Tether’s USDT is the most widely used stablecoin in the digital asset market, forming a critical layer of liquidity for centralized exchanges, DeFi protocols, and cross-border settlement flows. While USDT is commonly described as “fully backed,” holders are ultimately exposed to the creditworthiness of its issuers and their broader corporate group.
This post summarises Agio Ratings’ December 2025 credit risk assessment of USDT, applying a traditional credit framework—default probability, loss given default, and expected loss—to one of the most systemically important instruments in crypto markets.
Key Credit Metrics at a Glance
From a holder’s perspective, USDT exhibits speculative-grade credit risk, with outcomes highly dependent on assumptions around parent-company support.
- Annual default risk (with parent support): 0.69%
- Annual default risk (without support): 14.55%
- Loss Given Default (LGD): ~30%
- Annual expected loss: ~0.21%
- Equivalent credit rating:
- BB+ with parent support
- B- without parent support
The material difference between these outcomes is driven less by asset quality and more by capital structure, leverage, dividend policy, and market risk exposure.
How USDT Is Issued and Backed
USDT is issued by several special-purpose vehicles ultimately controlled by Tether Holdings Ltd. Holders exchange U.S. dollars for USDT, which issuers invest primarily in short-dated U.S. Treasuries and reverse repos. These assets form the backbone of USDT’s redemption mechanism.
In addition, the issuers maintain meaningful long positions in Bitcoin and physical gold, in excess of liabilities linked to those assets (such as Tether’s gold-backed XAUT token). As of September 2025, these exposures introduce volatility into an otherwise conservative reserve portfolio.
Balance Sheet Strength and Capitalisation
As of 30 September 2025, the Tether issuers reported:
- Total assets: ~$181bn
- Equity: ~$6.8bn
- Capital ratio: ~3.7%
This represents a decline from approximately 5.4% in December 2023, largely due to substantial dividend distributions. Over the prior twelve months, the issuers generated ~$14.9bn in post-tax profits and distributed ~$14.2bn to parent entities.
For comparison, Agio estimates the issuers’ Common Equity Tier 1 (CET1) ratio at roughly 3.6%, well below the 8% minimum required for regulated banks. As USDT issuance has grown while equity has remained relatively flat, leverage has increased materially.
Primary Risk Drivers
Market Risk
The dominant source of insolvency risk is exposure to Bitcoin and gold price declines, amplified by high leverage and ongoing dividend extraction. Under adverse market conditions, even moderate price shocks can erode the issuers’ equity buffer.
A key uncertainty is management behaviour under stress:
- Will issuance slow or reverse?
- Will market risk exposures be reduced?
- Will dividends be suspended or returned?
Credit Risk
Credit risk is minimal. Nearly three-quarters of assets are U.S. Treasuries or repos, which historically exhibit extremely low default rates. Credit losses are not the primary driver of USDT risk.
Liquidity Risk
Liquidity risk is assessed as low. Reserve assets are highly liquid, and while USDT is redeemable continuously, operational practices (including redemption windows of up to several days) mitigate timing mismatches.
Operational, Legal, and Other Risks
USDT is also exposed to operational failures, cyber incidents, fraud, and regulatory action. While these risks are low-probability, they contribute to “fat-tail” loss scenarios that cannot be ignored in credit modelling.
The Importance of Parent Support
A defining feature of USDT’s credit profile is discretionary support from Tether Holdings.
Absent support, Agio estimates a 14.55% annual probability that the issuers would require recapitalisation. However, if Tether Holdings:
- Suspends dividend extraction, and
- Returns up to ~$10bn of prior distributions,
the annual default probability falls sharply to 0.69%.
There is no legal obligation for such support. The decision would likely depend on the perceived enterprise value of the USDT business and whether a loss of confidence would permanently impair that value.
Loss Severity and Expected Loss
In default scenarios, Agio estimates a Loss Given Default of ~30%, reflecting:
- The quality and liquidity of reserve assets,
- Potential settlement delays,
- Forced liquidation discounts.
Under the supported scenario, this implies an expected annual loss of ~0.21%, consistent with a BB+ speculative-grade credit profile.
Conclusion
USDT’s risk profile is not binary. While reserve quality is high, the instrument’s creditworthiness is shaped by leverage, market risk exposure, and capital management decisions at the group level. Agio Ratings’ analysis highlights why stablecoins should be evaluated using explicit credit frameworks rather than assumptions of implicit safety.
As stablecoins continue to scale and integrate with institutional finance, transparent, forward-looking credit analysis will be essential for managing counterparty and systemic risk.
.png)
