Investment bank HSBC said S&P Global Ratings’ decision to lower Tether’s reserve rating is a reminder that stablecoins have built-in “de-pegging” risks that do not apply similarly to other forms of tokenized money.
The core issue is straightforward. If holders rush to redeem, stablecoin issuers will definitely need liquid, low-risk reserves, otherwise the token’s price could deviate from its intended peg, analysts Dara Maher and Nishu Singla said in a report on Monday.
Stablecoins are cryptocurrencies pegged to assets such as fiat currency or gold. They underpin much of the crypto-economy, acting as payment rails and tools to move money across borders. Tether’s USDT is the largest stablecoin, followed by Circle (CRCL)’s USDC.
Analysts noted that the market tends to treat the largest stablecoins as infrastructure-like utilities, so a change in view of reserve strength could be significant far beyond a single issuer.
This downgrade stands out as Tether’s USDT remains the dominant stablecoin in terms of size, and means questions about its reserve structure and disclosure practices are rippled across exchanges, trading pairs, and the decentralized finance (DeFi) pipeline.
The bank said S&P’s stablecoin framework, which ranks reserve strength on a five-point scale from “very strong” to “weak,” effectively reinforces what regulators are pushing for globally. If stablecoins are to expand into mainstream payments and institutional payments, the quality of reserves, governance, and transparency will become fundamental, not nice-to-have.
According to the report, S&P’s concerns focus on the asset mix that makes up Tether’s reserves, particularly its increased exposure to holdings deemed riskier relative to cash, cash equivalents, and short-term U.S. Treasuries.
HSBC said this is important because the composition of reserves is directly related to redemption capacity, and markets are most unforgiving when volatility rises and liquidity tightens. The point is not that alternative assets can never be part of the reserve stack, but rather that the more reserves rely on products with high price sensitivity, low transparency, and unpredictable liquidity, the more stablecoins resemble balance sheet transactions rather than simple redeemable dollar proxies.
This is also why stablecoin policy initiatives in the US, Europe and Hong Kong are highly focused on high-quality liquid assets and reliable reporting, the bank said. This regulatory direction creates a clear market signal for institutional investors and mainstream companies, who typically have limited tolerance for reserve opacity and tend to favor coins designed to meet stringent standards.
There is likely to be a sort of gravitation towards higher-rated, more regulated stablecoins as investors and companies prioritize the clearest reserve framework and adoption by institutional investors increases, the analysts wrote.
HSBC said USDC in the Circle, which is rated higher than USDT by S&P, is indicative of the type of positioning that could benefit if ratings and regulation become central to stablecoin selection. Tether points to plans for a U.S.-based, dollar-backed stablecoin aimed at complying with stricter U.S. requirements, which the report says will highlight how issuers will categorize their products by jurisdiction and audience.
“We take your hate with pride,” Tether CEO Paolo Ardoino said shortly after the S&P move.
read more: Unlimit debuts Stable.com, a decentralized clearinghouse built for stablecoins