Tether’s USDT stability score cut to 'weak' level as S&P says reserves can’t absorb bitcoin drop

S&P Global Ratings downgraded its stability assessment of Tether's USDT to 5, the weakest level on its scale, citing a rise in riskier reserve assets and warning that the stablecoin no longer has sufficient buffer to absorb a decline in bitcoin's value.

The agency said bitcoin now represents about 5.6% of USDT in circulation, more than the roughly 3.9% reserve buffer implied by Tether’s latest third-quarter attestation, published at the end of October. That means a material drawdown in bitcoin, especially if combined with losses in other high-risk holdings, could leave USDT undercollateralized, S&P said.

Tether’s riskier assets, which include bitcoin, gold, secured loans, corporate bonds, and other investments with limited disclosure, climbed to 24% of reserves as of Sept. 30, up from 17% a year earlier. S&P said those exposures, along with persistent gaps in transparency around custodians, counterparties, and asset composition, drove the revision further down from last year's "constrained" score.

A big portion of USDT's reserves is still held in short-term U.S. Treasuries and other cash-like assets, but S&P said the way those reserves are structured lacks basic investor protections seen in regulated markets, such as keeping reserve assets separate from the company’s own funds and allowing broad, straightforward redemption access.

S&P did, however, note that the stability assessment could improve if Tether reduces its exposure to high-risk assets and provides fuller disclosures about reserve composition and the creditworthiness of its banking and custody partners.

Tether CEO Paolo Ardoino rejected the assessment in a post on X, saying Tether “wears S&P’s loathing with pride” and criticized what he called legacy rating models built for a “broken financial system.” He said Tether is “overcapitalized,” “extremely profitable,” and unfairly targeted for operating outside traditional finance.

Bitcoin-linked fragility

The agency is increasingly focused on bitcoin-linked liquidity risk across the sector.

Last month, S&P assigned the Michael Saylor-chaired bitcoin treasury company Strategy a B-minus issuer credit rating, noting that its balance sheet is overwhelmingly tied to bitcoin and vulnerable to a sharp price drop. The speculative-grade rating placed Strategy in the same bucket as stablecoin issuer Sky Protocol and reflected what S&P described as shared exposure to liquidity and market-volatility shocks.

Despite the risks flagged by S&P, Tether remains by far the dominant U.S. dollar–pegged stablecoin, with a circulating supply of nearly $185 billion. Its next-largest competitor, Circle's USDC, has a market cap of under $75 billion.