Credit rating firm Moody’s is allegedly developing a scoring system for stablecoins, with analysis for up to 20 digital assets, Bloomberg reportedÂ on Jan. 26, citing unnamed sources.Â
The system, which appears to be in the early stages of development, will evaluate and rate the quality of the attestations of stablecoin reserves, although it will not be considered an official credit rating. Generally speaking, third parties attest that a companyâs claims are accurate and validate that stablecoins are backed 1:1 by their reserves.
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 developed to offer an alternative to the volatility of other cryptocurrencies by tying the stablecoinâs value to another asset. This does not imply, however, that stablecoins are risk-free.
For instance, Tether, the largest stablecoin issuer, settled with the New York Attorney Generalâs office in 2021 after allegedly misrepresenting the amount of fiat collateral backing its USDT (USDT) stablecoin. In additionÂ to paying $18.5 million in damages to the state of New York, the company was required to submit periodic disclosures of its reserves, Cointelegraph reported at the time.
Related:Â SBF tried to destabilize crypto market to save FTX: Report
Stablecoin reserves have come under further scrutiny in recent months as a consequence of the bear market and crypto firmsâ collapse in 2022. In May, theÂ Terra ecosystem imploded when its algorithmic stablecoin, TerraUSD (UST), lost its dollar peg, crashing to a low of around $0.30.
Recently, Tether disclosed plans to stop lending funds from its reservesÂ amid rumors concerning its secured loans. The company reiterated that its loans were overcollateralized by âextremely liquid assetsâ but decided to discontinue the service throughout 2023.
Moodyâs provides credit ratings for publicly traded companies, delivering analyses regarding credit risk through its rates. On Jan. 19, the agency released a note on CoinbaseÂ discussing the crypto exchange’s downgradedÂ senior debt and corporate family rating, which indicates a companyâs ability to meet its financial obligations.