Moody’s to Introduce Scoring System for Stablecoins

The main financial institution moody's corporation would be working on a rating system for a maximum of 20 stablecoins, evaluating the quality of their statement of reservations, reported bloomberg on Jan. 26.

Bloomberg, citing a person familiar with the matter, reported that the scoring system is still in its early phase and will not represent an official credit rating.

Stablecoins are one of the most widely used asset classes in the crypto industry. Typically, the value of the digital asset is tied to a domestic fiduciary currency like the U.S. dollar or some other financial instrument like gold. As the name suggests, stability should be less volatile than other types of cryptocurrency.

Moody's hasn't responded to the request for feedback from beincrypto since press time.

Stability requires quality and regulatory reserves.

Following the collapse of Terra’s algorithmic stablecoin TerraUSD in 2022, stablecoin issuers have faced renewed attention from financial regulators over the quality of their reserves.

A study by the International Monetary Fund has shown the importance of a liquid and high-quality reserve. Schools with quality reserves have the potential to be a stable source of value, the report says. These assets can "become a credible and broadly accepted medium of trade."

In addition, financial regulators in the U.S. have brought to light the dangers of unregulated regulation. The acting chairman of the Federal Deposit Insurance Corporation (FDIC), Martin Gruenberg, advised that stablecoin issuers should be subject to strict regulatory measures.

Gruenberg's position was supported by the IMF, according to which "stable issuers should be subject to strict prudential requirements."

During this time, the industry's greatest stability, USDT, faced increased pressure from the community and regulators on its opaque reserves. In 2021, the issuer of stablecoin entered into an agreement with the New York State Attorney's Office for making false statements. The firm also witnessed a mini bank run due to Terra’s collapse, processing roughly $10 billion in withdrawals

Adoption Grows

Despite increased monitoring of this asset class, its take-up rate has increased globally. BeinCrypto reported that Tether processed $18.2 trillion in transactions in 2022, ahead of traditional payment processors like Visa and Mastercard. Several media reports have also revealed how citizens in struggling economies depend on the asset for their savings and transactions.