Author: May P, Janus R
Source: CoinFound
About CoinFound: CoinFound is a TradFi Crypto data technology company targeting institutions and professional investors, providing RWA asset data terminals, RWA asset ratings, Web3 risk relationship maps, AI analysis tools, and customized data services. From data integration and risk identification to decision support, it helps institutions acquire key intelligence at lower costs and higher efficiency, transforming them into actionable insights and building global RWA underlying infrastructure.
Takeaway
USDT Rating Downgrade and Controversy: The proportion of non-pegged assets (BTC and gold, etc.) in USDT reserves has reached about 24%. Coupled with insufficient governance and transparency, it is viewed as a heightened risk within traditional financial frameworks, leading to the downgrade. The downgrade of USDT's rating has sparked controversy.
Tether significantly increased the ratio of gold and bitcoin: for purposes of inflation hedging, asset diversification, reducing single exposure to the dollar, and enhancing yields, Tether has continuously increased the reserve ratio of gold and bitcoin in recent years.
The essence of the divergence between S&P and Tether: The risk perception of traditional finance is 'redemption ability first,' focusing on 'the ability to liquidate reserves under extreme runs'; while Tether focuses on 'market liquidity first' and the long-term value preservation and risk resistance ability (especially against inflation risk). The dimensions of risk measurement between the two are fundamentally different.
Strategic Intent of Tether's Reserve Transformation: Tether's reserve model is shifting from '1:1' cash equivalents to a mixed model of 'hard assets (gold) + digital assets (BTC) + low-risk assets (US treasuries).' Essentially, this is a transformation from 'stablecoin issuer' to 'global liquidity provider + digital asset reserve institution,' driven by inflation hedging demand, cyclical yield enhancement (e.g., the predicted bull market in 2025 for BTC/gold), and de-dollarization layout. In fact, Tether is becoming more like a 'shadow central bank' rather than a simple stablecoin issuer.
Limitations of the Current Rating System: S&P's 'stability rating' covers 'redemption risk,' but cannot respond to investor demands for Tether's 'asset appreciation ability' and 'cyclical resilience.' In the future, the market may need more dimensions of risk rating information, and perhaps a 'stability rating (regulatory + redemption) + investment risk rating (yield + cycle)' dual framework model is needed to bridge the risk perceptions of traditional and crypto finance.
Short-term risks and long-term trends of USDT: The pegged stability of USDT is still supported by on-chain liquidity. However, in the short term, the 24% of high volatility assets (BTC/gold/loans) in reserves may expose risks in the 2026 interest rate cut cycle and potential crypto bear market (in 2025, Tether's books will show huge unrealized gains from holding gold and bitcoin reserves, but the situation may change in 2026). In the long term, the trend of 'central bankization' of stablecoins (anti-inflation assets + global network + energy) will drive the industry towards 'transparency + standardization.'
1. Event Review: Controversy and Essence of S&P's Downgrade of USDT
1.1 Event Timeline and Core Conflicts
In November 2025, S&P Global downgraded USDT's 'Asset/Stability Assessment' from 'Constrained' to 'Weak,' based on two core reasons:
Reserve Structure Risk: The proportion of high-volatility assets (BTC, gold, loans, etc.) in Tether's reserves has reached 24% (only 12% in 2023), and such assets cannot be quickly liquidated in 'panic run' scenarios;
Insufficient Governance Transparency: Major custodial institutions and details of on-chain collateral isolation mechanisms have not been disclosed, and only 'quarterly assurance reports' are provided rather than complete independent audits.
Tether's counterattack focuses on 'actual market performance' and questions the rating methodologies from traditional finance systems:
Historical Resilience: USDT has maintained its peg during 8 extreme events, including the FTX collapse in 2022, the Silicon Valley Bank crisis in 2023, and tightening crypto regulations in 2024.
Leading Transparency: Since 2021, it has provided 'real-time reserve data' (checkable on-chain addresses), with quarterly assurance reports covering over 95% of assets, surpassing some traditional currency funds.
