Tether, Teeth Bared
When the biggest stablecoin gets slapped by S&P, it's time to sprinkle some crack on the narrative
Taking the bull by its horns and bending it over…….
Let’s not pretend Tether hasn’t been here before.
Disbelief has been its shadow since day one. From Bitfinex leaks to offshore whispers to last year’s Twitter crusades, the chorus has always been the same: “They must be hiding something.” https://x.com/Bitfinexed has been screaming this since 2017 LMAO.
But what happens when the arrows come from above?
Last week, S&P Global Ratings downgraded Tether’s stability rating on USDT to “weak.” Not shaky. Not risky. Weak. This wasn’t a fringe research outfit, a far cry from a salty paid FUD influencer on a thread spree. This was a suit-and-tie ratings agency saying, in more words than necessary “we’re not sure this thing can hold under pressure.”
Their logic? Simple. Too much Bitcoin, not enough cushion. According to S&P’s breakdown, BTC now makes up roughly 5.6% of USDT’s reserves. That’s a higher share than Tether’s own overcollateralization margin, which clocks in around 3.9%. So, if Bitcoin drops hard(er) again, Tether’s backing risks falling below the threshold. Add gold, corporate bonds, and secured loans into the mix, and they say you’ve got a reserve stack that’s looking less like a stable base and more like a leveraged bet.
And that’s what spooked them.
“A drop in Bitcoin’s value combined with a decline in value of other high-risk assets could therefore reduce coverage by reserves and lead to USDT being undercollateralized,” S&P wrote.
But here’s the twist. Tether disagreed, and not quietly. Their response was immediate and uncompromising:
“Legacy framework. Doesn’t understand digitally native money. Ignores actual data. Still haven’t refused a single redemption.”
Seems like they are following the Roy Cohn playbook of ATTACK ATTACK ATTACK.
It was the sort of rebuttal you’d expect from a company that’s been punched in the face by regulators, media, and rivals for the better part of a decade and is still standing. They’ve leaned into their outlaw status. And now, they wear it like armor.
So, is the downgrade a big deal?
Depends on who you ask.
To crypto-native traders? Probably not. They’ve seen bigger scares. Tether depegged in 2022, briefly, and came back stronger. In many corners of the market, especially outside the U.S., it’s trusted more than any bank, and way more than Circle.
But to institutions? Different story. HSBC, in a December report, called S&P’s downgrade a “fresh reminder” of depegging risk. The bank suggested that institutions, particularly the risk-averse kind, are likely to gravitate toward stablecoins with higher-rated reserves and stricter disclosures. And not just stablecoins, but tokenized deposits altogether.
In other words: Tether remains king among crypto users, but the world it’s trying to expand into may have just narrowed.
HSBC even threw Circle a bone:
“USDC illustrates the type of positioning that could benefit if ratings and regulations become more central to stablecoin selection.”
Circle’s suits may be slow, but they’ve been playing the long game. The game of compliance, licenses, and friendly visits to Capitol Hill. And when rates drop, that positioning could matter even if it hasn’t helped them grow.
On a short but very relevant sidenote, let’s not forget that HSBC has been accused of money‑laundering for drug cartels and sanctioned regimes, facilitating massive illicit cash flows. It’s admitted to clearing hundreds of millions tied to cartel networks, paid the largest fine in banking history for AML failures, then quietly kept clearing questionable flows around the world. Its Swiss arm boasted offshore accounts for thousands of global clients, laundering hidden wealth. And just last year, regulators continued probing new suspicious activity at its private banking branches. That’s the company taking moral high-ground shots at a stablecoin issuer.
Meanwhile… Gold
If S&P raised eyebrows, the Financial Times made jaws clench. A November piece detailed Tether’s recent gold buying spree and the scale is no joke. Based on September attestations, Tether reportedly holds 116 tonnes of physical gold. That’s more than most small central banks.
And it’s not just sitting in the vault. According to Jefferies, a U.S.-based investment bank and financial services firm, Tether’s gold buys made up almost 2% of global demand last quarter and nearly 12% of all central bank purchases.
Why?
No one knows for sure. Ardoino has hinted that gold is “natural bitcoin.” Maybe it’s a reserve diversification play. Maybe it’s a prelude to USAT, the Genius Act–compliant dollar-backed stablecoin coming to the U.S. market. (Which, ironically, won’t even allow gold in its backing due to compliance limits.)
Or maybe, just maybe it’s a different kind of bet: one on tokenized physical gold becoming the next rail for value transfer. XAUt, Tether’s gold-backed token, has seen issuance double since summer. But let’s not get carried away, that’s from a relatively low base.
Still, the buys are happening. And they’re big enough to matter. At least in the short-term.
FT’s takeaway was dry but pointed:
“All that’s needed now is to convince risk-averse investors that their fears are best expressed through buying blockchain tokens from a privately owned, El Salvador–licensed crypto firm that says it has more than 100 unaudited tonnes of gold bars in an unidentified warehouse somewhere in Switzerland.”
A dig, sure. But not a lie?
The Real Question: Why Now?
The sudden surge in USDT issuance (another $1B in November), the gold stack, and the launch of USAT are obviously coordinated.
Is Tether preparing for something?
Some think it’s a hedge against U.S. regulatory pressure. By offering a compliant version (USAT), they can continue the offshore playbook with USDT while showing regulators they’re capable of “playing nice.” Same stablecoin DNA but just with different passports.
But others, particularly critics, think it’s a sign that the original model might be running out of road. That holding bonds, gold, and Bitcoin while fielding redemption requests isn’t sustainable forever. Especially with mainstream finance circling and sovereigns waking up.
Either way, it’s not solvency that’s being questioned anymore, it’s more a matter of direction (and re-allocation)
Tether’s Response? On (builder) Brand
Ardoino didn’t mince words. After the S&P downgrade, he tweeted:
“We wear your loathing with pride.”
They’re not trying to win popularity contests, never have really. They don’t court the VC class. They don’t spend millions on lobbying (they might actually). They’ve been called opaque, unregulated, borderline rogue. And yet? They’ve never once broken their peg beyond a temporary blip. Never once frozen redemptions for verified clients. Never been hacked. Never shut down.
And oddly, I guess it’s their defiance that some users trust. In parts of the world where access to banking is unreliable, Tether is the financial system. Their willingness to operate outside the polite rules of capital is the feature that others claim is a bug.
Why Being a Tether Truther Is Net Negative for Your Life
There’s a difference between being systemically important and systemically accepted.
Tether is the former. Whether you like it or not, USDT props up massive swaths of the crypto economy. It’s in trading pairs, DeFi pools, remittance corridors, and OTC desks from Istanbul to Jakarta.
But the latter being accepted by institutions, regulators, sovereign frameworks, is still very much in play.
S&P’s downgrade will obviously not stop traders from using USDT. But it may temporarily cap how far Tether can extend its empire. It may slow adoption in markets where perception, regulation, and checkbox compliance matter more than uptime.
That’s why narrative is the real war.
And for Tether, it’s always been a fight to control the story before someone else does.
I love stablecoins, Tether in particular, and I will be writing about the ongoing and ever-increasing future stablecoin war. Stay tuned for insights, drama, and analysis as it all unfolds.
P.S. In case you didn’t realize, I am not Patrick Hansen