Tether's reserve transformation sparks controversy: Arthur Hayes warns of significant downside risks in Bitcoin's gold allocation, Paolo Ardoino responds strongly.

Industry expert Arthur Hayes pointed out that Tether is shifting its reserve assets towards Bitcoin and gold in response to the Fed's rate cut cycle, but warned that if the prices of these two assets fall by 30%, it could deplete the company's equity capital. S&P Global Ratings downgraded the stability rating of USDT to “weak,” reflecting an increase in exposure to high-risk assets of nearly $23 billion. Tether CEO Paolo Ardoino strongly responded, revealing that the group's total assets reach $215 billion, with monthly profits exceeding $500 million, emphasizing that the company's financial strength far exceeds market perceptions. This debate highlights the value judgment discrepancies between traditional rating agencies and crypto-native enterprises.

Tether Reserve Transformation Strategy and Risk Warning

Arthur Hayes recently analyzed the strategic shift in Tether's reserve asset allocation in a social media post. He pointed out that the company is preparing for a Fed rate cut cycle by gradually shifting reserves from U.S. Treasury bonds to alternative assets like Bitcoin and gold, aiming to meet yield demands in a low-interest-rate environment. According to Tether's latest reserve report, the company's total assets are approximately USD 181 billion, with nearly USD 10 billion allocated to Bitcoin, USD 13 billion to precious metals, over USD 14 billion in secured loans, and cash, Treasury bonds, and money market instruments making up the majority.

Hayes warned that this asset allocation strategy carries significant risks, especially when the prices of Bitcoin and gold fall sharply, which could severely erode Tether's equity buffer. He calculated that if Bitcoin and gold positions fall by about 30%, it would completely exhaust the company's equity capital, theoretically leading to USDT being insolvent. This concern stems from the high volatility characteristic of the encryption market, as historically Bitcoin has experienced extreme situations where it fell over 20% in a single day, while gold prices can also fluctuate dramatically due to macroeconomic factors.

From a temporal perspective, Tether's reserve transformation coincides with a critical turning point in monetary policy. The Fed has recently hinted at the possibility of starting a rate-cutting cycle, which will compress the returns on traditional fixed-income assets and drive investors to seek alternative sources of yield. As the world's largest stablecoin issuer, Tether's reserve management strategy not only affects its own stability but also concerns the liquidity foundation of the entire encryption market, especially as USDT dominates mainstream CEX trading pairs.

Tether reserve allocation key data

• Total asset size: approximately 181 billion USD
• Bitcoin holdings: nearly 10 billion USD
• Gold and related assets: approximately 13 billion USD
• Secured loans: over 14 billion USD
• U.S. Treasury: approximately 120 billion USD
• Monthly base profit: over 500 million USD (only treasury bond income)

Concerns of Rating Agencies and Industry Response

S&P Global Ratings has downgraded the stability rating of USDT from “limited” to “weak” in its latest assessment, which is the lowest grade in the agency's rating system. The downgrade primarily reflects the continued increase in exposure to high-risk assets in Tether's reserves, including volatile asset classes such as Bitcoin, gold, secured loans, and corporate bonds. S&P emphasizes that this combination may increase the risk of under-collateralization during periods of severe market pressure, especially considering the limited nature of Tether's disclosures.

The rating report specifically points out that traditional financial institutions typically enjoy central bank lender of last resort support, whereas crypto-native enterprises like Tether lack a similar safety net. Under extreme market conditions, this structural difference may amplify the risk transmission effect, especially when market liquidity suddenly dries up. S&P's analytical model is based on long-term observations of the traditional financial system, and its conservative stance reflects the rating agency's cautious attitude towards the emerging class of crypto assets.

The industry's reaction to the downgrade in ratings shows a clear polarization. Some traditional financial institution investors express concern over the rating changes, believing it validates their long-term worries about the risks of stablecoins. In contrast, the crypto community generally criticizes S&P for failing to adequately consider Tether's unique business model and profitability. Former Citigroup analyst Joseph Ayoub points out that the rating agencies overlooked the company's additional group equity and strong interest income, highlighting the fundamental differences in value assessment standards between traditional finance and the crypto economy.

