reserve assets keep looking shakier by the minute. They're seeing something in those numbers that's making traditional finance types nervous.

Warning Signs Flash

This isn't some minor adjustment—it's a direct response to mounting evidence that Tether's backing might not be as rock-solid as claimed. The move signals deeper concerns about how stablecoins handle market stress when the heat turns up.

Meanwhile, Wall Street keeps pretending they understand crypto while still using fax machines. Tether's latest rating cut proves that when the rubber meets the road, even the biggest players face real scrutiny about what's actually backing those digital dollars.

Key Highlights

• S&P downgrades Tether’s stability assessment to 5 (“weak”), citing increased risk exposure.
• Tether CEO rejects the methodology, citing strong excess reserves and Treasury holdings.
• The downgrade follows S&P’s new collaboration with Chainlink to publish stablecoin ratings on-chain.

S&P Global Ratings has downgraded its stability assessment of Tether’s USDT from 4 (“constrained”) to 5 (“weak”), citing an expanded share of higher-risk assets in the stablecoin’s reserve portfolio. 

The agency’s stablecoin framework measures a token’s ability to maintain its peg to fiat money. Its latest report states that USDT’s growing exposure to Bitcoin, gold, secured loans, and corporate bonds has pushed it into the weakest category.

The rating change

According to the S&P official report, riskier assets now make up 24% of Tether’s reserves, up from 17% last year. Bitcoin alone accounts for 5.6% of USDT in circulation, exceeding the stablecoin’s estimated 3.9% overcollateralization buffer.

S&P warned that sharp drops in these assets could leave USDT undercollateralized, citing “persistent gaps” in disclosures around custodians, valuations, and risk management. 

Tether CEO Paolo Ardoino responded on X, calling S&P’s models outdated: 

to S&P regarding your Tether rating:

We wear your loathing with pride.

The classical rating models built for legacy financial institutions, historically led private and institutional investors to invest their wealth into companies that despite being attributed investment grade…

Lower ratings and mixed allocations

Tether’s latest stability downgrade arrives as USDT supply climbed to new highs last month and market activity accelerated. The stablecoin has maintained its $1 peg despite renewed scrutiny, but analysts caution that short-term price stability does not address longer-term questions about reserve composition or risk exposure.

The reassessment comes as Tether shifts its reserve mix, increasing allocations to bitcoin and gold and restarting secured lending after a temporary reduction. These shifts have renewed debate over whether a larger share of higher-volatility assets raises collateral risks for a stablecoin that now dominates global trading liquidity.

Recent efforts

The downgrade comes weeks after S&P expanded its crypto presence. In mid-October, S&P Global Ratings began publishing its Stablecoin Stability Assessments on-chain through Chainlink’s DataLink, delivering real-time ratings data directly to smart contracts and DeFi platforms. 

The collaboration aims to help automated systems manage collateral risk and integrate institutional-grade analytics.

What to watch next

With the updated assessment, S&P says Tether’s score could improve if it reduces exposure to high-risk assets and strengthens transparency around reserves and counterparties. For now, USDT remains the most widely used stablecoin, but the downgrade is likely to intensify ongoing questions about how its backing holds up under stress.

Also read: Tether Partners With Parfin to Drive USDT Adoption in Latin America