Moody’s is developing a system for evaluating up to 20 stablecoins.
The system currently being developed will analyze stablecoins based on the quality of reserve confirmations. This system will not become an official credit rating. Now the project is at an early stage of development and when it will become a finished product is unknown.
Stablecoins are designed to have less volatility than bitcoin because they are tied to another asset, usually the US dollar. To guarantee this, issuers keep reserves of the asset corresponding to the token.
In practice, issuers do not always comply with the requirements for storing reserves, but at the same time, they do not officially recognize such a discrepancy between the action and the stated goal. For example, in 2021, the company Tether, which has $67 billion worth of stablecoins in circulation, was fined in the USA. The reason for the use by the authorities of a measure in the form of a monetary penalty was a lie about reserves.
Reserve certifications are published monthly or quarterly and certified by third-party audit firms. These collateral packages consist mainly of short-term U.S. Treasury bills. Some experimental stablecoins, such as MakerDAO’s DAI, rely on other cryptocurrencies to maintain their positions.
Banks and traditional financial institutions have begun to show a greater degree of interest in stablecoins as a means of using distributed ledger technology. Some have developed their own tokens, such as, for example, JPMorgan’s JPM Coin for internal payments.
The crypto sector experienced a serious shock in May last year. That time the Terra ecosystem collapsed. This happened as a result of the failure of the algorithmic stablecoin TerraUSD, which tried to maintain its peg to the dollar with the help of a complex system of code and incentives for traders.
The consequences of the collapse of the ecosystem turned out to be large-scale. Several of the sector’s biggest players were virtually wiped out. There has been a decline in the prices of cryptocurrencies. Regulators have also begun to combat the lack of transparency among issuers of stablecoins.
As we have reported earlier, US Senator Introduces Stablecoin Bill.