Author: Clow

Produced by: Plain Language Blockchain

With a market capitalization of $184 billion, Tether (USDT) is the cornerstone of liquidity in the crypto market, often seeing daily trading volumes that exceed the combined totals of Bitcoin and Ethereum. However, this dollar empire is facing an unprecedented triple crisis.

In the fourth quarter of 2025, Standard & Poor's downgraded its rating to the lowest "weak" level; BitMEX founder Arthur Hayes warned that a 30% drop in gold and Bitcoin holdings would lead to its bankruptcy; the United Nations and consumer organizations accused USDT of becoming the preferred tool for scams, money laundering networks, and sanctioned entities in Southeast Asia.

Is Tether an indestructible fortress, or a giant on the verge of collapse?

01. S&P Issues a Death Sentence

In November 2025, S&P cut Tether's rating from "4 (restricted)" to "5 (weak)"—the lowest score in its rating system.

For institutional investors subject to strict compliance restrictions, holding "weak" rated assets is akin to committing suicide in a board meeting.

S&P's reasoning is straightforward: Tether is aggressively increasing its exposure to high-risk assets.

Data does not lie. According to the third-quarter 2025 audit report, the proportion of high-risk assets surged from 17% to 24%. For every $100 of USDT, $24 is backed by Bitcoin, gold, mysterious loans, and "other investments":

• Bitcoin: $9.85 billion
• Gold and other precious metals: $12.9 billion
• Secured loans: $14.6 billion
• Other investments: $3.9 billion

Key data: Tether's equity buffer is about $6.8 billion, while its Bitcoin holdings exceed this amount.

"If Bitcoin prices drop significantly, combined with the depreciation of other high-risk assets, Tether's reserve coverage ratio will fall below 100%," S&P bluntly stated.

In contrast, Circle (USDC) received a "strong" rating because it is almost entirely backed by U.S. Treasury bonds and bank deposits.

Tether resembles an aggressive macro hedge fund, earning interest on U.S. Treasuries while investing profits into Bitcoin and gold, betting on the long-term depreciation of the dollar.

Tether CEO Paolo Ardoino responded defiantly: "We wear your loathing with pride."

He has reason to be confident: Tether holds over $100 billion in U.S. Treasury bonds, with an annual yield of 4-5%, earning billions of dollars passively each year. Which traditional bank does not operate with high leverage? At least Tether has full reserves.

But the market will not change the rules because of bravado. S&P's downgrade has put a big cross on the compliance checklist for institutional investors.

02. A Trader's Doomsday Scenario

Arthur Hayes calculated the numbers for Tether—simple yet brutal.

The logic is based on a basic formula: Equity = Total Assets - Total Liabilities

According to the third-quarter 2025 data report released by accounting firm BDO:

• Total Assets: $181.2 billion
• Total Liabilities: $174.4 billion
• Equity Buffer: $6.8 billion

Hayes focused on the "dangerous goods" on the asset side: $22.8 billion in Bitcoin and gold.

Stress test: If both drop by 30%, Tether would lose $22.8 billion × 30% = $6.84 billion, exactly wiping out all equity.

A 30% drop is not an extreme assumption. On March 12, 2020, Bitcoin plummeted by 40%, and in 2022, LUNA collapsed by 35%. In the crypto market, this is a likely reality.

But a counterattack soon followed.

Former Citigroup analyst Joseph Ayoub pointed out that Hayes overlooked a key factor: Tether has a money printer.

With $135 billion in U.S. Treasuries yielding 4% annually, it means earning $450 million a month passively. Even if it incurs a paper loss of $6.8 billion, it could recover in 15 months. The premise is: avoid a massive run on the bank.

More critically, Tether has $140 billion in liquid assets. Even if faced with $50 billion in redemptions (far exceeding the scale of the FTX collapse), it could respond by selling U.S. Treasuries without having to sell Bitcoin at a loss.

As long as the market does not experience simultaneous crashes and runs, Tether can weather the storm.

But crises often come in pairs. Lehman Brothers fell in 2008 due to: market crash + liquidity drying up + counterparties refusing to cooperate.

Tether is no longer a "stablecoin," but a leveraged macro hedge fund.

03. The Original Sin of the Tool?

In 2025, the public relations war against Tether reached new heights.

Consumer organizations bombarded Times Square and national television networks, accusing Tether of being the "currency of choice for criminals." The UNODC report revealed USDT's role in crimes in Southeast Asia.

