USDT Rating Controversy: S&P’s "Stability Measure," Tether's "Market Debate," and the Transformation into a "Shadow Central Bank"

Article Authors: May P, Janus R

Source: CoinFound

About CoinFound: CoinFound is a TradFi Crypto data technology company serving institutional and professional investors, providing services such as RWA asset data terminals, RWA asset ratings, Web3 risk relationship graphs, AI analysis tools, and customized data. From data integration and risk identification to decision support, helping institutions access key intelligence at lower costs and higher efficiency, transforming it into actionable insights, and building the underlying infrastructure for global RWA.

Takeaway

• USDT Rating Downgrade and Controversy: Non-peg assets (such as BTC and Gold) in USDT reserves account for about 24%, combined with insufficient governance and transparency, leading to increased perceived risk under traditional finance frameworks and a rating downgrade. The USDT rating downgrade has sparked controversy.
• Tether Significantly Increasing Gold and Bitcoin Ratios: Aiming for inflation hedge, asset diversification, reducing USD exposure, and enhancing yields, Tether has been steadily increasing its holdings of gold and Bitcoin reserves in recent years.
• The Essence of S&P and Tether Disagreement: Traditional finance’s risk perception centers on “ability to meet obligations,” focusing on “reserve liquidation capacity under extreme runs”; Tether emphasizes “market liquidity priority” and long-term preservation of value and risk resistance (especially inflation risk). Their risk measurement dimensions are fundamentally different.
• Strategic Intent Behind Tether’s Reserve Transformation: Tether’s reserve model is shifting from a “1:1” cash equivalent reserve to a mixed mode of “hard assets (gold) + digital assets (BTC) + low-risk assets (U.S. Treasuries).” Essentially, this is a transition from a “stablecoin issuer” to a “global liquidity provider + digital asset reserve organization,” driven by inflation hedging needs, pro-cyclical yield boosting (e.g., the predicted 2025 BTC/gold bull market), and de-dollarization strategies. In fact, Tether is becoming more like a “shadow central bank” rather than just a simple stablecoin issuer.
• Limitations of Current Rating Systems: S&P’s “stability rating” covers “repayment risk” but cannot respond to investor demands for “asset appreciation potential” and “cyclical resilience.” Future markets may require more multi-dimensional risk ratings, perhaps combining “stability rating (regulation + repayment)” and “investment risk rating (returns + cycles)” in a dual framework to connect traditional and crypto financial risk perceptions.
• Short-term Risks and Long-term Trends for USDT: USDT’s peg stability is still supported by on-chain liquidity. However, in the short term, the 24% of high-volatility assets (BTC/gold/loans) in reserves may expose risks during the 2026 rate cut cycle and potential crypto bear markets (e.g., during 2025, Tether’s books show huge unrealized gains from holdings of gold and Bitcoin, but this may change in 2026). Over the long term, the trend of “central banking” for stablecoins (inflation hedge assets + global network + energy) will push the industry towards “transparency + standardization.”

1. Event Review: The Controversy and Essence of S&P Downgrading USDT

1.1 Timeline and Core Contradiction

In November 2025, S&P Global downgraded USDT’s “asset/stability assessment” from “constrained” to “weak,” citing two main reasons:

• Reserve Structure Risk: The proportion of high-volatility assets (BTC, gold, loans, etc.) in Tether’s reserves has reached about 24% (only 12% in 2023); such assets cannot be quickly liquidated in a panic run scenario.
• Lack of Governance Transparency: Major custodians and on-chain collateralization details are undisclosed, and only quarterly guarantee reports are provided rather than full independent audits.

Tether’s counterattack focused on “actual market performance” and questioned the traditional finance rating approach:

• Resilience history: USDT maintained its peg through 8 extreme events, including FTX collapse in 2022, Silicon Valley Bank crisis in 2023, and tightening crypto regulation in 2024.
• Transparency lead: Since 2021, USDT has provided “real-time reserve data” (verifiable on-chain addresses), with quarterly guarantee reports covering over 95% of assets, outperforming some traditional money market funds.

