The system would assess the quality of the stablecoin issuer’s reserve certification.
Major financial institution Moody’s Corporation is reportedly working on a scoring system for up to 20 stablecoins, assessing the quality of their reserve attestation, Bloomberg informed on January 26th.
Bloomberg, citing a person familiar with the matter, reported that the scoring system is still in its early stages and will not represent an official credit rating.
Stablecoins are one of the most popular asset classes within the cryptocurrency industry. Typically, the value of the digital asset is pegged to a national fiat currency such as the US dollar, or another financial instrument such as gold.
As the name implies, stablecoins are expected to be less volatile than other types of cryptocurrencies.
Stablecoins as Quality Reserves
Following the collapse of Terra’s algorithmic stablecoin TerraUSD in 2022, stablecoin issuers have faced renewed attention from financial regulators on the quality of their reserves.
A report from the International Monetary Fund, “Regulating the Crypto Ecosystem: The Case of Stablecoins and Arrangements”, highlighted the importance of a high-quality, liquid stablecoin pool. According to the research results, stablecoins with quality reserves have the potential to become a stable source of value. These assets have the potential to “become a widely accepted and credible medium of exchange.”
According to the report, “Appropriate regulation would vary depending on the stablecoin’s structural features and usage and ultimately its risks.”
On top of that, US financial regulators have highlighted the dangers of an unregulated stablecoin. Acting President of the Federal Deposit Insurance Corporation (FDIC), Martin Gruenberg, advised that stablecoin issuers should be subject to strict regulatory measures.
Gruenberg further noted that “it is important for the FDIC and the other Federal banking agencies to approach crypto–assets and crypto–asset–related activities thoughtfully.” He acknowledged that crypto assets risks as “novel and complex.” Therefore, he claims that a significant amount of time is required in order to assess such risks, as well as dialogue with multiple stakeholders.
Gruenberg’s view was corroborated by the IMF, which stated that “stablecoin issuers should be subject to strict prudential requirements.”
Meanwhile, the largest stablecoin in the industry, Tether USDT, has been facing increased pressure from the community and regulators over its opaque reserves.
In 2021, Tether USDT settled with the New York Attorney General’s office for misrepresenting its endorsement. The firm also witnessed a small bank run due to the collapse of Terra, processing approximately $10 billion in withdrawals.
Adoption Grows
Despite increased scrutiny of the asset class, its adoption rate has grown around the world. BeinCrypto reported that Tether processed $18.2 trillion in transactions in 2022, ahead of traditional payment processors like Visa and Mastercard.
Various media reports have also revealed how citizens in struggling economies rely on the asset for their savings and transactions.
By Audy Castaneda
