Tether CEO Fires Back at S&P Over USDt Stability Downgrade: A Deep Dive into the Clash of Titans
Introduction
The stability of Tether’s USDt (USDT), the cornerstone of the cryptocurrency market, has been thrust back into the spotlight following a significant downgrade by a major traditional finance ratings agency. In a move that sent ripples through the digital asset ecosystem, S&P Global downgraded its assessment of USDt’s ability to maintain its 1:1 U.S. dollar peg to “weak”—the lowest score on its stability scale. The decision, announced on Wednesday, immediately prompted fear, uncertainty, and doubt among some market participants regarding the company that has become a critical piece of crypto market infrastructure. In a swift and forceful rebuttal, Tether CEO Paolo Ardoino, alongside prominent market analysts, has fired back, asserting that S&P’s analysis failed to account for the full scope of Tether’s substantial assets and revenue streams. This clash represents a pivotal moment, pitting the established methodologies of traditional finance against the novel balance sheet of the world’s largest stablecoin issuer.
S&P Global's "Weak" Rating: The Core of the Controversy
The catalyst for this high-stakes debate was S&P Global’s official downgrade of USDt’s stability rating. The “weak” classification indicates that S&P has significant concerns about USDt's capacity to consistently redeem tokens for one U.S. dollar under stressful market conditions. According to the agency's report, this assessment was driven by specific concerns regarding the composition of Tether’s reserves. S&P cited Tether’s significant holdings in Bitcoin (BTC) and gold as a primary reason for the downgrade. From a traditional risk perspective, these assets are considered more volatile compared to the cash and cash-equivalent instruments like U.S. Treasury bills that typically back most stablecoins. The implication is that a sharp downturn in the value of Bitcoin or gold could theoretically impair Tether’s ability to cover all outstanding USDt liabilities with highly liquid, stable assets, thus threatening the peg.
This is not the first time a ratings agency has scrutinized Tether. However, the "weak" score from an institution of S&P's stature carries considerable weight in financial circles and has intensified the ongoing discourse around stablecoin reserve transparency and risk management. The move underscores the growing attention legacy financial institutions are paying to the crypto sector and their attempts to apply conventional frameworks to its unique structures.
Paolo Ardoino's Rebuttal: A Defense Built on Equity and Earnings
Tether CEO Paolo Ardoino did not mince words in his response to S&P’s report. He argued that the ratings agency made a critical error by focusing narrowly on the assets directly backing the stablecoin liabilities while ignoring the broader financial health of the Tether Group. Ardoino directed attention to Tether’s Q3 2025 attestation report, providing specific figures to bolster his case.
According to Ardoino, at the end of the third quarter of 2025, the Tether Group’s total assets amounted to approximately $215 billion. Against this, its total stablecoin liabilities were about $184.5 billion. This alone suggests a surplus, but Ardoino elaborated further on what he claims S&P overlooked. “Tether had, at the end of Q3 2025, about $7 billion in excess equity, on top of the about $184.5 billion in stablecoin reserves, plus about another $23 billion in retained earnings as part of our Tether Group equity,” he stated.
Furthermore, Ardoino highlighted a key revenue stream that he believes invalidates S&P's concerns about reserve stability. He continued, “S&P made the same mistake of not considering the additional Group Equity, nor the roughly $500 million in monthly base profits generated by US Treasury yields alone.” This point is central to Tether’s defense: even amidst fluctuating interest rates, the company asserts it generates substantial and consistent earnings from its holdings of U.S. government debt, which it argues provides a robust financial cushion far exceeding its liabilities.
Analysts Enter the Fray: Diverging Views on Tether's Fundamentals
The S&P downgrade and Ardoino’s response have sparked a vigorous debate among leading crypto analysts, revealing a stark divide in how Tether’s balance sheet is perceived.