Tether Financial Strength and CEO Response

Tether CEO Paolo Ardoino responded strongly to the downgrade, detailing the company's financial data on social media to refute market concerns. According to the audited report for the third quarter of 2025, Tether Group's total assets are approximately 215 billion USD, with stablecoin liabilities around 184.5 billion USD, and the group's own equity nearing 30 billion USD, which includes about 7 billion USD in excess equity and 23 billion USD in retained earnings. These figures far exceed market perceptions and demonstrate the company's strong financial foundation.

Ardoino particularly emphasized that Tether's profitability is severely underestimated by rating agencies. The monthly earnings from U.S. Treasury holdings alone can generate approximately 500 million USD in base profit, while the company's operational costs are extremely low, with only about 150 employees. This highly efficient business model has allowed Tether to achieve nearly 10 billion USD in annualized profits since 2023, providing a solid buffer against market fluctuations. In addition, the company also holds extra corporate assets that are not included in public reserves, including equity investments, mining operations, and additional Bitcoin holdings.

From a risk management perspective, Ardoino pointed out that Tether's reserve structure is actually more robust than that of traditional banks. Most banks only keep 5% to 15% of deposits in liquid assets, while the rest is invested in less liquid securities, whereas Tether's proportion of liquid assets is significantly higher than this level. Despite the lack of central bank lender of last resort support, strong profitability compensates for this structural difference, enabling the company to cope with market pressures without relying on external bailouts.

Analyst Opinions Diverge and Market Impact

The debate surrounding Tether's reserve strategy has exposed fundamental differences among analysts regarding the valuation methods of encryption companies. Arthur Hayes, from the perspective of a market trader, focuses on the liquidity crisis that may be triggered by short-term fluctuations in asset prices, basing his analysis on public reserve data and historical price behavior. In contrast, former Citigroup analyst Joseph Ayoub employs a traditional financial institution evaluation framework, emphasizing the overall profitability, cost structure, and value of hidden assets of the company. This difference leads to vastly different risk assessments of the same company.

From the perspective of market structure, Tether's position as a key infrastructure in the cryptocurrency ecosystem gives its risk exposure systematic implications. USDT is currently the largest stablecoin by trading volume, dominating the Bitcoin and Ethereum trading pairs on mainstream CEXs, and it is also an important source of liquidity for DeFi protocols. If Tether does face solvency pressures, it could trigger a chain reaction across the entire crypto market, similar to the “too big to fail” dilemma in traditional finance.

For investors, this debate highlights the complexity of risk assessment for stablecoins. In addition to focusing on publicly available reserve data, it is also necessary to consider the issuer's business model, profitability, and corporate governance structure. As regulatory frameworks gradually become clearer, stablecoin issuers may face stricter disclosure requirements and capital adequacy standards, which could change the competitive landscape of the industry and push more transparent and conservative reserve management strategies into the mainstream.

Tether's Position is Stable: With Greater Power Comes Greater Responsibility

The controversy arising from Tether's reserve transformation not only concerns the risk management of a single company but also reflects the value conflicts in the deep integration process between the cryptocurrency industry and the traditional financial system. When cryptocurrency-native enterprises attempt to explain their business models within the traditional financial framework, they often face challenges related to cognitive gaps and mismatches in evaluation standards. This tension may persist as more institutions enter the crypto asset space, until a new evaluation paradigm that is acceptable to both sides is established.

Looking at the development trajectory of stablecoins, the case of Tether showcases the industry's evolution from simple fiat backing to complex asset management. Early stablecoins often relied on straightforward cash and government bond reserves, but as the scale expanded and competition intensified, issuers began exploring higher-yield asset allocations. This trend bears a striking resemblance to the historical development of traditional money market funds. The key difference lies in the lack of clear regulatory safeguards and insurance mechanisms in the encryption industry, which concentrates the risk more on the financial strength of the issuers themselves.

For participants in the cryptocurrency market, this incident provides important risk education. When relying on stablecoins as a medium of exchange and a store of value, it is essential to fully understand the issuer's reserve composition and financial health, to avoid excessive exposure to a single stablecoin. At the same time, developers and project teams should also consider integrating multiple stablecoin options to reduce the impact of risks associated with a single issuer on their ecosystem. With the development of central bank digital currencies and compliant stablecoins, the stablecoin market may present a more diversified competitive landscape in the future.