Major rating downgrade impacts top stablecoin

Major rating agency lowers assessment of leading dollar-pegged stablecoin

In late 2025, a prominent credit rating agency revised its assessment of one of the market’s largest dollar-pegged stablecoins, moving its score to the lowest category on the firm’s stablecoin framework. The change reflects concerns about shifting reserve composition, increased exposure to volatile assets and limitations in disclosure practices — developments that market participants and regulators are watching closely.

What changed in the rating

The agency’s framework, introduced in recent years to evaluate stablecoin issuer risk, examines liquidity, asset backing, governance and the issuer’s ability to maintain a peg during stress events. In its most recent report, the agency noted a notable shift in the stablecoin’s reserve mix compared with the prior year. Key observations included:

• An increase in holdings considered more volatile or less liquid, such as cryptocurrencies, gold, secured loans and corporate bonds — rising to roughly 24% of reported reserves from about 17% in the previous year.
• A specific upward allocation to bitcoin (BTC) that the agency flagged as materially amplifying volatility risk relative to the issuer’s previously disclosed reserve buffers.
• Concerns over the level of granularity in public attestations and limited visibility into custody arrangements and counterparty exposures.

Despite those concerns, the agency acknowledged that the majority of reserves remained concentrated in short-term U.S. Treasuries and cash equivalents, which continue to provide liquidity support for redemptions.

Issuer response and market context

The stablecoin issuer publicly disagreed with the downgrade, arguing that the rating methodology is not well-suited to the operational model of a privately issued dollar-pegged token. Company representatives emphasized the coin’s long record of maintaining its peg through multiple market stress events and highlighted excess capital buffers reported in recent attestations.

Executives framed the rating decision as a difference in perspectives between legacy credit assessment methodologies and newer market infrastructure. They underscored that reserve strategies, including selective allocation to digital assets, reflect broader market adoption dynamics and can offer diversification benefits when managed prudently.

Why bitcoin in reserves matters

Allocating a portion of reserves to bitcoin introduces price volatility that differs from traditional treasury and cash holdings. For rating analysts, that exposure raises two central concerns:

• Market-value variability: Significant downward moves in BTC prices could reduce the market value of reserves in stressed scenarios.
• Liquidity considerations: While major cryptocurrencies are liquid under normal conditions, market-wide liquidity can deteriorate during extreme stress.

For issuers, proponents argue that small, well-contained allocations to bitcoin can act as a hedge or store-of-value diversification, a view increasingly visible among certain institutional investors in 2025.

Transparency and attestations under scrutiny

One focal point of the agency’s downgrade was transparency. The agency criticized attestations for offering limited granularity on custody chains, counterparty identities and the structure of certain reserve instruments. According to the report, high-level snapshots can make it difficult for external analysts to fully assess redemption risk and operational resilience.

Industry observers note that improved transparency — including more detailed, timely reporting and independent audits — has become a recurrent theme in regulatory discussions and market best-practice guidance throughout 2024–2025.

Regulatory and market developments in 2025

The stablecoin sector has been subject to heightened regulatory attention globally in 2025. Policymakers and supervisors have emphasized three recurring objectives:

• Protecting redeemability and ensuring issuers maintain adequate high-quality liquid assets.
• Improving public disclosure, including standardized reporting formats to aid comparability.
• Enhancing governance and custody safeguards to limit operational and counterparty risk.

Several jurisdictions moved forward with rulemaking and guidance that require clearer reserve breakdowns, independent attestations or audits, and explicit arrangements for redemption mechanisms. Those developments are shaping issuer behavior and investor expectations.

Market implications and investor considerations

For traders, liquidity providers and institutional participants, the downgrade carries a few practical implications:

• Price stability: The stablecoin has continued to maintain its peg through many episodes of market stress historically, but higher reserve volatility warrants close monitoring.
• Counterparty risk: Participants should assess the issuer’s transparency practices and the redeemability conditions under different scenarios.
• Portfolio fit: For treasury and custody managers, reserve composition can influence whether a stablecoin aligns with liquidity needs and risk tolerance.

Market participants should differentiate between the assessment of reserve composition and the operational history of an issuer. A downgrade does not automatically imply imminent peg failure, but it does signal elevated risks that may merit re-evaluation of exposure and contingency plans.

Best practices for market participants in 2025

• Review periodic attestations and independent reports for detail on reserve types, custodial arrangements and counterparty exposures.
• Maintain diversified liquidity management strategies and stress-test scenarios that account for rapid devaluation of non-cash reserve assets.
• Monitor regulatory updates and industry-standard disclosure improvements that can affect counterparty assessments.

How this fits into broader adoption trends

Stablecoins remain a critical component of digital asset markets and cross-border payments infrastructure in 2025. Demand for dollar-pegged tokens continues across trading venues, decentralized finance, treasury management and emerging market use cases. At the same time, the sector is maturing: institutional participation, regulatory scrutiny and market infrastructure improvements are shaping a new operating environment.

Asset managers, endowments and public entities that have integrated cryptocurrencies into their portfolios are influencing the debate over reserve strategies and acceptable asset classes. Those developments are part of a broader conversation about how digital assets coexist with traditional financial systems.

Looking ahead: key themes to watch

As markets progress through 2025, several themes will likely shape the stablecoin landscape:

• Standardization of disclosure and third-party verification practices.
• Regulatory clarity on acceptable reserve instruments and custodial safeguards.
• Issuer strategies balancing liquidity, yield and diversification within reserves.
• Market participants’ evolving risk frameworks that incorporate digital asset volatility and redemption dynamics.

Conclusion

The recent rating downgrade underscores the tension between evolving reserve strategies and traditional credit assessment models. While majority holdings in high-quality short-term instruments still provide a foundation for redeemability, increased allocations to volatile assets and limited disclosure have prompted a more cautious external assessment.

For traders, institutions and market infrastructure providers, the event is a reminder to reassess liquidity policies, enhance due diligence and follow regulatory developments. As the stablecoin ecosystem continues to mature in 2025, transparency improvements and clearer regulatory frameworks are likely to be central to restoring and maintaining confidence among a broad set of stakeholders.

Disclaimer: This post is a compilation of publicly available information.
MEXC does not verify or guarantee the accuracy of third-party content.
Readers should conduct their own research before making any investment or participation decisions.