[Bitop Review] Bitcoin Exposure Exceeds Safety Margin – S&P Downgrades USDT to Lowest Stablecoin Rating

Credit rating agency S&P Global has downgraded Tether’s USDT stability assessment to 5, the lowest level on its scale. S&P Global Ratings pointed out that the proportion of high-risk assets in USDT reserves has risen while transparency remains inadequate, and warned that the stablecoin no longer has sufficient buffer to absorb a Bitcoin decline.

How S&P Rates Stablecoins

S&P began rating stablecoins at the end of 2023. The methodology first focuses on asset-quality risk (credit, market, and custody risk), then examines excess collateral requirements and liquidation mechanisms. Scores range from 1 (strong) to 5 (weak). After the asset-quality assessment, S&P makes adjustments based on five additional areas — governance, legal & regulatory framework, redeemability & liquidity, technology & third-party dependencies, and track record — to arrive at the final 1–5 score. When the framework was first applied, USDT received a 4.

Bitcoin and Other Risk Assets Rise → USDT Downgraded to Worst-in-Class Rating 5

S&P has lowered USDT’s stability rating from the previous “4 (Constrained)” to “5 (Weak)”. The agency stated that the assessment reflects a significant increase over the past year in high-risk assets held in reserves — including Bitcoin, gold, secured loans, and corporate bonds — combined with insufficient disclosure.

Bitcoin alone now accounts for approximately 5.6% of USDT’s circulating supply, exceeding the 3.9% excess collateral safety margin. This means the reserves can no longer fully absorb a Bitcoin price drop. A decline in the value of Bitcoin and other high-risk assets could reduce overall reserve coverage and cause USDT to become under-collateralized.

Additional weaknesses include:

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  Limited information provided by Tether about the credit quality of its custodians, counterparties, or banking partners.
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  Insufficient reserve-management transparency.
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  Lack of asset segregation in case of issuer bankruptcy.
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  Restrictions on direct redemptions of USDT through Tether itself.

Tether CEO: “We Wear Your Loathing With Pride.”

Tether CEO Paolo Ardoino reacted with strong dissatisfaction, sarcastically declaring “We wear your loathing with pride.” He posted on X:

USDC Retains Second-Best Rating; Most Stablecoins Still Rank Higher Than USDT

Apart from Circle’s USDC and EURC, which continue to hold the second-highest “2 (Strong)” rating, S&P’s current stablecoin ratings are:

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  2- Strong: EURC, USDC, GUSD, USDP
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  3- Adequate: EURCv, USDM
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  4- Constrained: FDUSD, USDS, DAI
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  5- Weak: USDT, TUSD, FRAX, USDe