S&P Global Ratings Downgrades Tether's USDT Due to Concerns Over High-Risk Reserves

Quick Breakdown

• S&P Global Ratings downgraded Tether, highlighting rising high-risk exposure inside its reserve structure.
• The score cut to “weak” places USDT among the most vulnerable stablecoins in the market.
• Tether takes industry-and regulatory-aligned steps, strengthening compliance and improving overall stability and reach.

S&P Downgrades Tether as Reserve Risks Rise

S&P Global Ratings has changed its rating of Tether’s ability to hold its peg to the US Dollar. In a report by Rebecca Mun and Mohamed Damak, S&P cut Tether’s USDT to the lowest level on its five-point stablecoin scale. The agency dropped its stability score from “4 (constrained)” to “5 (weak)” after noting a sharp growth in Tether’s exposure to high-risk reserve assets, pointing to what it described as a “rise in exposure to high-risk assets in USDT’s reserves over the past year and persistent gaps in disclosure.”

S&P Global Ratings Assessment. Source: S&P Global

This action placed USDT in the same risk group as troubled competitors such as TrueUSD, even though USDT still leads the global stablecoin market with more than $180 billion in circulation. S&P’s latest review said the downgrade was driven mainly by a steady increase in Tether’s holdings of assets that carry strong market and credit volatility.

The subsidiary noted that in the period between 2022 and 2023, Tether’s reserve management appeared to have undergone a shift toward greater risk-aversion and liquidity, a change that, at the time, earned USDT a “4 (constrained)” rating.

Between late 2022 and early 2023, Tether was accused of cutting its commercial-paper holdings to zero, increasing its use of short-term US Treasury bills and cash equivalents, and reducing secured-loan exposure.

S&P’s warning arrives during a wider market downturn where Bitcoin price dropped from a late-July high of about $122,800 to $90,474 by the end of November, a fall of more than 26%. The decline sped up through September and October as spot Bitcoin ETFs recorded over $4.3 billion in outflows and the market broke through key support levels at $110,000 and $100,000.

Beyond exposure to market risk, S&P highlighted deeper structural gaps in Tether’s transparency and governance. Its report mentioned limited clarity around custodians, banking partners, and counterparties. It also calls its reserve-management methods, risk-tolerance levels, valuation practices, and plans for absorbing losses unclear.

S&P said that reserve categories like corporate debt, gold, and secured loans are shared with minimal detail, even though they carry credit, foreign-exchange, and interest-rate risks. S&P also raised concerns about regulatory inconsistencies.

Tether is headquartered in El Salvador under a digital-asset service provider license from the National Commission of Digital Assets of El Salvador (CNAD). However, the report argued that this framework does not meet the regulatory standards used in the United States or Europe.

S&P explained that the jurisdiction does not enforce strict asset segregation to protect client funds if an issuer fails, and it also allows assets such as Bitcoin and gold in reserve portfolios. These are not permitted under stricter frameworks such as those set out in new US stablecoin rules.

From Past Stability to Present Vulnerabilities

Even with the downgrade, S&P Global Ratings recognized that Tether has shown strong price stability throughout amid downturns in crypto prices.

USDT redeemed smoothly during events such as the Terra/UST crash in May 2022. At that time, Bitcoin fell from about $38,000 to under $27,000, and USDT briefly touched $0.94 before gaining back its peg. It also held steady near $0.99 during the FTX and Alameda collapse in November 2022, even as bitcoin fell from around $21,000 to $16,000.

The token stayed near its peg during the US banking crisis in March 2023 as well. It dipped only to about $0.998 while USDC fell to $0.87 after $3.3 billion of its reserves were locked at Silicon Valley Bank.

S&P added that during the latest downturn, USDT has continued to hold its peg, reinforcing the token’s long history of stability even though concerns remain over its reserve makeup. This pattern of stability strengthens Tether’s stance in debates about risk exposure.

CEO Paolo Ardoino wrote on X that skepticism from traditional ratings agencies is expected and framed the downgrade as a mismatch between legacy evaluation tools and digital asset infrastructure. He added that classical credit-rating models have failed repeatedly in traditional markets and argued that USDT’s widespread adoption demonstrates stronger liquidity than S&P’s assessment suggests.

Even with these disagreements, S&P said Tether’s rating could improve if it lowers its high-risk exposure and increases visibility around custodians, partners, and the detailed structure of its reserves. At the same time, Tether is making moves toward stronger institutional compliance and clearer transparency.

Tether Advances with Industry and Regulatory Compliance Moves

On November 25, Tether announced a new collaboration between its tokenization platform, Hadron by Tether, and the blockchain analytics firm Crystal Intelligence. This agreement will provide Hadron users with enterprise-level analytics and compliance tools. The tools include AML checks, on-chain forensic tracking, transaction-monitoring systems, and risk-scoring features designed specifically for tokenized real-world assets.

“Secure and compliant infrastructure is essential for real-world asset markets to operate at scale,” said Paolo Ardoino, CEO of Tether. “Institutional participation depends on systems that combine transparency, accountability, and resilience.”

Tether’s new compliance focus follows a long period of strained relations with regulators in the United States. In 2021, the CFTC fined Tether and Bitfinex USD 42.5 million for misleading statements about USDT’s backing and ordered them to stop certain activities in the US market. Since then, USDT has stayed barred from the US retail sector, which pushed Tether to work from less strict jurisdictions such as El Salvador.

Now with new regulatory developments in place, including the US stablecoin rules known as the GENIUS Act, Tether is preparing a US-aligned stablecoin called USAT. Tether described USAT as a fully dollar-backed token to help US customers experience a fast fiat-to-crypto onramp with stronger regulatory backing.

Conclusion

Tether’s new compliance strategy, which includes Hadron’s partnership with Crystal Intelligence and the planned launch of USAT, shows a clear shift toward stronger regulation and more transparent reserve practices. Still, the downgrade to a “weak” score of 5 shows that trust issues and reserve-mix risks continue to weigh on the company.

The coming quarters will reveal whether USAT’s rollout and Tether’s new systems can show consistent improvement and whether USDT can keep its dominance as scrutiny grows from rating agencies and regulators.