On one side is Arthur Hayes, co-founder of the BitMEX crypto exchange. Hayes speculated that Tether’s strategy of acquiring large quantities of Bitcoin and gold is a direct response to compensate for potential income shortfalls produced by falling U.S. Treasury yields. While he acknowledged that as the Federal Reserve slashes interest rates, the value of gold and BTC should theoretically rise, Hayes also issued a stark warning. He posited a scenario where these volatile assets experience a steep correction, stating, “A roughly 30% decline in the gold and BTC position would wipe out their equity, and then USDt would be, in theory, insolvent.” This analysis aligns with S&P's underlying concern about asset volatility.
Countering this view is Joseph Ayoub, the former lead digital asset analyst at financial services giant Citi. Ayoub brought a different perspective based on his own extensive research into the company. He rebuffed Hayes’ analysis, claiming that his time spent researching Teter amounted to “hundreds” of hours while at Citi. Ayoub argued that Tether possesses excess assets beyond what it publicly reports, operates an “extremely lucrative business that generates billions of dollars in interest income with only 150 employees,” and is, in his view, better collateralized than many traditional banks. This defense suggests that from an operational and profitability standpoint, Tether’s model is fundamentally sound and resilient.
Contextualizing Stablecoin Stability: A Look at Reserve Management
To fully understand this debate, it is essential to consider the broader context of stablecoin reserve management. Stablecoins like USDt function by maintaining a 1:1 peg with a fiat currency, almost exclusively the U.S. dollar. The issuer's primary responsibility is to hold a sufficient quantity of high-quality, liquid assets that can be quickly converted to cash to meet redemption demands at any time.
Historically, Tether’s reserve composition has evolved significantly. In its early years, the company faced intense scrutiny and legal challenges over claims that its tokens were fully backed by U.S. dollars. Over time, and following settlements with regulatory authorities, Tether has increased its transparency through quarterly attestations. These reports have shown a growing allocation to U.S. Treasury bills—a highly liquid and low-risk asset—while also revealing allocations to other instruments like secured loans, corporate bonds, and as highlighted in this incident, Bitcoin and physical gold.
The core tension lies in balancing yield generation with absolute safety. Holding only cash and T-bills is extremely safe but offers lower returns. Diversifying into other assets can generate higher profits (which can bolster equity) but introduces volatility risk. S&P’s downgrade suggests they believe Tether has strayed too far towards yield-seeking behavior at the expense of stability. Tether and its defenders argue that their substantial equity buffer and massive profitability make this diversification not only safe but prudent.
Strategic Conclusion: Navigating Trust in a Hybrid Financial System
The clash between S&P Global and Tether is more than a simple disagreement over numbers; it is a symbolic struggle between the old guard of finance and a foundational pillar of the new digital economy. For cryptocurrency users and investors, this episode serves as a critical reminder of the complex interplay between traditional risk metrics and innovative financial structures.
The immediate impact has been a renewed public debate on Tether's robustness, but it has not led to a deviation of USDt from its peg—a testament to the market's current confidence or perhaps its deep integration. For readers navigating this landscape, several key developments warrant close attention moving forward:
- Future Attestations: Scrutinize Tether’s subsequent quarterly attestation reports for any shifts in its reserve composition, particularly its allocations to Bitcoin, gold, and U.S. Treasuries.
- Regulatory Developments: Watch for any formal responses or guidance from financial regulators regarding stablecoin ratings and reserve standards.
- Market Dynamics: Observe how competing stablecoins position themselves in light of this event. Will issuers like Circle (USDC) use more conservative reserve portfolios as a key differentiator?
- Macroeconomic Factors: Monitor Federal Reserve interest rate policies, as falling yields were cited by Arthur Hayes as a motivator for Tether's strategy.
Ultimately, while ratings agencies provide valuable perspectives rooted in traditional finance, their models are still adapting to crypto-native entities like Tether. The company's continued ability to maintain its peg through various market cycles remains its most critical performance indicator in the eyes of many in the crypto community. As the industry matures, finding a common language for risk between these two worlds will be essential for fostering greater trust and stability