Moody’s to build scoring system for stablecoins: Report
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 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 company’s 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 stablecoin’s 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 General’s office in 2021 after allegedly misrepresenting the amount of fiat collateral backing its USDT (USDT) stablecoin. In addition 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: 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 firms’ collapse in 2022. In May, the 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 reserves amid rumors concerning its secured loans.
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