Elliptic's investigation showed that wallets associated with Cambodia's "Huay Wang Guarantee" platform processed over $11 billion in transactions, the vast majority being USDT. This "Amazon of crime" offers one-stop services for money laundering, fake passports, and stolen accounts.

The data is real, and cases exist. But the question is: are these accusations fair?

From another perspective, cash in U.S. dollars is also the preferred choice for global criminal networks. Mexican drug traffickers, Colombian cartels, and Middle Eastern terrorist organizations—who doesn't use dollars for transactions? Yet no one accuses the dollar of being a "criminal tool."

Because everyone understands: the tool itself is neutral; the key lies in the user.

A kitchen knife can cut vegetables or harm people, but you wouldn't ban everyone from using kitchen knives for that reason.

USDT also serves millions of legitimate users:

• Hedging tool: In high-inflation countries like Argentina and Turkey, people use USDT to protect their wealth from being eroded by currency depreciation;
• Cross-border payments: Millions of freelancers and cross-border e-commerce businesses use USDT for low-cost transfers;
• Market infrastructure: Supporting the daily trading of tens of millions of investors globally.

Ironically, USDT actually plays the role of a "digital ambassador" for the dollar, helping to expand the dollar's global influence.

For every USDT issued, the market's demand for dollar assets increases by one dollar. Tether holds over $100 billion in U.S. Treasuries, equivalent to the reserve scale of a medium-sized country. In a sense, Tether is an extension of dollar hegemony in the digital world.

Tether is well aware of its situation, actively cooperating with law enforcement, proactively freezing wallets suspected of criminal activity, collaborating with TRM Labs to establish the "T3 Financial Crimes Unit," and working with the FBI and DOJ to bring criminals to justice.

From this perspective, Tether's efforts should be recognized rather than solely criticized.

The real issue is not the tool USDT itself, but: how to establish effective regulation without stifling innovation? How to find a balance between combating crime and protecting legitimate users?

04. Washington's Dilemma

For the U.S. government, Tether is a complex entity.

On one hand, USDT is used to evade sanctions and launder money, crossing national security red lines.

On the other hand, USDT expands the dollar's influence globally. In regions where the traditional U.S. banking system cannot reach—from Latin America to Africa, from Southeast Asia to the Middle East—USDT has become the "digital agent" of the dollar.

Banning Tether would mean handing over the dollar demand in these regions to competitors.

This is a dilemma.

Tether's strategy is clear: on one hand, actively cooperate with law enforcement to prove itself as an "ally"; on the other hand, seek geopolitical protection by investing in El Salvador, deeply binding with this country that has made Bitcoin legal tender.

However, the ultimate control over dollar settlements lies in Washington. If the Treasury's OFAC places Tether on the sanctions list, any entity interacting with USDT globally will face secondary sanctions.

More subtly, Tether's over $100 billion in U.S. Treasuries is held by Wall Street broker Cantor Fitzgerald. If the government orders a freeze, the "excess reserves" could become untouchable overnight.

Ironically, the more U.S. Treasuries Tether holds, the deeper its reliance on U.S. regulation becomes. It thinks it is buying "safe assets," but in reality, it is handing its lifeline to Washington.

05. Conclusion

In 2025, Tether is walking a tightrope.

From a financial perspective, Tether is not currently insolvent. S&P's downgrade and Hayes' projections point to potential risks—the asset structure is indeed fragile, and risk exposure is rising. But as long as a "crash + run" perfect storm does not occur, the massive interest income and liquidity reserves are sufficient to weather the cycle.

The real uncertainty lies in Washington's attitude.

USDT, as a tool, is neutral, just like the dollar, gold, or AI; it can be used legally or abused. The key is not to ban the tool, but to regulate the users.

Tether's efforts—freezing criminal accounts, cooperating with law enforcement, establishing compliance systems—should be recognized. But in geopolitical games, rationality often gives way to political needs.

For ordinary investors, holding USDT does not equate to holding cash in dollars. It is more like a "high-yield bond" that includes the volatility risk of Bitcoin, credit risk, and geopolitical risk. You enjoy liquidity convenience and global accessibility, but you also bear the risk of regulatory shocks.

S&P's downgrade and Hayes' warning do not mean you should sell immediately; rather, they remind you: the risk premium has changed.

USDT remains an indispensable infrastructure in the crypto market, still providing value to millions of users worldwide. But its fate depends not only on financial statements but also on which way the political balance in Washington ultimately tips.

Because this $184 billion digital dollar empire is walking a tightrope.

A gust of wind could cause it to fall.

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