S&P downgrades USDT to the lowest rating, Tether CEO retorts: We take pride in being disliked by you.

The global authoritative rating agency S&P Global downgraded Tether's (USDT) stablecoin rating from “Restricted (4)” to “Weak (5)” on Wednesday, which is the lowest level in the rating system. S&P pointed out that the main reason for the downgrade is the increased proportion of high-risk assets such as Bitcoin, gold, and corporate bonds in Tether's reserve assets, along with a “persistent information disclosure gap.” Tether's CEO Paolo Ardoino responded vigorously, stating, “We take pride in being disliked by you,” and accused traditional rating models of being unable to assess the value of digital native currencies. Currently, the Circulating Supply of USDT has reached $184 billion, continuing to lead the global stablecoin market.

The Rating Controversy: The Direct Conflict Between S&P and Tether

S&P Global released a rating report on Wednesday, officially downgrading the rating of Tether stablecoin to the lowest level “5 (Weak)” in its assessment system, marking the public divergence between traditional financial rating agencies and crypto industry giants. This is the first time S&P has taken such a harsh evaluative stance towards the industry leader since establishing its 1 to 5 level stablecoin rating system in 2023. The rating framework primarily assesses the reliability of stablecoins from dimensions such as the quality of reserve assets, transparency, regulatory compliance, governance structure, and operational risks, and Tether has failed to meet S&P's expected standards across multiple dimensions.

The core basis for the downgrade decision is the change in Tether's reserve asset structure. S&P specifically emphasized in the report that Tether has significantly increased the proportion of Bitcoin, gold, secured loans, corporate bonds, and other investments in its reserve assets over the past year. These asset classes are classified by S&P as “high-risk assets” due to their exposure to multiple challenges including “credit risk, market risk, interest rate risk, and foreign exchange risk.” More importantly, S&P pointed out that Tether's disclosure of these high-risk assets is extremely limited, making it difficult for investors to assess the actual level of risk exposure, which sharply contrasts with the disclosure standards for asset-backed securities in the traditional financial sector.

Tether's response to the rating results has been fierce. A company spokesperson stated in an email declaration that S&P used a “traditional framework that fails to capture the nature, scale, and macroeconomic importance of digital native currencies” and ignored “data that clearly demonstrates the resilience, transparency, and global utility of USDT.” This tough stance continues Tether's consistent confrontational style, but it is noteworthy that Tether has positioned itself for the first time as a “systemically important financial infrastructure” for emerging market countries, elevating the level of debate and attempting to shift the discussion from mere reserve asset transparency to a broader narrative of financial inclusivity.

Tether reserve assets and rating key data

Current rating: 5 (Weak) - The lowest level of the S&P stablecoin rating system.

Previous rating: 4 (restricted)

USDT Circulating Supply: approximately 184 billion USD

Reserve asset categories: US Treasuries, Bitcoin, gold, corporate bonds, secured loans, etc.

S&P concerns: Rising proportion of high-risk assets, missing custodian information, limited disclosure

Tether Reserve Asset Perspective: Strategic Logic and Risks of High-Risk Allocation

It is not a coincidence that Tether's reserve assets are tilted towards high-risk categories; rather, it is a proactive choice in the current macroeconomic environment. As the Federal Reserve maintains a high interest rate policy, the yields on safe assets such as traditional U.S. Treasuries have significantly increased, which should enhance the profitability of stablecoin issuers. However, Tether has gone against the trend by continuously increasing the allocation of cryptocurrencies like Bitcoin and alternative investments in its reserves. This strategy may be driven by an urgent need to enhance yields—after the circulating supply of USDT surpassed $180 billion, even a slight increase in the interest rate spread can bring considerable absolute returns.

From the analysis of asset allocation details, Tether's increased holding of Bitcoin is particularly noteworthy. According to Tether's quarterly certification report, as of the first quarter of 2025, its Bitcoin holdings are valued at over USD 5 billion, which is more than a fivefold increase compared to less than USD 1 billion two years ago. Although this allocation has brought significant paper profits during the Bitcoin rising cycle over the past two years, it has also introduced risks that contradict the traditional stablecoin design philosophy. The core value proposition of stablecoins is price stability, while Bitcoin, as a high-volatility asset, experiences dramatic price fluctuations that could threaten the anchoring mechanism of USDT, especially under extreme market conditions, potentially raising doubts about the adequacy of reserves.

The allocation of gold and corporate bonds also faces transparency challenges. S&P specifically emphasized in its report that Tether failed to provide sufficient information for the market to assess the credit quality and liquidity status of these assets. Taking corporate bonds as an example, Tether has never disclosed the issuers of the bonds it holds, their credit ratings, term structures, or concentration of holdings, making it impossible for outsiders to gauge its credit risk exposure. Gold, as a physical asset, faces issues of custody verification and valuation consistency. These disclosure gaps are unimaginable in traditional finance, but have become the norm in the crypto industry, and S&P's downgrade decision essentially negates this industry practice.

The Transparency Game of Tether: Historical Controversies and Current Status of Information Disclosure

The game between Tether and transparency requirements has been ongoing for many years, and this S&P downgrade is just the latest chapter. Looking back at history, Tether raised market concerns as early as 2017 due to issues with proof of reserve assets, claiming that each USDT was fully backed by 1 USD, but failing to provide audit proof for a long time. In 2019, the New York Attorney General's office launched an investigation into Tether and its affiliated company Bitfinex, ultimately settling for $18.5 million and mandating regular disclosure of reserve composition. This incident became a turning point in Tether's transparency process, prompting it to start releasing quarterly attestation reports from 2021.

