Investment bank HSBC indicated that S&P Global Ratings’ decision to downgrade Tether’s reserve assessment to weak serves as a reminder that stablecoins possess an inherent “de-pegging” risk unlike other forms of tokenized currency.
The fundamental issue is clear: should holders rush to redeem, a stablecoin issuer must maintain reserves that are undoubtedly liquid and low-risk, or the token’s price may stray from its intended peg, according to analysts Daragh Maher and Nishu Singla in a Monday report.
Stablecoins are cryptocurrencies anchored to assets such as fiat currencies or gold. They are essential to the crypto economy, acting as payment rails and a means for international money transfers. Tether’s USDT is the leading stablecoin, followed by Circle’s (CRCL) USDC.
The analysts highlighted that the market often views the largest stablecoins as utility, akin to infrastructure, which explains why perceptions of reserve strength can have implications well beyond a single issuer.
This downgrade is noteworthy because Tether’s USDT is still the largest stablecoin by size, leading to ripples of concern regarding its reserve composition and disclosure practices across exchanges, trading pairs, and decentralized finance (DeFi) systems.
HSBC noted that S&P’s stablecoin framework, ranking reserve strength on a five-point scale from “very strong” to “weak,” effectively supports a global regulatory push: for stablecoins to become part of mainstream payments and institutional settlements, qualities such as reserve quality, governance, and transparency must shift from being optional to essential.
The report mentioned S&P’s concerns regarding the asset mix within Tether’s reserves, particularly an observed increase in exposure to higher-risk holdings versus cash and cash equivalents, along with short-dated U.S. Treasuries.
HSBC emphasized the importance of reserve composition as it directly affects redemption capacity, highlighting that markets become less forgiving during periods of volatility and liquidity challenges. The concern is not that alternative assets cannot be included in a reserve stack, but rather that the more reserves depend on assets with greater price sensitivity, reduced transparency, or unpredictable liquidity, the more a stablecoin resembles a balance-sheet trade instead of a straightforward, redeemable dollar proxy.
This reasoning is also why stablecoin policy initiatives in the U.S., Europe, and Hong Kong have emphasized high-quality liquid assets and dependable reporting, according to the bank. These regulatory trends signal to institutional investors and mainstream corporations, who generally have low tolerance for opaque reserves, making them more likely to prefer coins designed to meet stringent standards.
The likely outcome is a gravitational shift towards higher-rated, more heavily regulated stablecoins as institutional adoption rises, with investors and corporations prioritizing those with the clearest reserve frameworks, wrote the analysts.
HSBC pointed out that Circle’s USDC, rated higher than USDT by S&P, exemplifies the type of positioning that could thrive if ratings and regulations become more pivotal in stablecoin selection. Tether has indicated intentions to launch a U.S.-based, dollar-backed stablecoin that aims to comply with stricter U.S. regulations, which the report notes highlights how issuers may categorize products based on jurisdiction and target audience.
“We wear your loathing with pride,” stated Tether CEO Paolo Ardoino, soon after the S&P decision.
Read more: Unlimit Debuts Stable.com, a Decentralized Clearing House Built for Stablecoins
