HSBC: S&P Downgrade of Tether Highlights De-Pegging Risks, Favors Higher-Rated Stablecoins
HSBC warned that S&P Global Ratings’ decision to downgrade Tether’s reserve assessment to “weak” underscores the inherent de-pegging risk in stablecoins—a risk that doesn’t exist in the same way for other tokenized assets.
Analysts Daragh Maher and Nishu Singla noted that if holders rush to redeem, stablecoin issuers must have liquid, low-risk reserves to maintain the peg. Without them, the token’s price can deviate, creating potential market disruption.
Stablecoins, pegged to fiat or other assets, underpin much of the crypto ecosystem, facilitating payments and cross-border transfers. Tether’s USDT is the largest stablecoin, followed by Circle’s USDC. Because these coins are treated as infrastructural utilities, changes in reserve quality can affect exchanges, trading pairs, and DeFi protocols.
S&P’s five-point reserve rating framework—from “very strong” to “weak”—emphasizes that governance, transparency, and reserve quality are critical for institutional adoption. The downgrade reflects Tether’s increasing exposure to higher-risk assets versus cash and short-dated Treasuries.
HSBC said this shift is likely to drive institutional preference toward regulated, transparent stablecoins. Circle’s USDC, rated higher than USDT, exemplifies a stablecoin positioned to benefit, while Tether plans a U.S.-based, dollar-backed version to meet stricter compliance standards, illustrating how issuers may tailor products by jurisdiction and audience.
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