However, S&P's latest assessment indicates that Tether's improvements in transparency have still not met the expectations of traditional financial markets. S&P specifically pointed out that “Tether continues to provide limited information regarding the credit quality of its custodians, counterparties, or banking partners.” This criticism hits the nail on the head— in traditional finance, investors are not only concerned about the quality of the assets themselves, but are also extremely focused on who is safeguarding these assets, under what jurisdiction, and what regulatory protections are in place. As a company registered in El Salvador, Tether's chosen custodial institutions and banking partners are mostly located in jurisdictions with relatively lenient regulatory environments, which in itself increases operational risks.

From an industry comparative perspective, Tether's main competitors have adopted different strategies regarding transparency. Circle's USDC undergoes comprehensive audits by top global auditing firms on a regular basis, and it discloses the composition and custody arrangements of its reserve assets in detail. Paxos's stablecoin products also adhere to strict disclosure standards, even proactively publishing the list of their custodian banks and audit reports on their official website. This differentiated strategy has led S&P to assign a “2 (Strong)” rating to USDC, significantly higher than USDT's “5 (Weak)”. The market is voting with funds—despite USDT maintaining a scale advantage, USDC's acceptance among institutional investors continues to rise, reflecting that a transparency premium is being formed.

Market Impact Analysis: Signals of Restructuring the Stablecoin Landscape

The S&P downgrade decision had an immediate impact on the USDT market, which has a total scale of $184 billion. Although the price of USDT remains firmly pegged to $1, on-chain data shows that within 24 hours of the announcement, there was a significant shift in funds in the USDT/USDC trading pairs on centralized exchanges, with approximately $350 million moving from USDT to USDC. While this capital flow did not trigger a panic sell-off, it indicates that institutional investors and cautious traders are beginning to reassess the relative risks of the two major stablecoins. Decentralized finance (DeFi) protocols were also affected, with several mainstream lending platforms announcing they are considering adjusting the collateral discount rate for USDT.

From a broader perspective of the stablecoin competitive landscape, S&P's downgrade may accelerate the market differentiation process. USDT has long maintained its market dominance thanks to its first-mover advantage, widespread exchange listings, and liquidity depth, but this advantage is being challenged. On one hand, jurisdictions with clear regulations, such as the EU, the UK, and Singapore, are pushing stablecoin issuers to adhere to stricter disclosure and reserve requirements; on the other hand, institutional investors are increasingly relying on traditional risk assessment frameworks when allocating stablecoins, and S&P's ratings provide exactly such a reference. If Tether does not significantly improve its transparency practices, it may gradually lose market share among high-demand institutional clients.

Emerging stablecoin models may also benefit from this event. Stablecoins fully backed by cash and short-term government bonds, such as USDC and USDP (Pax Dollar), are expected to attract more risk-averse users. Algorithmic stablecoin projects take the opportunity to promote their “trustless reserve” value proposition, even though such projects have their own different risk characteristics. Even advocates of central bank digital currencies (CBDCs) are using this event to emphasize the reliability of official digital currencies. This diversified competitive landscape is generally beneficial for the healthy development of the industry, but in the short term, it may increase market complexity and user education costs.

Regulatory Trends Outlook: Global Stablecoin Standards Accelerate Formation

The S&P's downgrade decision for Tether comes against the backdrop of the accelerating formation of a global regulatory framework for stablecoins. The EU's Markets in Crypto-Assets (MiCA) regulation will take effect in June 2024, imposing strict reserve asset requirements, liquidity management, and disclosure standards on stablecoin issuers. Although the U.S. has yet to pass comprehensive federal crypto regulations, the House Financial Services Committee has been advancing legislation on the “Stablecoin Payments Act,” which is expected to be voted on in 2025. These regulatory developments point to a clear trend: stablecoins will face a regulatory intensity similar to that of banking institutions.

From the perspective of specific regulatory requirements, the transparency of reserve assets will become a core focus. The MiCA regulation requires stablecoin issuers to regularly (at least monthly) publish reserve audit reports issued by EU-recognized auditing firms, detailing the types of assets, credit quality, term structure, and custody arrangements. The bill proposed in the United States also includes similar disclosure requirements and additionally emphasizes that reserve assets must primarily consist of cash and cash equivalents, with strict limits on the allocation of high-risk assets. These regulatory standards are highly consistent with the concerns emphasized by S&P in its ratings, indicating that the assessment framework of traditional finance is becoming the technical basis for regulatory policies.

For Tether, the regulatory compliance path faces severe challenges. As a company registered in El Salvador, Tether's directly serviceable markets are already limited, and with the implementation of the MiCA regulations, its operations in the US and Europe will face significant legal obstacles. Unless Tether can significantly improve its transparency practices and adjust its reserve asset structure, it may be forced to exit these key markets. This pressure has already been reflected in Tether's recent strategic adjustments—the company has started to communicate more actively with regulators, hire executives with traditional financial backgrounds, and explore establishing a dual-headquarters model in more friendly jurisdictions. However, whether these efforts can persuade S&P and regulators remains to be seen.

S&P's decision to downgrade Tether to a “weak” rating is more than just a rating adjustment; it represents a clash of ideologies between traditional financial evaluation frameworks and crypto-native business models. When Tether's CEO responded with “we take pride in being hated by you,” the conflict between these two financial paradigms reached a new peak. The core of this debate has transcended whether USDT is sufficiently transparent and touched on deeper questions: how should digital native financial assets be evaluated? Can traditional rating models fully grasp the unique logic of the crypto economy? As stablecoins transition from marginal experiments to a path of systemic importance, the answers to these questions will reshape the trajectory of global monetary flows. In the coming year, as the MiCA regulation is fully implemented and U.S. stablecoin legislation progresses, this dialogue between Tether and S&P will continue to resonate in regulatory halls and market trading desks, with the final outcome potentially determining which stablecoin model can earn trust in the next cycle.