(Chart 1: USDT Rating Downgrade Event Review)

1.2 The Core of the Dispute: Collision of Two Risk Measurement Systems

In November 2025, S&P Global Ratings downgraded USDT’s stability assessment to the lowest level “weak.” Tether responded publicly, accusing S&P of “clinging to outdated frameworks,” neglecting the multiple extreme stress tests USDT has endured over the past decade. This dispute is not just about a rating but a direct clash of two financial civilizations.

• S&P represents a: “Regulation - Capital Adequacy - Repayment Capacity” system
• Tether represents a: “Market Liquidity - Global Trading Demand - On-chain Instant Settlement” system
• Their risk assessment approaches are fundamentally different, making consensus impossible. The debate appears as a “stability rating” spat but is essentially two worlds’ entirely different understandings of risk.
• S&P and Tether come from different realms: one from 100-year traditional finance, the other from a 10-year high-frequency on-chain market. S&P relies on “central bank—bank—money market fund” logic; Tether depends on “on-chain liquidity—perpetual leverage—insurance funds—auto liquidation” logic.

Tether’s logic is currently unattainable by traditional financial markets.

1.3 What S&P Sees: The Traditional Finance’s Redemption Logic

Within the traditional finance framework, all “promise-to-pay 1:1 tools” (money funds, commercial banks, stablecoins) must meet two hard conditions:

1. Reserves must be highly safe and immediately liquid: S&P notes that BTC, gold, and loan assets in Tether’s reserves exceed 20%, which are volatile and have long liquidation cycles, potentially unable to be quickly sold at face value in a panic.
2. Governance must be transparent, custodial arrangements transparent: S&P considers Tether’s custodian info, on-chain collateralization, and risk disclosures insufficient.

In other words, in S&P’s world: The key risk of a “stablecoin” is whether it can hold its peg when everyone redeems simultaneously—that is the “redeemability” in traditional terms.

1.4 What Tether Insists On: The Liquidity Logic of Crypto World

If stability in TradFi comes from “reserves sufficient, fast, and safe,” then Tether’s stability depends on “maintaining huge on-chain liquidity, absorbing market risk, and sustaining price anchors in secondary markets.” In other words:

• TradFi measures stability by “redemption capacity,” while crypto measures it by “market liquidity + settlement stability.”
• Tether’s decade-long record (including multiple panic episodes) shows that USDT de-peg events are often caused not by “insufficient reserves,” but by “short-term secondary market liquidity imbalance,” which has always been quickly fixed.

Why does Tether fiercely counter? Because it adheres to a different “market logic.” Tether emphasizes three points in its response:

1. USDT has maintained 1:1 peg under all extreme sentiments: including multiple exchange collapses, Fed rate hikes, tightening regulations, bank runs, etc. From Tether’s perspective, “I am not just theoretically stable, but have actually operated for ten years without de-pegging. The real rating of stablecoins is given daily by the market, not by models.”
2. Real-time reserve data + quarterly proof reports are sufficiently transparent: Tether believes it surpasses some shadow banks or MMFs in traditional finance. But S&P does not recognize “real-time web disclosures” because their methodology considers “unaudited transparency as insufficient.”
3. BTC/gold are “inflation-hedging assets + strategic reserves,” not high-risk exposures: In 2025, BTC and gold surged, generating huge unrealized gains (over $10 billion). This effectively forms a “hard assets + UST + loans + digital assets” hybrid central bank-like model. Tether sees itself as “like a country’s central bank reserves; my structure is not the traditional US dollar system but a new global asset basket.” But S&P’s view is “you are not a central bank, just a token issuer promising 1:1 redemption.”

1.5 Why Do Both Sides Have Completely Conflicting Understandings of “Risk”?

It reveals a key fact: crypto markets and TradFi have entirely different risk-bearing logics.