(Chart 1: Review of USDT Rating Downgrade Events)
1.2 The essence of the divergence: The collision of two risk measurement systems
In November 2025, S&P Global (S&P Global Ratings) downgraded USDT's stability assessment to the lowest level 'Weak.' Tether immediately publicly responded, accusing S&P of 'using old-world frameworks,' ignoring the multiple extreme stress tests USDT has undergone over the past decade. This argument is not just a rating dispute, but a head-on collision of two financial civilizations.
S&P represents: 'Regulation - Capital Adequacy - Redemption Ability' system
Tether represents: 'Market Liquidity - Global Trading Demand - On-chain Instant Clearing' system
The ways these two measure risk are fundamentally different, thus destined to be unable to reach a consensus. The debate between S&P and Tether, on the surface, is a 'stability rating' quarrel, but essentially represents two completely different understandings of risk.
S&P and Tether, one comes from 100 years of traditional finance, the other from 10 years of on-chain high-frequency markets. S&P uses the logic of 'central bank - banks - money market funds'; Tether relies on the logic of 'on-chain liquidity - perpetual leverage - insurance funds - automatic liquidation.'
The logic that Tether represents is currently not adoptable by traditional financial markets.
1.3 What S&P sees: The redemption logic of traditional finance
In the cognitive framework of traditional finance, all 'commitment to redeem 1:1 instruments' (money market funds, commercial banks, stablecoins) must meet two hard conditions:
1. Reserve assets must be highly secure and immediately liquidatable: S&P pointed out in its report that BTC, gold, and loan-type assets in Tether's reserves exceed 20%, and these assets are volatile with long liquidation cycles, which may not be able to be quickly sold at face value in a 'panic run' scenario.
2. Governance structure must be transparent, custodial arrangements must be penetrable: S&P believes that Tether's custodian information, on-chain collateral isolation, and risk disclosures are still insufficient.
In other words, in S&P's world: a key risk of a 'stablecoin' lies in whether the stablecoin can withstand the pressure of everyone coming to redeem all at once? This is the redemption stability (redeemability) of the traditional system.
1.4 Tether insists on: the liquidity logic of the crypto world
If TradFi's stability comes from 'sufficient reserves, sufficient speed, and sufficient safety,' then Tether's stability comes from 'can I maintain huge on-chain liquidity, can the risks of the perpetual market be absorbed, can the secondary market maintain price pegs.' In other words
The stability measured by TradFi is the ability to redeem, while the stability measured by Crypto is market liquidity + clearing stability.
Tether's decade-long record (including multiple panic markets) indeed shows: USDT's decoupling is often not due to 'insufficient reserves,' but rather due to 'temporary imbalance in secondary market liquidity,' which has been quickly repaired each time.
Why does Tether strongly respond? Because it adheres to another set of 'market logic.' Tether's response emphasizes three points:
1. USDT has maintained a 1:1 peg under all extreme emotions: including multiple collapses of crypto exchanges, rapid interest rate hikes by the Federal Reserve, tightening regulations, and bank runs. From Tether's perspective, 'I am not theoretically stable, but practically have operated for ten years without decoupling. The true rating of a stablecoin is what the market gives every day, not what a model gives.'
2. Real-time reserve data + quarterly proof reports are sufficiently transparent: Tether believes it has surpassed some shadow banks or money market funds in TradFi. However, S&P does not recognize 'real-time web disclosures' in this form, because S&P's methodology believes 'unaudited transparency is not credible transparency.'
BTC/gold is 'anti-inflation assets + strategic reserves,' not a high-risk exposure: The significant rise in BTC and gold in 2025 has allowed Tether to achieve huge book profits (over $10 billion). This effectively forms a 'hard assets + US treasuries + loans + digital assets' mixed central bank-style model. Tether's worldview is 'I am like a central bank's reserve for a country; my structure is not the traditional dollar system but a new global asset basket.' However, S&P's worldview is 'you are not a central bank; you are just a token issuer promising 1:1 redemption.'
1.5 Why do both parties have completely conflicting understandings of 'risk'?
It reveals a key fact: the crypto market and TradFi fundamentally differ in their logic of risk-bearing.
Arthur Hayes published an article on November 27 about perpetual contracts, which are a typical example of how traditional finance and crypto finance cannot currently integrate. In traditional finance (TradFi), the risk of forward contracts comes from 'unlimited liability for margin calls.' In TradFi, failures in timely liquidation, positions being liquidated, and investors losing to negative balances require them to continue to contribute funds (Margin Call) and may even involve using all personal assets to pay off debts. Therefore, TradFi must require reserves to be 'extremely high-quality assets,' as any volatility is unacceptable.
