US dollar counterattacks stablecoins
Author | Wang Hanyu
Editor | Zhang Fan
The once - booming stablecoins are no longer stable.
On November 27, international rating agency S&P downgraded the rating of Tether (USDT, "Tether Coin"), the world's largest stablecoin, from "Level 4 (Restricted)" to "Level 5 (Weak)", which is the lowest level in the rating system.
The reasons for S&P's downgrade are the increasing proportion of high - risk assets in Tether's reserves and "the persistent gap in information disclosure".
Typically, stablecoins are pegged to fiat currencies such as the US dollar or physical assets such as gold. Each token has an equivalent real - world asset as reserve support. Users can exchange them at a 1:1 ratio at any time. This allows stablecoins to be distinguished from other types of cryptocurrencies and obtain the "stable" characteristic.
Meanwhile, as the two major US dollar - pegged stablecoins, USDT and USDC, account for about 90% of the stablecoin market capitalization, the exchange - rate trend of the US dollar almost determines the value of the underlying assets of stablecoins.
After a phased adjustment in the middle of this year, the US dollar index rebounded in the second half of the year and strengthened significantly from November to early December, once breaking through the 100 mark.
The above - mentioned rebound has impacted the demand and prices of assets such as Bitcoin and gold. This exposes the underlying assets of USDT, which holds a large amount of Bitcoin and gold in reserve, to significant fluctuations and even the risk of devaluation.
Almost at the same time, on November 28, the People's Bank of China, together with multiple ministries, held a coordination mechanism meeting to combat virtual currency trading and speculation. For the first time, in the name of multi - department collaboration, it clearly stated that "stablecoins are a form of virtual currency", and related business activities are defined as illegal financial activities.
The consecutive occurrence of these two events first warned of the potential risks of the world's largest stablecoin and then set the tone for its "illegal" status in the Chinese financial market. Despite the different compliance progress in various markets, the cautious attitudes of regulatory authorities and professional rating agencies have torn off the "stable" label from stablecoins.
High - risk reserve assets are the main cause of "instability"
In the past year, Tether has significantly increased the proportion of high - risk assets in its reserves, including Bitcoin, gold, corporate bonds, and secured loans. As of September 30, 2025, the value of Bitcoin held by Tether accounted for 5.6% of the total circulating USDT, exceeding its excess collateral buffer of only 3.9%.
S&P believes that when the cryptocurrency market fluctuates, this structure may weaken USDT's asset coverage ability.
Meanwhile, Tether's gold reserves have also been expanding rapidly. It increased its gold holdings by 26 tons in the third quarter, bringing the cumulative total to 116 tons, making it one of its largest non - US Treasury assets.
This means that compared with stablecoin - issuing companies that use cash and US Treasury bonds as reserve assets, Tether's asset liquidity may face greater challenges during market stress.
In addition, the transparency of Tether's reserve assets also concerns S&P. Its report points out that the information disclosure of all reserve assets is very limited, and they are exposed to credit risks, market risks, interest - rate risks, and foreign - exchange risks.
S&P believes that these structural problems have increased the stability risks of USDT.
However, it also mentioned that even during periods of cryptocurrency market fluctuations, USDT "has maintained significant price stability".
This seems to be further confirmed after the release of the rating report - neither the price nor the trading volume of USDT has shown obvious fluctuations.
Data shows that after S&P downgraded Tether to "Weak", the market price of USDT has remained firmly anchored around $1, basically fluctuating between $0.998 and $1.002, with relatively small price fluctuations.
Meanwhile, the trading volume has not declined significantly. It has remained stable overall and even increased slightly due to market fluctuations.
Source: CoinWorld.com
This indicates that the rating downgrade has not had an immediate and significant material impact on USDT's market position.
Behind this reflects the complex reality of the current cryptocurrency market: on the one hand, USDT has a total market capitalization of $185.3 billion (as of December 4) and nearly 60% of the stablecoin market share. Even if some users sell USDT due to the rating downgrade, there will be a large amount of buying power to quickly pull the price back to $1. The price stability further strengthens market confidence, forming a short - term 'positive cycle'.
On the other hand, USDT's status as the 'hard currency' in the cryptocurrency world has not shaken. It is still the main trading pair for most altcoins; in decentralized finance protocols, USDT is also one of the largest collateral and liquidity - providing assets. In addition, in some regions where fiat - currency channels are not smooth, USDT is the preferred choice for many users due to its network effect and liquidity.
However, although USDT's price and trading volume have shown some resilience after the company's rating downgrade, this apparent "stability" may actually cover up the underlying risks.
Currently, the price of stablecoins is undoubtedly the lifeline that issuers need to maintain at all costs. Once the price deviates from the peg, it will directly impact market confidence and trigger panic selling. Technically, Tether also has the ability to maintain the price stability of USDT, such as setting up a buy wall with its strong cash flow.
Therefore, the market's belief in its "stability" is, to some extent, also based on a consensus of trust, rather than the fact that the quality of the reserve assets supporting this trust is truly indestructible.
According to the latest data disclosed by Tether in October, its reserve assets mainly consist of US Treasury bills (64.9%), Treasury repurchase agreements (11.1%), Bitcoin (5.5%), and precious metals (5.4%).
Taking Bitcoin as an example, it first fell below $85,000 at the beginning of this month and then rebounded strongly above $90,000 the next day. The sharp fluctuations in two days have caused heavy losses to global investors.
