According to a Thursday report, Moody’s, one of the so-called Big Three credit rating agencies, is reportedly working on a scoring system for stablecoins. The system is in the early stages of development and is planned to offer ratings for the top 20 stablecoins.
Moody’s Working on a Rating System for Stablecoins
Moody’s, the firm best known as one of the leaders in bond ratings, is reportedly working on a scoring system for stablecoins. While the system is said to be in the very early stages of development, it is expected it will provide ratings for 20 top stablecoins based on their reserve attestations.
Stablecoins are a very common type of digital currency that aims to maintain a stable value. This is usually achieved either using algorithms or, more commonly, by backing the stablecoin with the currency it is pegged to—the currency usually being the US dollar. Reserve attestations are usually certified by independent audit firms and provided either quarterly or monthly.
In recent years, Stablecoins have become both more commonplace and more controversial. On the one hand, major financial institutions have taken a keen interest in this digital asset type with some, like JP Morgan, issuing their own stablecoins. On the other, they have also come under increased pressure from watchdogs, particularly in the aftermath of the LUNA collapse in May 2022.
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Why Are Stablecoins Facing Increased Scrutiny?
While stablecoins are designed to maintain a mostly stable price and provide a counterweight to crypto’s overall volatility, the LUNA collapse—which is estimated to have wiped out more than $300 billion—severely shook the confidence in their reliability. The catastrophe led to multiple police raids on cryptocurrency exchanges and even an Interpol red notice for its founder Do Kwon.
Regulators also turned increasingly hostile to stablecoins in the aftermath of the crash. Last year in September, the US House introduced a bill that could ban the issuance of new algorithmic stablecoins for a period of two years. Japan also imposed an outright ban on the distribution of foreign stablecoins.
In the closing months of 2022, the situation eased somewhat. After the cryptocurrency exchange FTX went bankrupt, reports that Sam Bankman-Fried, its founder, might have tampered with LUNA’s price and, at least in part, might have contributed to its downfall started circulating. Furthermore, Japan announced it would lift its ban on foreign stablecoins in 2023.
Do you think Moody’s rating system could help boost confidence in stablecoins? Let us know in the comments below.
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