S&P Global Ratings, one of the big 3 global credit rating agencies, has introduced a stablecoin stability assessment designed to assess a stablecoin’s capability to sustain a stable value about a fiat currency.
S&P Global Ratings applies its analytical approach to assess a stablecoin’s stability on a scale of 1 (very strong) to 5 (weak):
* First, they assess asset quality risks, including credit, market value, and custody risks.
* Second, they analyze to what degree any… pic.twitter.com/knj9lCbN8h
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According to S&P, consistent feedback from both traditionalized finance and decentralized finance highlighted a lack of transparency or insight into the inherent risks associated with various stablecoins in the market.
As part of the launch, S&P Global Ratings has provided public assessments for eight prominent stablecoins:
DAI
FDUSD
FRAX
GUSD
USDP
USDT
TUSD
USDC
The stablecoin stability assessments for these eight stablecoins, according to S&P’s analytical approach, range from 2 (strong) to 5 (weak) in terms of their ability to maintain a stable peg to a fiat currency.
According to S&P, the quality of the assets backing the stablecoin is a critical driver of the final assessment. Weaknesses in other areas, including:
Regulation and supervision
Governance
Transparency
Liquidity and redeemability, and
Track record
contributed to those stablecoins with lower assessments.
The parameters for rating stablecoins constituted:
First, assessing asset quality risks, including credit, market value, and custody risks.
Second, analyzing to what degree any overcollateralization requirements and liquidation mechanisms may mitigate these risks.
Third, considering five additional areas: governance, legal and regulatory framework, redeemability and liquidity, technology and third-party dependencies, and track record.
“As we look to the future, we see stablecoins becoming further embedded into the fabric of financial markets, acting as an important bridge between digital and real-world assets,” said Lapo Guadagnuolo, senior analyst at S&P Global Ratings.
“Nonetheless, it’s important to acknowledge that stablecoins are not immune to factors such as asset quality, governance, and liquidity. Our evaluations consider a variety of elements that can cause them to depeg below or above their targeted value,” added the senior analyst.
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