S&P Downgrades USDT Stability Score to Lowest Level

S&P Global Ratings has downgraded the stability score of Tether's USDT stablecoin to its lowest level, citing increased exposure to volatile assets and persistent disclosure gaps, at a time when the world's largest stablecoin is expanding its holdings of gold and other reserves.

The rating agency lowered USDT's score from 4, classified as constrained, to 5, weak, in a report released on November 26. Analysts pointed to a shift in Tether's reserve composition over the past year toward higher-risk investments, including Bitcoin, gold, secured loans and corporate bonds. Bitcoin now accounts for about 5.6 percent of the reserves backing circulating USDT, surpassing the 3.9 percent overcollateralization buffer previously in place. This exposure means a sharp decline in Bitcoin's value, combined with drops in other risky assets, could leave USDT undercollateralized and strain its ability to maintain its 1:1 peg to the U.S. dollar.

S&P also highlighted structural vulnerabilities, such as limited transparency on the creditworthiness of custodians and counterparties, no segregation of assets to shield holders in case of issuer insolvency, and restrictions on direct redemptions with...