Moody’s to build scoring system for stablecoins: Report

Moody’s is allegedly developing a scoring system for stablecoins, with analysis of up to 20 digital assets.

Credit rating firm Moody’s is allegedly developing a scoring system for stablecoins, with analysis for up to 20 digital assets, Bloomberg reported on Jan. 26 citing unnamed sources. 

The system, which appears to be in early stages of development, will evaluate and rate stablecoins’ reserves quality attestations, although it will not be considered an official credit rating. A third-party would be meant to serve as an attestation that a company’s claims are accurate. In this case, it validates that stablecoin assets reserve ratio is 1:1.

A stablecoin is a type of cryptocurrency whose value is pegged to a fiat currency, such as the United States dollar, or another financial instrument. The concept was designed to offer an alternative to the volatility of other cryptocurrencies, by tying its value to another asset. This does not imply, however, that stablecoins are risk-free.

Tether (USDT), for instance, of the largest stablecoin issuer, settled with the Attorney General’s office in 2021 after allegedly misrepresenting the amount of fiat collateral backing their coins. In addition to paying $18.5 million as damages to the state of New York, the company was required to submit periodic disclosures of its reserves, Cointelegraph reported.

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Stablecoin reserves have come under further scrutiny in recent months as a consequence of the bear market and crypto firms’ collapse in 2022. In May, Terra ecosystem imploded due to a failure of its algorithmic stablecoin TerraUSD (UST), losing its dollar peg and crashing to a low of around $0.30.

Recently, Tether disclosed plans to stop lending funds from its reserves, amid rumors concerning its secured loans. The company reiterated that its loans were over-collateralized by “extremely liquid assets,” but decided to discontinue the service throughout 2023.

Moody’s provides credit ratings for publicly traded companies, delivering analysis regarding credit risk through its rates. On Jan. 19, the agency released a note on Coinbase discussing the crypto exchange downgrade of senior debt and corporate family rating (CFR) — which indicates a company’s ability to meet its financial obligations.