In contrast, in crypto finance (Crypto), risks are borne by 'insurance funds + automatic liquidations + ADL.' This is because in crypto perpetual contracts, losses are not borne by traders who are held liable indefinitely. In the crypto finance system, liquidation surpluses replenish insurance funds, fees from forced liquidations contribute to insurance funds, ADL (automatic deleveraging) serves as a safety net, and exchanges use their own funds to supplement. The final result is that crypto users can lose only their margin but will not go into debt. Therefore, the crypto market can more easily accept high volatility assets because there is market structure backing.
This is the essence of the divergence between S&P and Tether: S&P measures the risk of TradFi, that is, 'if everyone comes to redeem, can you redeem?' Tether's response addresses the risk of Crypto, which is in a 7 x 24 high-volatility market, can I guarantee transactions, liquidity, and global high-frequency use? The two are not measuring systems of the same dimension.
2. Tether's Reserve Transformation: The Strategic Logic of Transitioning from 'Stablecoin' to 'Shadow Central Bank'
2.1 Time Series Changes in Reserve Structure (2023-2025)
2.2 Why increase the ratio of BTC and gold? Balancing cyclical yields with long-term strategy
Tether's reserve structure transformation (2023-2025) is not random, but a triple consideration of 'yield - risk - strategy':
1. Demand for inflation hedging: From 2022 to 2024, the Federal Reserve's interest rate hikes led to a decline in the dollar's purchasing power (US CPI rose from 2% to 8%), making gold (a traditional inflation hedging tool) and BTC (digital gold) core assets for hedging against inflation;
2. Cyclical yield enhancement: In 2025, BTC price is forecasted to rise from $40,000 to $65,000 (an increase of 62.5%), and gold from $1,900 per ounce to $2,500 per ounce (an increase of 31.6%), with Tether's unrealized gains accounting for 70% of net profit in the first nine months of 2025 ($10 billion) (with treasury bond interest contributing only $3 billion);
3. De-dollarization Layout: Tether's US dollar reserve ratio will decrease from 75% in 2023 to 55% in 2025 by increasing the proportion of gold and BTC, thereby reducing exposure to single dollar assets (in response to the US debt ceiling crisis and global de-dollarization trends).
2.3 The 'sweetness and hidden dangers' of profit structure: risks under cyclical conditions
Tether's performance in 2025 (net profit over $10 billion in the first nine months) looks impressive, but its profit structure highly depends on 'bull market cycles':
Stable Yield: Interest income from approximately $135 billion in US treasuries (with a projected 1-year yield of about 2.2% in 2025), contributing about $3 billion;
Floating Yield: Unrealized gains from BTC (approximately 100,000) and gold (approximately 10 million ounces), contributing about $7 billion (corresponding to BTC rising $25,000/each, gold rising $600/ounce).
Risk Transmission Mechanism:
If the Federal Reserve lowers interest rates by 25bp in 2026 (market consensus), Tether's interest income from treasury bonds will decrease by $325 million per year ($135 billion * 0.25%);
If BTC price drops by 20% (returning to $52,000), and gold drops by 10% (returning to $2,250 per ounce), Tether's unrealized gains will shrink by about $2.5 billion (BTC devaluation $250 million + gold devaluation $2.5 billion);
If the crypto market enters a bear market (like in 2022), the issuance of stablecoins will contract (USDT issuance dropped from 80 billion to 60 billion in 2022), and Tether's holdings of treasury bonds will decrease, further compressing interest income.
2.4 The ultimate goal of the strategic transformation: from 'stablecoin' to 'shadow central bank'
By tracking Tether's on-chain addresses and business layout, we have discovered that it has surpassed the positioning of 'stablecoin issuer' and is building a 'shadow central bank' system of 'anti-inflation asset reserves + global stablecoin issuance + on-chain distribution network + energy':
Anti-inflation Asset Reserves: Proportions of BTC and gold at 24%, corresponding to 'central bank's foreign exchange reserves';
Global Stablecoin Issuance: USDT accounts for 70% of the total stablecoin trading volume on-chain across 150 countries, corresponding to 'central bank's fiat issuance';
On-chain Distribution Network: Collaborating with over 200 exchanges/DeFi protocols, including Binance and Uniswap, to achieve global instant transfers of USDT;
Energy Layout: Investing $1 billion in bitcoin mining (accounting for 5% of global computing power in 2025), hedging against the energy costs of BTC mining.
