As reported by Bloomberg, Moody’s is currently developing a scoring system for crypto stablecoins. Up to twenty stablecoins plus reserves will be evaluated by the scoring system.
Analyzing the Stable Sector
Among all the crypto tokens, stablecoins are by far the most traded. In order for this asset class to continue to grow and receive less scrutiny from regulators and investors, a scoring system may become useful in the future.
According to a person familiar with the plans who didn’t want to be named discussing private information, the system will include an analysis of up to 20 stablecoins based on the quality of attestations on the reserves backing them.
Another person familiar with the project said that it is still in its infancy and is not meant to serve as an official credit rating at this point. In addition to lending ratings to publicly traded crypto companies, like Coinbase Global Inc., the company also publishes an analytical report on the sector in its research arm, which identifies broader trends.
Recently, as the use of stablecoin tokens has increased and questions have arisen about the assets backing the largest one, Tether’s USDT. The US authorities fined Tether in 2021 for lying about its reserves to sell dollars-pegged stablecoins. The company has 67 billion dollars of dollar-pegged stablecoins in circulation.
A reserve attestation is usually published either on a monthly or quarterly basis and is certified by a third-party auditor regularly. Some of the more experimental stablecoins, such as MakerDAO’s DAI, depend on other cryptocurrencies to maintain their pegs, like the ones that use short-dated US Treasury bills as collateral, while others use long-dated US Treasury bills as collateral.
In recent years, banks and traditional financial institutions have become increasingly interested in stablecoins as a way for them to be able to tap into distributed ledger technology. Moreover, some companies chose to develop their tokens, which are for internal payments, such as JPMorgan’s JPM Coin which was launched in 2019.
In May, the entire crypto sector was rocked by the collapse of the Terra ecosystem, which fell victim to a complex system of code and trader incentives that attempted to maintain its dollar peg through an algorithmic stablecoin called TerraUSD. That incident shocked the market and made some users worried.
As a result of the new service provided by Moody’s, mainstream investors may be able to make more informed decisions about stablecoins when working with them. However, there is no doubt that education and having a full understanding of the crypto we use is the best solution.