Tether’s ability to maintain its dollar peg was downgraded by the S&P Global Ratings agency, citing a dangerous shift toward riskier assets in the world’s largest stablecoin’s reserves.
On Tuesday, the rating agency reassessed Tether to 5, labeled “weak,” from 4, labeled “constrained.” The Stablecoin Stability Assessment now puts Tether in the same category as TrueUSD, which has lost access to nearly all its reserves.
Meanwhile, Tether’s largest competitor, Circle’s USDC, holds an S&P rating of 2, labeled “strong.”
“Bitcoin now represents about 5.6% of USDT in circulation, exceeding the 3.9% overcollateralisation margin,” the S&P wrote. “A drop in Bitcoin’s value combined with a decline in value of other high-risk assets could reduce coverage by reserves and lead to USDT being undercollateralised.”
Tether’s reserve strategy has shifted dramatically.
High-risk assets including Bitcoin, gold, secured loans, and corporate bonds now account for 24% of total reserves, up from 17% in September 2024. Bitcoin exposure has also grown to 5.6% of circulation, exceeding the safety buffer for the first time. A Bitcoin crash combined with losses in other risky assets could leave USDT undercollateralised.
And the problem is that in the past month, Bitcoin has crashed by 20%.
The reserves problem
Tether maintains around $181 billion backing about $174 billion of USDT in circulation.
Most reserves sit in short-term US Treasury bills at 64% and Treasury-backed repos at 10%. But it’s that remaining 24% in high-risk assets that worries the S&P.
These assets are “subject to credit, market, interest-rate, and foreign-exchange risks,” with limited disclosures, according to the report.
Moreover, the opacity extends beyond asset types. Tether provides limited information on the creditworthiness of its custodians, counterparties, or bank account providers — despite promises by management to help combat the use of USDT in illicit activities.
“There is limited public disclosure on group-level governance, internal controls, and the segregation of activities,” the S&P wrote.
Regulatory concerns
Tether moved to El Salvador from the British Virgin Islands in 2025, securing a digital asset service provider license.
But the S&P considers El Salvador’s framework less robust than standards in the US or Europe. The country presided by Nayib Bukele allows for high-risk assets like Bitcoin and gold to be part of their reserves and doesn’t mandate asset segregation to protect against issuer insolvency.
Despite the downgrade, Tether remains largely profitable.The company generated $10 billion in profits over the first three quarters of 2025,and already in 2024 it had bested some of Wall Street’s best performing funds with a $13 billion profit last year.
