Bitcoin News Today: Tether's USDT Downgrade Ignites Clash Between Crypto and Traditional Finance Models

Tether CEO Paolo Ardoino has dismissed S&P Global Ratings' recent downgrade of the stablecoin's stability assessment as "outdated," accusing traditional finance of misunderstanding the company's model. The ratings agency on Wednesday cut USDT's peg stability score to "weak" from "constrained," citing increased exposure to high-risk assets like Bitcoin and gaps in reserve transparency. The move has reignited debates about the resilience of the largest stablecoin, which now holds $184 billion in market capitalization [according to reports].

S&P's report highlighted that Bitcoin accounts for 5.6% of USDT's reserves, exceeding Tether's stated 3.9% overcollateralization margin. The agency warned that a decline in Bitcoin's value or other volatile assets-such as gold, corporate bonds, and secured loans-could leave the stablecoin undercollateralized. While 75% of reserves remain in low-risk U.S. Treasury bills and cash equivalents, [S&P criticized Tether] for insufficient disclosures on custodians, counterparties, and reserve management practices.

Tether has pushed back aggressively, with Ardoino calling the downgrade a reflection of "loathing" for companies challenging traditional financial systems. "The classical rating models built for legacy institutions have historically led investors to overpay for assets that later collapsed," he wrote on X, referencing past banking crises. The company emphasized its decade-long track record of maintaining the dollar peg and highlighted $112.4 billion in U.S. Treasury holdings, along with $14 billion in gold reserves [according to reports].

The downgrade has sparked mixed reactions in crypto markets. Chinese traders, who rely heavily on USDT for cross-border transactions, expressed concerns on social media about potential depegging risks. Meanwhile, industry analysts like BitMEX co-founder Arthur Hayes warned that Tether's balance sheet could face insolvency in a 30% Bitcoin correction, given its exposure to volatile assets [analysts warned].

S&P also noted structural weaknesses in Tether's operations, including limited asset segregation to protect against insolvency and gaps in redemption mechanisms. The ratings agency suggested the stablecoin's rating could improve if Tether reduces high-risk exposures and enhances transparency. However, Tether has repeatedly rejected calls for independent audits by the "Big Four" accounting firms, despite publishing quarterly reserve attestations since 2021 [according to reports].

The controversy underscores broader tensions in the stablecoin sector. While USDT remains the dominant digital dollar with $184 billion in liabilities, regulators and rating agencies are intensifying scrutiny of reserve practices. Competitors like USD Coin (USDC) face similar challenges, but USDT's scale and Tether's deft public relations strategy have kept it at the forefront of debates about crypto's role in global finance [according to reports].

As Bitcoin fluctuates near $89,600-28% below its October peak-the stakes for Tether's model grow higher. The company's ability to maintain confidence in its reserves amid regulatory and market pressures will likely shape the future of stablecoins as both a financial tool and a symbol of crypto's clash with traditional institutions [according to reports].