Tether’s USDT Downgrade Brings Old Arguments Back to the Front

So old and crusty are concerns that Tether is either not being upfront about the reserves backing its USDT stablecoin or faces imminent threat of being undercapitalized, that the crypto industry has developed its own two-word dismissive response: “Tether FUD.”

Through soaring bull markets, the most brutal of bear markets, the comings and going of charlatans like Sam Bankman-Fried, Alex Mashinsky, and dozens of others, Tether’s USDT has continued to grow and function as designed — pegged to the U.S. dollar and available for redemption at any time. Alongside, Tether has become one of the globe’s most profitable companies, earning more than $10 billion through the first nine months of 2025, similar levels to those of Wall Street titans Goldman Sachs and Morgan Stanley.

The current bear market (and stop saying “zoom out,” it’s a bear market), though, has some in traditional finance sharpening their nails yet again.

During the sleepy session the day before Americans celebrated Thanksgiving, S&P Global slashed the rating on Tether’s USDT from 4 to 5, the weakest level on its stablecoin stability scale (yes, the agency whose ratings shenanigans helped enable the global financial crisis has a stablecoin stability scale).

Behind the downgrade were usual concerns about the opacity of Tether’s reporting combined with something somewhat new: bitcoin now compromises more than 5% of the reserves backing USDT — thus continued declines in BTC’s price could lead to potential undercollateralization.

There’s smoke. Any fire?

“We wear your loathing with pride,” said Tether CEO Paolo Ardoino, shortly after the S&P move. Taking note of the well-trodden previous failures of ratings agency models, Ardoino said, “the traditional finance propaganda machine is growing worried when any company tries to defy the force of gravity of the broken financial system … Tether instead built the first overcapitalized company in the financial industry, with no toxic reserves.”

Tether, he concluded, “is living proof that the traditional financial system is so broken that it’s becoming feared by the emperors with no clothes.”

Possibly attempting to be helpful or maybe just trying to flame, well-known angel investor Jason Calacanis took to X over the weekend to offer his advice.

“Tether has a lot left to clean up, but they’re getting close,” said Calacanis. He urged Tether to 1) sell all of its bitcoin, 2) own only U.S. treasuries, and 3) get not just one, but two audits done by American firms.

The Calacanis post drew a fast and fiery response from bitcoiners, with the general reaction being the absurdity of a stablecoin/bitcoin company swapping its relatively small holdings of BTC for government paper. Several drew attention to Calacanis’ panicky request for a bailout of all bank deposits as Silicon Valley Bank was failing in March 2023, in part thanks to a plunge in value of U.S. treasuries it was holding.

Fair enough. But even if Tether holds onto its bitcoin, what about a traditional audit? On that subject, Calacanis was later joined by popular financial blogger Quoth the Raven, a longtime gold bug who began coming around to bitcoin in 2024.

“I’ve been in this game long enough to know that when a company refuses to furnish a full, independent audit, it’s never because things are pristine and they just forgot to schedule one,” wrote QTR. “I’ve found only ever one reason an outfit digs in its heels and won’t submit to an audit when everyone requests one. And it’s not a good reason.”

“Markets have a long, bloody track record of chewing up the naïve,” he continued. “[An audit is] the bare f—ing minimum anyone should demand from an entity issuing tens of billions in synthetic dollars that underpin entire markets.”