Credit rating agency S&P Global has downgraded Tether’s USDT stability assessment to 5, the lowest level in its scale. S&P Global Ratings pointed out that the proportion of high-risk assets in USDT reserves has risen while transparency remains inadequate, and warned that the stablecoin no longer has sufficient buffer to absorb a Bitcoin decline.

How S&P Rates Stablecoins

S&P began rating stablecoins at the end of 2023. The methodology first focuses on asset-quality risk (credit, market, and custody risk), then examines excess collateral requirements and liquidation mechanisms. Scores range from 1 (strong) to 5 (weak). After the asset-quality assessment, S&P makes adjustments based on five additional areas — governance, legal & regulatory framework, redeemability & liquidity, technology & third-party dependencies, and track record — to arrive at the final 1–5 score. When the framework was first applied, USDT received a 4.

Bitcoin and Other Risk Assets Rise → USDT Downgraded to Worst-in-Class Rating 5

S&P has lowered USDT’s stability rating from the previous “4 (Constrained)” to “5 (Weak)”. The agency stated that the assessment reflects a significant increases over the past year in high-risk assets held in reserves — including Bitcoin, gold, secured loans, and corporate bonds — combined with insufficient disclosure.

Bitcoin alone now accounts for approximately 5.6% of USDT’s circulating supply, exceeding the 3.9% excess collateral safety margin. This means the reserves can no longer fully absorb a Bitcoin price drop. A decline in the value of Bitcoin and other high-risk assets could reduce overall reserve coverage and cause USDT to become under-collateralized.

Additional weaknesses include:

• Limited information provided by Tether about the credit quality of its custodians, counterparties, or banking partners.

• Insufficient reserve-management transparency.

• Lack of asset segregation in case of issuer bankruptcy.

• Restrictions on direct redemptions of USDT through Tether itself.

Tether CEO: “We Wear Your Loathing With Pride.”

Tether CEO Paolo Ardoino reacted with strong dissatisfaction, sarcastically declaring “We wear your loathing with pride.”He posted on X:

USDC Retains Second-Best Rating; Most Stablecoins Still Rank Higher Than USDT

Apart from Circle’s USDC and EURC, which continue to hold the second-highest “2 (Strong)” rating, S&P’s current stablecoin ratings are:

• 2- Strong：EURC、USDC、GUSD、USDP

• 3-Adequate ：EURCv、USDM

• 4- Constrained：FDUSD、USDS、DAI

• 5- Weak：USDT、TUSD、FRAX、USDe

Disclaimer: None of the information contained here constitutes an offer (or solicitation of an offer) to buy or sell any currency, product or financial instrument, to make any investment, or to participate in any particular trading strategy.