S&P Global’s updated assessment of Tether has drawn renewed attention to the risk structure behind the largest dollar pegged token in circulation. The agency assigned USDT a score of five on its stablecoin risk scale, marking the lowest tier in its framework and placing emphasis on what it describes as growing exposure to higher risk assets in the token’s reserve composition. Tether has expanded the range of instruments supporting its circulating supply, including bitcoin, gold, secured loans and various corporate debt holdings, all of which carry volatility and credit related sensitivities. These assets sit alongside Treasuries, which have traditionally been presented as the core of the company’s backing model. The downgrade comes at a moment when institutional demand for clarity around reserve quality is accelerating and when regulated issuers are preparing for new transparency requirements in major markets. The size of USDT in global trading activity amplifies the impact of any shift in confidence, making reserve disclosure practices a central point of scrutiny.
Analysts have noted that the rating action is not focused on price instability but on structural and operational transparency. Despite the concerns raised, USDT has held its peg with minimal deviation across sustained periods of volatility, indicating a high level of transactional resilience within its ecosystem. However, S&P highlighted that the company continues to provide limited information on the creditworthiness of the institutions that custody or manage its reserves, as well as limited reporting on exposures that could introduce correlated market risks during stress events. The expansion into higher risk reserves over the past year has intensified these questions. The scale of issuance, estimated at more than one hundred and eighty billion dollars, makes USDT a significant settlement layer across exchanges, market makers and liquidity providers. As regulatory momentum builds in the United States and Europe, market participants are watching closely to determine whether heightened oversight will pressure Tether to strengthen disclosures or adjust its reserve allocation strategy.
The development places Tether in a complex position as policymakers finalize clearer frameworks for fiat backed tokens. Regulators have indicated that issuers will be expected to maintain conservative reserve structures and provide detailed reporting on asset quality, counterparty exposure and operational safeguards. The presence of non traditional reserve components increases the potential for valuation shifts that could interact with redemption flows during periods of market stress. While USDT continues to function as a key liquidity instrument in crypto markets, the downgrade highlights how the industry’s largest stablecoin may face stronger expectations as the sector transitions toward higher regulatory standards. For institutional users the rating is likely to serve as a signal to review risk practices tied to on chain settlement. The broader environment is shifting toward stablecoins that demonstrate consistent transparency, making ongoing monitoring of reserve composition a priority for analysts who track the stability and reliability of major dollar denominated tokens.
