S&P Global Grades Stablecoins: None Reach Top Mark, Tether and TrueUSD Score Low
Summary:
S&P Global has initiated grading of stablecoins based on their stability, assessing factors like asset quality risks, governance structures, technological dependencies, and more. During the first round of grading, no stablecoin received the highest mark. Gemini (GUSD), Pax (USDP), and USD Coin (USDC) were rated highest due to the quality of their asset backing. Meanwhile, Tether (USDT) and TrueUSD were rated lower due to a shortfall in transparency about their backed assets.
Global financial intelligence company, S&P Global, has started grading stablecoins based on their stability. However, no stablecoin attained the highest rating during their first evaluation and two were regarded as the least stable due to their variable ties to fiat currencies. S&P Global undertakes several steps to arrive at these evaluations, starting with an evaluation of asset quality risks, then considering the countermeasures put in place against these risks. It also assesses governance structures, legal and regulatory frameworks, redeemability and liquidity, technological and third-party dependencies, and the performances of these stablecoins over time.
S&P Global, formerly known as Standard & Poor's, is widely recognized for curating the S&P 500 Index, which lists major US firms. Having evaluated stablecoins in the past, their recent in-depth analysis reflects the increasing significance of stablecoins in financial markets, serving as a crucial link between digital and physical assets. S&P Global Ratings' senior analyst, Lapo Guadagnuolo, remarked, "While stablecoins are becoming integral parts of financial markets, it is crucial to note they are susceptible to factors like asset quality, governance, and liquidity."
Among the stablecoins that received ratings, Gemini (GUSD), Pax (USDP) and USD Coin (USDC) received a '2', which represents 'Strong', thanks to the high-quality assets that back them. Regulated by the New York State Department of Financial Services, Gemini and Pax have been associated with stability. Tether (USDT), the most valuable stablecoin by market capitalization, was unfortunately assigned a '4', symbolizing 'Constrained', due to opacity related to its backed assets. Stablecoins such as TrueUSD and FRAX also were rated as '5' (weak) due to a lack of information and algorithmic dependency respectively.
In parallel developments, Moody's rating service has also started analyzing stablecoins since November, using its Digital Asset Monitor service that employs artificial intelligence.
Published At
12/12/2023 10:00:00 PM
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