S&P Downgrades Tether as Debate Over USDT Reserves Heats Up
S&P Global last Wednesday downgraded Tether’s USDT stablecoin to the lowest rating on its stablecoin stability scale, reigniting questions about transparency and reserve backing.
For the crypto community, these concerns are nothing new. The phrase “Tether FUD” has long served as a shorthand dismissal for doubts about whether USDT is fully backed or could face undercapitalization. Through bull markets, bear markets, and major industry collapses—including the failures of Sam Bankman-Fried and Alex Mashinsky—USDT has maintained its U.S. dollar peg and redeemability. Meanwhile, Tether has become one of the most profitable firms in crypto, generating over $10 billion in earnings in the first nine months of 2025—comparable to major Wall Street players like Goldman Sachs and Morgan Stanley.
Yet the current bear market has renewed scrutiny from traditional finance. During the quiet trading session ahead of Thanksgiving, S&P lowered USDT’s rating from 4 to 5, the weakest mark on its scale. The downgrade cited familiar concerns over Tether’s reporting opacity and flagged a new issue: bitcoin now accounts for more than 5% of USDT’s reserves, meaning sustained BTC price declines could risk undercollateralization.
Tether CEO Paolo Ardoino fired back, declaring, “We wear your loathing with pride.” He criticized traditional finance for being unsettled by firms operating outside conventional constraints, saying, “Tether has built the first overcapitalized company in the financial industry, with no toxic reserves. We are living proof that the traditional financial system is so broken it fears companies that do things differently.”
The debate spilled onto social media over the weekend when angel investor Jason Calacanis advised Tether to sell all its bitcoin, hold only U.S. Treasuries, and complete two independent audits by American firms. Crypto enthusiasts quickly pushed back, questioning the logic of trading a small portion of BTC for government debt and recalling Calacanis’ prior calls for bank bailouts during the Silicon Valley Bank collapse in March 2023.
Independent audits remain a focal point. Financial blogger Quoth the Raven, formerly a gold advocate and now a bitcoin supporter, weighed in: “When a company refuses a full, independent audit, it’s never because everything is pristine. Markets have a long, bloody track record of chewing up the naïve. An audit is the bare minimum for any entity issuing tens of billions in synthetic dollars that underpin entire markets.”
USDT continues to function as intended, but S&P’s downgrade highlights the ongoing tension between crypto companies and traditional finance, as scrutiny over stablecoin reserves intensifies amid volatile markets.
Share this content:
