S&P Global Ratings downgraded Tether’s USDT stablecoin stability score from constrained to weak, citing increased exposure to volatile assets like Bitcoin. This move triggered intense debate on Chinese social media, with traders expressing concerns ranging from skepticism to outright panic.
The timing is critical for China’s underground crypto market. Over 20 million participants depend on USDT as their primary route to digital asset trading, even after the country’s 2021 ban.
S&P Flags Reserve Composition Concerns
The official S&P Global report released on Wednesday highlights significant risks in Tether’s reserve structure. Bitcoin now makes up 5.6% of circulating USDT, exceeding the previously stated buffer of 3.9%. S&P pointed to insufficient transparency and limited disclosure of reserve assets.
According to Tether’s Q1–Q3 2025 attestation reports, the company holds $9.9 billion in Bitcoin and $12.9 billion in gold. Combined, these volatile assets account for about 13% of total reserves backing $174.4 billion in liabilities. Tether maintains $181.2 billion in reserves and has generated over $10 billion in profit in the first three quarters of 2025.
S&P’s analysis also highlighted exposure to high-risk assets, such as secured loans, corporate bonds, and precious metals. The agency noted ongoing gaps in disclosure practices, raising doubts about USDT’s long-term ability to keep its 1-to-1 peg with the US dollar. However, Tether’s transparency reports show US Treasury holdings of more than $113 billion, accounting for most of its reserves.
Chinese Traders React With Mixed Emotions
The downgrade sparked a heated debate within Chinese crypto circles, where USDT dominates trading. One veteran trader noted that negative news about Tether regularly surfaces without effect, often near market lows. This view shows how many remain skeptical of stability warnings that have not come true in the past.
Other participants expressed concern about the potential fallout. The anxiety centers around USDT’s key role as vital infrastructure for China’s thriving but banned stablecoin crypto community. Many exchanges serving Chinese users operate under local management, creating deep ties between traders and USDT-denominated markets.
Meanwhile, conspiracy theories emerged about coordinated attacks by stablecoin rivals USDC and USD1. Some analysts argued that these competitors have much to gain from undermining USDT’s dominance, particularly as global regulatory scrutiny intensifies. Critics took the opportunity to promote USDC as the future of stablecoins, citing stronger transparency and regulatory compliance.
Underground Market Faces Stability Test
China began comprehensive cryptocurrency bans in 2017, culminating in 2021 with the outlawing of all crypto transactions and mining. Yet, data shows more than 20 million Chinese citizens hold Bitcoin as of 2024. Traders use overseas exchanges, over-the-counter platforms, and private deals to bypass local restrictions.
USDT emerged as a lifeline for this shadow market, enabling Chinese investors to convert yuan into dollar-linked tokens through informal channels. Social media sites like Weibo and WeChat show continuous interest in Bitcoin and crypto trading, with rapid growth in some exchange communities. This network relies on influencers and so-called “signal teachers” to guide users through regulatory barriers.
This activity’s scale explains why the S&P downgrade resonated so strongly in Chinese crypto communities. Any disruption to USDT could trigger a chain reaction across an ecosystem with no official recourse. Traders face higher risks due to the informal and unregulated nature of their markets.
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