Moody’s to develop stablecoin scoring system

Bloomberg claimed on Jan. 26 that risk evaluation agency Moody’s Corporation is supposedly developing a score system for stablecoins, with analysis for up to 20 digital assets, citing unnamed sources.

The system, which looks to be in its early stages of development, will assess and rank the quality of stablecoin reserve attestations, albeit it will not be regarded an official credit rating. Third parties generally attest to the accuracy of a company’s claims and certify that stablecoins are backed 1:1 by its reserves.

A stablecoin is a cryptocurrency whose value is tied to a fiat currency, such as the US dollar, or another financial instrument. By connecting the stablecoin’s value to another asset, the concept was established to provide an alternative to the volatility of existing cryptocurrencies. This is not to say that stablecoins are without risk.

Tether, the largest stablecoin issuer, for example, reached a settlement with the New York Attorney General’s office in 2021 after allegedly misrepresenting the amount of fiat collateral underpinning their USDT tickers below $1.00 stablecoin.
In addition to paying the state of New York $18.5 million in damages, the corporation was obliged to submit monthly disclosures of its reserves, Cointelegraph noted at the time.

As a result of the bear market and the collapse of crypto companies in 2022, stablecoin reserves have come under increased scrutiny in recent months. The Terra ecosystem disintegrated in May when its algorithmic stablecoin, TerraUSD (UST), lost its dollar peg, plummeting to about $0.30.

Tether recently announced plans to halt lending funds from its reserves in response to rumors about its secured loans. The company stated that its loans were overcollateralized by “highly liquid assets,” yet it has opted to stop the service until 2023.

Moody’s assigns credit ratings to publicly traded corporations and provides credit risk analysis through its rates. On January 19, the agency issued a note about Coinbase’s reduced senior debt and corporate family rating, which shows a company’s capacity to satisfy its financial obligations.

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