Investment bank HSBC said S&P Global Ratings’ decision to downgrade Tether’s reserve assessment to weak is a reminder that stablecoins carry a built-in “decoupling” risk that does not apply in the same way to other forms of tokenized money.
The central issue is simple: If holders rush to redeem, a stablecoin issuer needs reserves that are undoubtedly liquid and low risk, or the price of the token may stray from its expected fixation, analysts Daragh Maher and Nishu Singla said in Monday’s report.
Stablecoins are cryptocurrencies pegged to assets like fiat currencies or gold. They underpin much of the cryptoeconomy, serving as payment gateways and a tool for moving money across borders. Tether’s USDT is the largest stablecoin, followed by Circle’s USDC (CRCL).
Analysts noted that the market tends to treat larger stablecoins as utilities, like infrastructure, so changes in how reserve strength is perceived can matter far beyond a single issuer.
The downgrade is highlighted because Tether’s USDT remains the dominant stablecoin by size, meaning questions about its reserve composition and disclosure practices spread across exchanges, trading pairs, and decentralized finance (DeFi) pipelines.
The bank said that S&P’s stablecoin framework, which rates reserve strength on a five-point scale from “very strong” to “weak,” effectively reinforces what regulators are pushing for globally: If stablecoins are to scale mainstream payments and institutional arrangements, reserve quality, governance and transparency become critical from desirable.
S&P’s concerns center on the mix of assets that make up Tether’s reserves, according to the report, particularly a reported increase in exposure to holdings considered higher risk relative to cash, cash equivalents and short-term U.S. Treasuries.
HSBC said that’s important because the composition of reserves is directly related to redeemability, and markets are less forgiving when volatility rises and liquidity shrinks. The point is not that alternative assets can never be part of a reserve stack, but that the more reserves depend on instruments with greater price sensitivity, lower transparency, or less predictable liquidity, the more a stablecoin begins to resemble a balance sheet transaction rather than a simple substitute for the redeemable dollar.
This is also why stablecoin policy efforts in the US, 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 to institutional investors and large companies, which typically have limited tolerance for reserve opacity and will be more inclined to prefer currencies designed to meet strict standards.
The likely result is a sort of gravitational pull toward higher-rated, more heavily regulated stablecoins as institutional adoption grows, with investors and corporations prioritizing clearer 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 signaled plans for a US-based dollar-backed stablecoin aimed at meeting stricter US requirements, which the report said underlines how issuers can segment products by jurisdiction and audience.
“We wear their hatred with pride,” Tether CEO Paolo Ardoino said shortly after S&P’s move.
Read more: Unlimit Introduces Stable.com, a Decentralized Clearinghouse Built for Stablecoins
