Moody’s Investors Service is Developing A Scoring System for Stablecoins

According to a Bloomberg report, Moody’s Investors Service, a credit company, is working on a scoring system for crypto stablecoins. Stablecoins are the most traded tokens in the crypto sector as the asset class grows and faces increased scrutiny from regulators and investors.

The scoring system will include an analysis of up to 20 stablecoins based on the quality of attestations on the reserves that are backing them. 

Moody’s provides credit ratings for publicly traded companies. As Bloomberg reported, the credit company is working on a system to score up to 20 stablecoins that will be based on the quality of their reserves attestation, according to a person familiar with the plans.

As another person told Bloomberg, this project is in its infancy and won’t be issuing official credit ratings.

On the other hand, in the crypto industry, the resiliency of stablecoins is a longstanding issue. Stablecoins are a type of cryptocurrency where their value is supposed to be pegged to a reference asset. That asset is either fiat currency, exchange-traded commodities, or another cryptocurrency.

It can be seen that Stablecoins are increasingly used as an inflation hedge in recent times. As compared to fiat currency that is kept in a savings account averaging 0.06%, a user can lend their stablecoins and earn yields that range from 3% to as high as 20%. However, keep in mind that crypto is volatile in nature and has some risks.

Tether’s USDT is the largest stablecoin that dogged for years by concern that it has not been fully backed. Tether has been a target of multiple FUD due to its not-so-clear balance sheet and lack of a public audit. Tether has repeatedly been fined for false statements around the state of its books.

In 2021, after the release of Tether’s first breakdown of its balances, it came under even more scrutiny from regulators over its claims that all issued stablecoins are fully backed by dollar reserves. According to the breakdown, Tether’s reserves as of March 31, 2021, were composed of 75.85% cash and equivalents, 12.55% secured loans, 9.96% in corporate bonds and precious metals, and 1.64% in other investments, including digital currencies.

In the same year, the Hong Kong-based company was forced to pay $18.5 Million in penalties as New York State found that it had falsely claimed that its stablecoin was fully backed 1:1 by United States Dollars.

Latest posts by Andrew Smith (see all)

Be the first to comment

Leave a Reply

Your email address will not be published.