Stablecoin Stability Graded by S&P Global

Continued efforts in the cryptocurrency market are being addressed day by day. Accordingly, S&P Global has launched a stablecoin stability assessment, drawing attention. In the assessment, none of the eight stablecoin projects received the highest rating in the initial grading, but two projects received the lowest score in the assessment of their ability to maintain their fiat pegs.

S&P’s Stablecoin Report

According to the company’s statement, S&P Global starts by examining asset quality risks to create ratings in this area, followed by factors mitigating risks, and then takes into account governance, legal and regulatory frameworks, redeemability and liquidity, technology, third-party dependencies, and past performance.

Formerly known as Standard & Poor’s, S&P Global is most recognized for the S&P 500 Index of major companies listed in the United States stock exchanges. The company had previously turned its attention to the stablecoin sector but not with the depth of the new ratings. Senior Analyst at S&P Global Ratings, Lapo Guadagnuolo, made the following statement on the subject:

“We see that stablecoins serve as a significant bridge between crypto and real-world assets, further embedding into the fabric of financial markets. However, it is important to acknowledge that stablecoins are not immune to factors such as asset quality, governance, and liquidity.”

Notable Details from the Report

Gemini (GUSD), Pax (USDP), and USD Coin, thanks to the quality of their asset backing, managed to receive the highest score of 2 points, marking a strong rating. Gemini and Pax are notable for being regulated by the New York State Department of Financial Services.

Tether, by far the market leader in stablecoin by market value, was rated as limited with 4 points. The evaluation was largely based on the lack of transparency in project assets. TrueUSD’s weak rating of 5 points was also based on a lack of information.

FRAX, despite a community decision in March to switch to USD backing, was rated weak with 5 points due to its continued reliance on an algorithm. Moody’s rating service moved to stablecoin analysis with its Crypto Asset Monitor service based on artificial intelligence in November.