Tether Reserve Structure Adjustment Imbalance: The Asset Allocation Dilemma Behind S&P Downgrade

On November 26, S&P Global Ratings publicly released the latest assessment of the Tether stablecoin, downgrading its credit rating from Level 4 (Restricted) to Level 5 (Weak), hitting a historic low in the rating system. This report not only involves USDT with a circulation exceeding $180 billion but also reflects a fundamental clash between the crypto market and traditional financial evaluation standards.

Rapid Shift in Asset Allocation Logic

Tether’s reserve structure is undergoing dramatic changes. According to the latest disclosed data, over the past year, the company’s allocation of low-risk assets has shrunk from 81% to 75%, with significant reductions in short-term US Treasury bills and overnight repurchase agreements. Conversely, the high-risk asset pool has expanded to 24%, an increase of 7 percentage points.

Where does this shift in asset allocation point to? The answer is not straightforward.

Bitcoin and Gold: Potential Risks of Dual Hedging

What alarms S&P most is the uncontrolled expansion of Bitcoin exposure. As of the end of September 2025, the market value of Bitcoin held by Tether has reached 5.6% of the total circulating USDT, astonishingly surpassing the 3.9% safety buffer set by its 103.9% collateralization ratio.

A year-over-year comparison reveals even more clues: in September 2024, this ratio was only 4%, just within the 5.1% excess margin implied by the 105.1% collateralization ratio. The safety margin is being eroded month by month.

Gold accumulation reflects another strategic intent. Tether purchased 26 tons of gold in Q3 2025, with a total holding of 116 tons, a market value of up to $12.9 billion, surpassing Bitcoin reserves ($9.9 billion), making it the largest non-U.S. debt asset. While this hedging logic against fiat devaluation is rational, under traditional rating frameworks, it is inevitably labeled as “high risk.”

Inherent Flaws in the Regulatory Framework

After relocating to El Salvador, Tether is under the supervision of the country’s National Digital Asset Commission (CNAD). Although it mandates a minimum 1:1 reserve ratio, S&P believes this framework has structural vulnerabilities.

CNAD allows loans, Bitcoin, and even highly volatile gold to be included in the reserve definition, but lacks strict requirements for the segregation of reserve assets. Traditional safe assets like Treasury bills and cash are mixed with highly volatile assets in one pool, which, during market turbulence, inevitably reduces overall safety.

Transparency Dilemma in Disclosure

S&P points out that Tether lacks sufficient disclosure in multiple dimensions:

• No public information on custodians, counterparties, or banking providers
• Very limited transparency regarding reserve management strategies and risk appetite
• Little external information on internal controls and business segregation at the group level
• No public documents issued regarding USDT asset segregation mechanisms

These gaps directly amplify market confidence deficits.

Tether’s Counterattack Logic

CEO Paolo Ardoino responded with a confrontational stance, criticizing the outdated nature of S&P’s rating model itself. He pointed out that traditional rating standards, designed for a broken financial system, have historically awarded investment-grade ratings to companies that eventually went bankrupt, fueling global regulatory doubts about rating agencies’ independence.

Ardoino emphasized that Tether has become the first over-capitalized company in financial history, with net profits surpassing $10 billion in the first three quarters of 2025, and US debt holdings exceeding $135 billion, making it one of the world’s largest holders of U.S. Treasuries. This business performance itself is a testament to its credit quality.

The Generational Dilemma of Stablecoin Models

The core of this conflict lies in fundamental disagreements over the definition of “stability.”

Tether’s strategy of increasing Bitcoin and gold holdings is essentially a diversification experiment under the assumption of fiat currency devaluation. If U.S. inflation spirals out of control, this reserve portfolio might outperform pure Treasury-backed competitors in real purchasing power. However, within the current USD-denominated evaluation system, it is inevitably deemed high risk.

When a private enterprise attempts to play the role of a central bank, it faces the eternal dilemma of safety versus profitability. Tether’s continued accumulation of Bitcoin and gold is both a rational hedge against systemic risks and a commercial drive for asset appreciation. But this mixed motivation creates inherent tension with the promise of “absolute principal safety” that stablecoins aim to provide.

Institutional and Retail Divergence Expectations

In the short term, retail investors may see this as just another round of FUD noise; but for traditional financial institutions, S&P’s rating has become an insurmountable compliance red line.

Large funds and banks, constrained by emerging stablecoin regulations, are more inclined to shift toward competitors like USDC or PYUSD, which mainly rely on cash and short-term Treasury bills, fully aligning with traditional risk control logic. The difference in rating standards directly translates into market share transfer pressures.

Long-term Market Concerns

S&P’s downgrade essentially serves as an early warning of Tether’s future risk exposure. As a key pillar of crypto liquidity, if USDT’s reserves face a crisis, the ripple effects could impact the entire market ecosystem.

However, Tether’s vast network effects and a decade of market presence have formed a strong moat, making it difficult to shake in the short term. What is truly concerning are deeper questions: when a private company supports a globally anchored value tool with excessive risky assets, can it forever ensure the absolute safety of holders’ principal?

This dilemma not only concerns Tether’s own survival but also the sustainable development of the entire stablecoin ecosystem. The answer can only be decided by time and the market.