S&P Global Ratings has downgraded its stability assessment of Tether's USDT stablecoin to 5, the weakest level on its scale, citing a significant rise in riskier reserve assets and insufficient buffers to absorb potential declines in bitcoin's value. The agency highlighted that bitcoin now constitutes approximately 5.6% of USDT's circulating supply, exceeding the 3.9% reserve buffer indicated in Tether's latest third-quarter attestation from October.
Riskier assets in Tether's reserves, including bitcoin, gold, secured loans, corporate bonds, and other investments with limited disclosure, climbed to 24% as of September 30, up from 17% a year earlier. S&P emphasized that these exposures, combined with persistent transparency gaps regarding custodians, counterparties, and asset composition, drove the downgrade from last year's 'constrained' score. While a large portion of reserves remains in short-term U.S. Treasuries and cash-like assets, S&P criticized the lack of basic investor protections, such as segregated reserve assets and straightforward redemption access.
The agency noted that the stability assessment could improve if Tether reduces its high-risk asset exposure and enhances disclosures on reserve composition and the creditworthiness of banking and custody partners. Despite the downgrade, Tether maintains its dominance as the largest U.S. dollar–pegged stablecoin, with a circulating supply of nearly $185 billion, far surpassing Circle's USDC at under $75 billion.
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