Tether and the Dangerous Game with Reserves: Why Does Diversification Raise Concerns Among Rating Agencies?

When Bond Income Threatens Business

The Tether business model is based on simple mathematics. In an environment of high interest rates—such as the approximately 5% levels in 2024—each additional percentage point of return on about 1 trillion dollars in U.S. Treasury bonds generates roughly 1 billion dollars in annual profit. Meanwhile, USDT holders do not earn any income from these assets. This was an ideal combination for the stablecoin issuer. However, drifting bond prices and Federal Reserve forecasts indicate a significant change. CME FedWatch data suggest that by December 2026, there is over a 75% chance of lowering the federal funds rate from the current 3.75–4% to the 2.75–3.25% range. Such rate depreciation could reduce Tether’s annual revenue by at least 15 billion dollars—over 10% of its current annual net profits.

Preparing for a Low-Interest-Rate World

In light of the monetary cycle shift, Tether has adopted a strategy it has long planned. From March 2023 to September 2025, the issuer significantly changed its reserve structure. While U.S. Treasury bonds still constitute the majority of (63% of assets), exposure to alternative assets has become surprisingly large. According to S&P Global Ratings, Tether has accumulated over 100 tons of gold worth about 13 billion dollars and over 90,000 BTC valued at nearly 10 billion dollars. These two instruments together account for 12–13% of total reserves.

Why gold and Bitcoin? Macro-economic history provides answers. When interest rates fall, gold traditionally gains strength due to inflation concerns and lower holding costs. After the Federal Reserve cut rates this year, gold prices increased over 30% between August and November. Bitcoin similarly reacts to liquidity expansion—being a high-beta asset, it can adapt a portfolio to a volatile monetary environment.

For comparison, Tether’s competitor, Circle, holds only 74 bitcoins worth about 8 million dollars. This is a dramatic difference in approach to the future.

Dangerous Balance Between Growth and Security

However, this portfolio transformation has not gone unnoticed by regulators. Just two weeks ago, S&P Global Ratings downgraded Tether’s ability to maintain the USDT peg to the dollar from 4 (restricted) to 5 (weak). The agency pointed to over 24% of reserve exposure to high-risk assets—from corporate bonds, precious metals, to Bitcoin and loans.

The biggest challenge concerns the current coverage structure. Bitcoin now accounts for about 5.6% of all USDT in circulation, exceeding the 3.9% reserve surplus. This means reserves may not fully absorb a significant decline in the cryptocurrency’s value. Recent two-month Bitcoin fluctuations have shown how quickly this can change. If Bitcoin drops by 30–40% simultaneously with depreciation of other risky assets in the portfolio, the reserve coverage ratio could fall below a safe level.

Two-Sided Discussion

On one hand, Tether’s preparation for a low-interest-rate environment seemed sensible. A machine generating 13 billion dollars in profit will fight for profitability as rates fall. The growth potential of gold and Bitcoin could partially compensate for lost interest income.

On the other hand—and here lies the dangerous part—the stablecoin issuer’s primary task is to protect the peg to the dollar. All other goals—profits, diversification, unrealized gains—are secondary. Losing this peg would mean the collapse of the entire business. Increasing exposure to volatile assets narrows the safety margin and shifts the risk profile of USDT from a stable instrument to one with hidden volatility.

The future will depend on how quickly rates fall and how volatile the assets in Tether’s reserve become at the same time. The first decision to cut rates will be a crucial moment—either confirming the wisdom of diversification strategies or marking the beginning of challenges for the world’s largest stablecoin’s peg.