Investment bank HSBC said S&P Global Ratings’ decision to cut Tether’s reserve assessment to weak is a reminder that stablecoins carry an embedded “de-pegging” risk that doesn’t apply in the same way to other forms of tokenized money.
The core issue is straightforward: if holders rush to redeem, a stablecoin issuer needs reserves that are unquestionably liquid and low-risk, or the token’s price can wobble away from its intended peg, analysts Daragh Maher and Nishu Singla said in the Monday report.
Stablecoins are cryptocurrencies pegged to assets like fiat currencies or gold. They underpin much of the crypto economy, serving as payment rails and a tool for moving money across borders. Tether’s USDT is the largest stablecoin, followed by Circle’s (CRCL) USDC.
The analysts noted that the market tends to treat the largest stablecoins as utility, like infrastructure, which is why changes in how reserve strength is perceived can matter far beyond a single issuer.
The downgrade stands out because Tether’s USDT remains the dominant stablecoin by size, meaning questions about its reserve composition and disclosure practices ripple across exchanges, trading pairs and decentralized finance (DeFi) plumbing.
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 toward globally: if stablecoins are going to scale into mainstream payments and institutional settlement, reserve quality, governance and transparency stop being nice-to-haves and become foundational.
S&P’s concerns focus on the mix of assets that make up Tether’s reserves, the report said, particularly a reported increase in exposure to holdings viewed as higher risk relative to cash, cash equivalents and short-dated U.S. Treasuries.
HSBC said that matters because reserve composition is directly linked to redemption capacity, and markets are least forgiving when volatility rises and liquidity tightens. The point isn’t that alternative assets can never be part of a reserve stack, but that the more reserves rely on instruments with greater price sensitivity, lower transparency or less predictable liquidity, the more a stablecoin begins to resemble a balance-sheet trade rather than a simple, redeemable dollar proxy.
This is also why stablecoin policy efforts in the U.S., Europe and Hong Kong have placed so much emphasis on high-quality liquid assets and reliable reporting, the bank said. That regulatory direction creates a clear market signal for institutional investors and mainstream corporates, which typically have limited tolerance for reserve opacity and will be more inclined to prefer coins designed to meet stringent standards.
The likely result is a kind of gravitational pull toward higher-rated, more heavily regulated stablecoins as institutional adoption grows, with investors and corporates prioritizing the clearest reserve frameworks, the analysts wrote.
HSBC said Circle’s USDC, which S&P rates higher than USDT, illustrates the type of positioning that could benefit if ratings and regulations become more central to stablecoin selection. Tether, for its part, has pointed to plans for a U.S.-based, dollar-backed stablecoin aimed at complying with tighter U.S. requirements, which the report said underscores how issuers may segment products by jurisdiction and audience.
“We wear your loathing with pride,” said Tether CEO Paolo Ardoino, shortly after the S&P move.
Read more: Unlimit Debuts Stable.com, a Decentralized Clearing House Built for Stablecoins