In the context of the global macro - economic environment facing high interest rates and slowing growth, the value of cryptocurrency assets without the credit endorsement of a national central bank and lacking actual cash - flow support is more vulnerable to shocks. If the cryptocurrency market experiences another sharp correction, the value of Bitcoin reserves held by Tether may shrink significantly.
In addition, if the risk of economic recession intensifies, the credit spreads of corporate bonds in its reserves may also widen, and the liquidity will decline accordingly. This means that the value of the underlying assets supporting each USDT may be weakening in terms of its actual coverage ability, and the market has not fully priced this in.
Therefore, although the price of USDT currently seems stable, it does not mean absolute safety. Instead, it blurs the divergence between asset quality and market value.
The "gray history" of the stablecoin leader
In fact, the problems such as "insufficient transparency of reserve assets" pointed out in S&P's report have long been concerns that the market has had about Tether. The downgrade by a professional institution has just put a more authoritative "seal" on these doubts without revealing new and more damaging information.
Therefore, the fact that the price of USDT has not shown obvious fluctuations recently may also be a sign that the market has developed a certain degree of "immunity" to this.
Comparing with USDC, the world's second - largest stablecoin, it is not difficult to see the root cause of USDT's "poor review".
First of all, the quality and structural risks of USDT's reserve assets have always been relatively high. Although Tether claims that most of its reserves have been converted into US Treasury bonds, there are also records showing that it once held a large amount of commercial paper and rarely disclosed information about the issuers and credit ratings, which has raised concerns in the market that it may include high - risk corporate bonds.
Currently, Tether follows the CNAD regulatory framework of El Salvador. This rule allows high - volatility assets such as loans, gold, and Bitcoin to be used as reserves and lacks strict reserve - auditing requirements. In contrast, the "GENIUS Act" passed by the United States in May this year has set a regulatory red line that "compliant stablecoin issuers are prohibited from using gold as reserve assets".
Under this regulatory framework, USDC's reserve assets consist of US Treasury bonds, repurchase agreements, and US dollar cash. These assets are generally regarded as one of the safest and most liquid asset classes.
Secondly, the asset transparency of USDT is relatively low. Previously, Tether has long been questioned for not providing complete and regular reserve - asset audits by the Big Four accounting firms.
As the "first stablecoin stock", Circle undergoes monthly reserve - asset reviews by independent auditing institutions and discloses the structure of its reserve assets weekly, which is significantly different from the "black - box reserve" controversy surrounding USDT.
From the perspective of traditional finance, S&P naturally cannot give a "good review" to a company with low asset safety and unclear audit reports.
The central bank defines stablecoins as "illegal"
On the day after S&P downgraded USDT's rating, the coordination mechanism meeting led by the People's Bank of China drew a clear red line for domestic stablecoin trading and speculation.
The meeting clearly stated that stablecoins are a form of virtual currency and currently cannot effectively meet the requirements for customer identity verification, anti - money - laundering, etc. There is a risk of them being used in illegal activities such as money - laundering, fundraising fraud, and illegal cross - border fund transfers.
From a regulatory perspective, this definition has a clear real - world background. On the one hand, after the "Stablecoin Ordinance" in Hong Kong came into effect in August this year, some overseas platforms have used the guise of "compliance licenses" to penetrate into the domestic market through cross - border VPNs, underground banks, and other channels, inducing investors to participate in trading.
On the other hand, there have been frequent cases of fundraising projects packaged with the gimmick of "stablecoins". A typical example is the "Xinkangjia" platform, which once stole the name of a Dubai exchange, attracted 2 million investors, and involved an amount of 13 billion yuan. Eventually, the capital chain broke, leaving investors penniless.
In addition, current mainstream stablecoins are all pegged to the US dollar. If unrestricted, they may pose a threat of "currency substitution". If a non - sovereign - backed, US - dollar - supported stablecoin is widely used for payment, settlement, and value storage, the status of the domestic fiat currency will be severely eroded.
Under this regulatory logic, the digital RMB may become the main market trend in the domestic digital - currency field in the future.
Considering the recent trend of many technology companies entering the stablecoin market, in the future, such companies may suspend applications for "coin - issuing" licenses and shift their business focus to the only compliant digital RMB ecosystem.
For example, relying on a large user base and rich business scenarios, they can play the role of a channel for promoting the digital RMB, providing application entrances and technological support for the digitalization of fiat currency; or they can focus on technological empowerment, applying their accumulated blockchain, risk - control, and technological capabilities to the underlying technological innovation of the digital RMB, such as hardware wallets, smart contracts, and cross - border settlements.
From an investment perspective, stablecoins are no longer risk - free assets. Although USDT has not shown obvious fluctuations due to the rating downgrade, for investors, understanding risks is always the first lesson. In the future, diversifying stablecoin holdings, paying attention to the transparency of issuers and the quality of reserve assets may become an indispensable part of investment decisions.
*Disclaimer:
The content of this article only represents the author's views.
The market is risky, and investment should be cautious. Under no circumstances do the information in this article or the opinions expressed constitute investment advice to anyone. Before making an investment decision, if necessary, investors must consult professionals and make decisions carefully. We have no intention of providing underwriting services or any services that require specific qualifications or licenses for the parties involved in transactions.
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