Tether usdt downgrade to Weak strains peg amid bitcoin risk

Investors are reassessing stablecoin risk after S&P flagged tether usdt in a stark new stability review that challenges long-held market assumptions.

Why did S&P slash Tether’s stability rating to “Weak”?

On November 26, S&P Global Ratings issued an update that may become the most consequential stablecoin call of the past decade. The agency cut USDT, issued by Tether, to its lowest stability score of 5, labeled “Weak.” No stablecoin anywhere near this size has ever received such a poor rating.

Author and analyst Shanaka Anslem Perera argues that the data behind the downgrade should force the entire crypto market to pay attention. Moreover, the report highlights a structural shift in reserves that directly links USDT’s stability to Bitcoin‘s price path.

How exposed is Tether to Bitcoin volatility?

Perera frames the risk with a blunt comparison drawn from S&P’s figures. Bitcoin now represents 5.6% of Tether’s reserves, while the company’s own safety buffer sits at just 3.9%. “Read that again,” he wrote. “The volatile asset exceeds the cushion meant to absorb its fall.”

S&P did not soften its language. The rating note warns that a sharp Bitcoin correction could leave USDT undercollateralized, undermining confidence in its dollar peg. For a $184B token used across centralized exchanges, DeFi protocols, and emerging markets, that is a serious warning signal for overall stablecoin market risk.

Have long-time skeptics finally been vindicated?

For nearly 10 years, critics have questioned whether Tether’s disclosures matched its outsized influence on crypto liquidity. Regulators raised similar doubts well before S&P’s downgrade. However, those concerns did little to slow USDT’s growth.

Perera recalls that the New York Attorney General found USDT was fully backed on only 27.6% of the days examined during its investigation. In addition, the CFTC fined Tether $41M for claiming full dollar backing while holding loans and other non-fiat assets instead of only cash or equivalents.

Despite these actions and ongoing tether regulatory scrutiny, USDT did not contract. Instead, it expanded aggressively and became the backbone of global crypto trading pairs, particularly against Bitcoin and major altcoins.

How has Tether’s reserve mix shifted over the past year?

The downgrade is not solely about Bitcoin reserve exposure. S&P also highlighted that Tether’s riskier holdings, including gold, loans, corporate bonds, and BTC, have climbed from 17% to 24% of total reserves in just one year. That shift increases the portfolio’s sensitivity to market stress.

At the same time, S&P argues that transparency remains limited. The agency notes there is still no full independent audit, no clear public disclosure of all custodians or counterparties, and no explicit segregation of assets in the event of Tether’s insolvency. These tether transparency concerns compound the risk posed by a rising share of high-volatility assets.

What does this mean for everyday USDT users worldwide?

Perera stresses that the people most exposed may be those least likely to read or understand a ratings report. Millions of users in Lagos, Manila, or Caracas rely on USDT as a functional dollar substitute, often to escape local currency instability or capital controls.

However, many of these users may have no idea that S&P has now formally categorized the world’s largest stablecoin as “Weak.” That said, any disruption to USDT’s peg could ripple quickly through local crypto ecosystems where access to traditional banking is already constrained.

How did Tether respond to S&P’s downgrade?

Tether’s leadership moved quickly to dismiss the assessment. CEO Paolo Ardoino rejected the downgrade outright, saying the company “wears S&P’s loathing with pride.” The statement sought to frame the rating as a badge of honor rather than a red flag for institutional participants.

Moreover, Tether has long argued that its diversified reserves and strong profitability provide ample support for redemptions, even in periods of market stress. Still, Perera notes that this is now the first formal verdict from a major ratings agency on the world’s most-used stablecoin, and the next verdict will ultimately come from traders and users.

Is the tether usdt peg now at risk in a major Bitcoin crash?

The core issue, as Perera describes it, is that a volatile asset is now larger than the buffer meant to absorb its decline. If Bitcoin were to suffer a deep, sudden drawdown, Tether’s reserves could fall below the level required to back all circulating USDT at par. That mismatch goes to the heart of stablecoin peg stability.

With USDT clearing more than $100B in daily volume, any perceived weakness could quickly translate into redemption pressure or a widening discount on exchanges. However, the market has repeatedly shrugged off past controversies, and many participants still view USDT as indispensable infrastructure for crypto trading.

In summary, S&P’s “Weak” rating, the growing share of high-risk assets, and lasting questions over audits and disclosure have pushed Tether’s risk profile back into the spotlight. Whether that reassessment leads to real shifts in liquidity, or simply becomes another headline USDT outlasts, now depends on how investors react to the numbers S&P has laid out.