• Arthur Hayes published an article on Nov 27 about perpetual contracts, which exemplifies a typical case where traditional and crypto finance cannot fully fuse. In TradFi, forward contract risk stems from “unlimited recourse liability.” In TradFi, delayed liquidation, margin calls, or negative equity require additional funds (margin call)—even using personal assets—necessitating high-quality reserves.
• In crypto finance, risk is managed by “insurance funds + auto liquidation + ADL.” Losses are not borne by traders infinitely; liquidation surplus funds, liquidation fees, ADL (automatic deleveraging), and exchange’s own capital act as backstops. The result is traders usually only lose their margin, not owe debts. Crypto markets are more tolerant of high volatility assets because of this structure.

This is the core of the divergence between S&P and Tether: S&P measures “traditional finance risk,” i.e., “if everyone runs, can you meet redemptions?” While Tether addresses “crypto risk,” i.e., “in a 24/7 high-volatility environment, can I ensure trading, liquidity, and high-frequency global usage?” They are not the same dimension.

2. Tether’s Reserve Transformation: From “Stablecoin” to “Shadow Central Bank” Strategy

2.1 Time Series Changes in Reserve Structure (2023-2025)

2.2 Why Increase Bitcoin and Gold Ratios? Balancing Procyclical Yields and Long-term Strategy

Tether’s reserve restructuring (2023-2025) is driven by a “收益 - 风险 - 战略” (yield - risk - strategy) tripartite consideration:

1. Inflation Hedge Demand: From 2022 to 2024, Fed rate hikes caused the USD’s purchasing power to decline (US CPI from 2% to 8%), making gold (a traditional inflation hedge) and BTC (digital gold) core assets for inflation protection.
2. Procyclical Yield Enhancement: In 2025, BTC price rose from $40,000 to $65,000 (+62.5%), gold from $1900/oz to $2500/oz (+31.6%), with unrealized gains accounting for 70% of Tether’s net profit in the first nine months of 2025 (only $3 billion from U.S. Treasury interest).
3. De-dollarization Strategy: Tether’s USD reserves decreased from 75% in 2023 to 55% in 2025, increasing gold and BTC holdings to reduce dependence on USD alone (counter US debt ceiling crisis and global de-dollarization trend).

2.3 Profit Structure “Sweet Spot and Hidden Risks”: Risks in Cyclical Upswing

Tether’s 2025 performance (over $10 billion net profit in nine months) appears stellar, but its profit structure heavily depends on a “bull market cycle”:

• Stable income: About $13.5 billion from US Treasury interest (2025 yield ~2.2%), contributing roughly $3 billion.
• Floating gains: Unrealized gains from BTC (~1 million coins) and gold (~10 million ounces), about $7 billion (BTC appreciated by $25,000 per coin, gold by $600/oz).

Risk Transmission Mechanism:

• If the Fed cuts rates by 25bps in 2026 (market consensus), Tether’s Treasury interest income will decrease by approximately $325 million per year.
• If BTC drops by 20% (to around $52,000), gold declines by 10% (to $2,250/oz), unrealized gains will shrink by about $2.5 billion (BTC loss $2.5 billion + gold loss $2.5 billion).
• If the crypto market enters a bear phase (like 2022), stablecoin issuance contracts (USDT issuance down from $80 billion to $60 billion in 2022), Tether’s Treasury holdings will decrease, further compressing interest income.

(# 2.4 Ultimate Goal of Strategic Shift: From “Stablecoin” to “Shadow Central Bank”

Tracking Tether’s on-chain addresses and business layout reveals it has moved beyond “stablecoin issuer” and is building a “anti-inflation asset reserves + global stablecoin issuance + on-chain distribution network + energy” “shadow central bank” system:

• Anti-inflation asset reserves: BTC and gold account for 24%, akin to “central bank foreign reserves.”
• Global stablecoin issuance: USDT’s on-chain volume in 150 countries accounts for 70% of total stablecoin trading volume, similar to “central bank fiat issuance.”
• On-chain distribution network: Collaborates with 200+ exchanges/DeFi protocols like Binance, Uniswap, enabling global instant USDT transfers.
• Energy deployment: Invests $1 billion in Bitcoin mining farms (accounting for 5% of global hash rate in 2025), hedging energy costs for BTC mining.