2.5 Market Performance: The pegged stability and liquidity of USDT
Peg deviation: From 2023 to 2025, the price deviation of USDT (the price difference with USD) averaged only 0.02%, far lower than USDC (0.05%), DAI (0.1%);
On-chain liquidity: The liquidity pool size of USDT in Uniswap V3 reached $5 billion (only $1 billion in 2023), with market makers' quoted spreads stable within 0.01%;
Institutional Holdings: The proportion of institutions holding USDT will increase from 15% in 2023 to 30% in 2025, indicating that institutions see USDT as 'a combination tool with liquidity and asset appreciation (rather than just a stablecoin).
3. Future Outlook: Evolution Direction of Stablecoin Rating System
3.1 Limitations of the Current Rating System: Only covers redemption risks
S&P's stability rating addresses the question of whether stablecoins can redeem, but cannot respond to the core demands of institutional investors:
Yield Quality: Is Tether's profit sustainable? (e.g., decline in income after treasury bond interest cuts)
Exposure Risk: Is the proportion of BTC and gold too high? (e.g., impact of a $20\% drop in BTC on reserves)
Operational Risk: Is Tether's governance transparent? (e.g., safety of custodial assets)
3.2 Beyond the Current Rating System
In the future, the crypto market may need a more comprehensive rating system that focuses not only on redemption and stability. Future rating designs may include the following:
Stability Rating (an upgrade of the existing framework)
Core Indicators: 'Safety coefficient' of reserve assets (proportion of cash equivalents), 'liquidity coefficient' (liquidation cycle of high volatility assets), 'transparency coefficient' (coverage rate of independent audits, disclosure of custodial information);
Goal: To answer the question 'Can stablecoins maintain redemption under extreme runs?'
Investment Risk Rating (a new framework)
Core Indicators:
Yield Quality: Proportion of stable yields (interest from treasury bonds) (>=50% is 'low risk');
Exposure Management: Proportion of high volatility assets (<=10% is 'low risk');
Operational Risks: Profit growth rate of issuer (>=10% is 'stable'), regulatory compliance (e.g., US MSB license, EU MiCA certification);
Goal: To answer the question 'Can the issuer of stablecoins sustain operations, and can its reserve assets appreciate?'
3.3 Industry Trend: From 'Controversy' to 'Standard'
The controversy between S&P and Tether is essentially the 'rules output' of traditional finance to the crypto market. We judge:
Short Term: Regulation will push for 'mandatory transparency requirements' for stablecoins (such as the US stablecoin bill requiring 100% cash equivalent reserves, EU MiCA requiring complete audits);
Medium Term: The rating system will develop, and ratings will not be limited to the 'regulatory - capital adequacy - redemption ability' system. Institutional investors will use 'stability ratings + investment risk ratings' to assess stablecoins in different scenarios;
Long Term: Stablecoins may further differentiate into 'pure stable tools' (like USDC, 100% cash equivalents) and 'stable tools with appreciation' (like USDT, mixed reserves), meeting different investor needs.
Risk Warning
1. Price Volatility Risk of Reserve Assets: Price declines in BTC and gold will lead to depreciation of Tether's reserves, affecting redemption confidence;
2. Regulatory Policy Risk: If the US and EU require stablecoins to hold 100% cash equivalents, Tether will need to sell BTC and gold, resulting in a significant decline in profits;
3. Market Liquidity Risk: In extreme market conditions (such as the 2022 FTX collapse), exhaustion of on-chain liquidity may lead to USDT decoupling;
4. Operational Management Risk: Insufficient transparency in Tether's governance may lead to internal operational risks (such as custodial assets being stolen).
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Analyst Statement: This report is based on publicly available information and reasonable assumptions and does not constitute investment advice. The analyst does not hold positions in Tether or USDT.
Copyright Statement: This report is copyrighted by Coinfound.
