S&P downgraded the asset rating of Tether, the world's largest stablecoin operator, to the lowest level, questioning its ability to stay pegged to the US dollar.

S&P downgraded the asset rating of Tether, the world's largest stablecoin operator, to the lowest level, questioning its ability to stay pegged to the US dollar.

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Due to the rising exposure to high-risk assets, S&P Global Ratings has downgraded the reserve quality rating of stablecoin issuer Tether and questioned its ability to maintain its peg to the US dollar.

In a report released Wednesday, S&P lowered its assessment of Tether’s asset quality from “constrained” to its lowest grade, “weak.” S&P pointed out that the proportion of high-risk assets backing the stablecoin—including corporate bonds, precious metals, Bitcoin, and secured loans—rose to 24% of total reserves at the end of September, significantly higher than 17% a year ago.

Tether operates USDT, the world’s largest stablecoin, with a circulating supply of about $184 billion. USDT is a dollar-pegged “digital cash,” mainly backed by high-quality securities such as US Treasuries, and operates outside the banking system.

S&P warned that Tether has limited transparency in reserve management and risk appetite, lacks a robust regulatory framework, and does not have an asset segregation mechanism to protect investors from the issuer’s bankruptcy.

S&P also noted that Tether has not disclosed information on its custodians, bank account providers, or counterparties, nor has it explained how it decides which high-risk assets to purchase or what measures it would take if these assets’ prices fall sharply.

S&P analysts wrote: "A drop in Bitcoin prices or other high-risk asset values could weaken collateral coverage, resulting in USDT being under-collateralized. The rising proportion of risk assets makes the token’s reserves more susceptible to market volatility."

U.S. Commerce Secretary Howard Lutnick previously stated that Cantor Fitzgerald, the company where he served as CEO, is the custodian of Tether’s US Treasuries. However, S&P noted that reports on the reserves still do not disclose information on asset custodians, counterparties, or bank account providers.

Tether stated it strongly opposes the characterizations in the report, claiming the stablecoin has maintained full resilience during banking crises, exchange failures, liquidity shocks, and extreme market volatility. Tether said it leads the industry in transparent reserve disclosures, releasing real-time data and quarterly independent attestations since 2021, with standards surpassing those of many regulated financial institutions.

In 2022, Tether briefly lost its dollar peg under significant selling pressure. In an interview at the time, current CEO Paolo Ardoino refused to disclose details of the company’s government bonds reserves, saying he did not want to reveal proprietary secrets.

In recent weeks, the broader crypto market has fallen sharply as investors reduce exposure to risk assets due to concerns over US tech stock valuations and the outlook for US interest rates. Since reaching a recent high in early October, Bitcoin has dropped about 30%. Despite more crypto-friendly policies from the Trump administration, Bitcoin is still down about 6% year to date.

Tether is one of the world’s largest buyers of US Treasuries, which account for about 75% of its collateral, down from 81% at the last review. As of September, the company’s net profit this year has reached $10.1 billion, mainly from interest on US Treasuries.

In September this year, Tether reportedly held talks for a private fundraising round of up to $20 billion; if successful, it would value the El Salvador-based group at $500 billion.

Since its founding 11 years ago, Tether has faced questions over inadequate information disclosure and transparency. Ardoino has previously stated hiring an auditor was a priority, but the company still only releases “attestation reports” reviewed by BDO Italia, not a full audit of its stablecoin reserves.

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