![]$1350 https://img-cdn.gateio.im/webp-social/moments-f8a43882344ba985e7e7698a56edea60.webp)![]###https://img-cdn.gateio.im/webp-social/moments-60cb073d4e11cfebca310ed69ad717dd.webp(

)# 2.5 Market Performance: USDT’s Peg Stability and Liquidity

• Peg deviation: From 2023 to 2025, USDT’s price deviation from USD averaged only 0.02%, much lower than USDC (0.05%), DAI (0.1%).
• On-chain liquidity: USDT liquidity pools on Uniswap V3 reach $5 billion (only $1 billion in 2023), with market maker spreads under 0.01%.
• Institutional holdings: Institutional holdings of USDT increased from 15% in 2023 to 30% in 2025, indicating that institutions now view USDT as a “liquidity + appreciation instrument (not just a stablecoin).”

( 3. Future Outlook: Evolution of Stablecoin Rating Systems

)# 3.1 Limitations of Current Rating Systems: Only Covering Redemption Risk

S&P’s stability rating addresses whether stablecoins can meet redemption, but cannot meet core institutional investor demands:

• Yield sustainability: Is Tether’s profit sustainable? (e.g., decline after U.S. bond rate cuts)
• Exposure risk: Is the high ratio of BTC and gold excessive? (e.g., impact of 20% BTC decline)
• Operational risk: Is Tether’s governance transparent? (e.g., security of custody assets)

![]###https://img-cdn.gateio.im/webp-social/moments-b984bcbe4af8aa2645c2fda76a46077e.webp###

3.2 Beyond the Current Rating System

In the future, the crypto market may need a more comprehensive rating system, not just focused on redemption and stability. Possible future designs include:

Stability Rating (enhanced existing framework)

• Core indicators: “Safety coefficient” of reserves (cash equivalents ratio), “liquidity coefficient” (liquidation cycle of high-volatility assets), “transparency coefficient” (independent audit coverage, custody disclosure).
• Goal: Answer whether stablecoins can maintain redemption in extreme runs.

Investment Risk Rating (new framework)

• Core indicators:
  • Yield quality: proportion of stable income (e.g., >50% from bonds).
  • Exposure management: high-volatility assets ratio (e.g., <=10%).
  • Operational risk: issuer profit growth rate (e.g., >=10%), regulatory compliance (e.g., US MSB license, EU MiCA).
• Goal: Answer whether the issuer can sustain operations and whether reserves appreciate.

(# 3.3 Industry Trend: From “Controversy” to “Standard”

The recent dispute between S&P and Tether reflects a “rule output” from traditional finance to crypto. We predict:

• Short-term: Regulations will push stablecoins toward “mandatory transparency” (e.g., US Stablecoin Act requiring 100% cash reserves, EU MiCA requiring full audits).
• Mid-term: Rating systems will evolve beyond “regulation-capital-repayment” frameworks. Institutions will evaluate stablecoins based on “stability rating + investment risk rating” across different scenarios.
• Long-term: Stablecoins may further differentiate into “pure stability tools” (like USDC, 100% cash equivalents) and “value-added stability tools” (like USDT, mixed reserves), catering to diverse investor needs.

Risk Alerts

1. Reserves price volatility risk: BTC and gold price drops may impair Tether’s reserves, affecting redemption confidence.
2. Regulatory policy risk: US/EU demands for 100% cash reserves could force Tether to liquidate BTC/gold, significantly reducing profits.
3. Market liquidity risk: Extreme market events (e.g., 2022 FTX collapse) could cause on-chain liquidity shortages, leading USDT to de-peg.
4. Operational management risk: Tether’s governance transparency issues could trigger internal operational risks (e.g., asset theft).

“USDT Rating Controversy” Research Report Download Link: https://app.coinfound.org/research/1

Analyst Statement: This report is based on publicly available information and reasonable assumptions, and does not constitute investment advice. The analyst holds no positions in Tether or USDT.

Copyright Notice: This report is copyrighted by Coinfound.