Moody’s Is Working on Scoring System for Crypto Stablecoins

Moody’s is reportedly developing a scoring system — though not a credit rating — for stablecoins.

Bloomberg reported Thursday (Jan. 26) that Moody’s will analyze as many as 20 stablecoins, evaluating the attestations on the reserves that back them.

It won’t deliver an official credit rating, as it does for publicly traded crypto companies, according to the report, which cited unnamed sources.

The development of the scoring system is in its early stages, the report said.

Moody’s did not immediately reply to PYMNTS’ request for comment.

Reserve-backed stablecoins are backed one-to-one by a reserve of fiat currency and other highly liquid investments. While there was not a lot of clarity about the latter, in the United States it’s being defined as short-term Treasuries.

Stablecoins have come under increasing scrutiny by both investors and regulators after some highly publicized events.

For example, in May, investors lost about $48 billion in the failure of TerraUSD, an algorithmic stablecoin — meaning it maintained its dollar peg by means other than a one-to-one backing reserve of fiat currency or Treasuries.

TerraUSD maintained its peg through a complex arbitrage system with the free-floating sister token, Luna, which was managed by self-executing smart contracts.

When TerraUSD, which was supposedly a stablecoin pegged to real monetary value whose intended purpose was to promote stability across crypto, failed, it sent shockwaves reverberating throughout the industry.

In another example, Tether, an asset-backed stablecoin, came under scrutiny after it was reported that it had been increasingly lending its own coins and not selling them instead for equivalent fiat.

That practice adds to the risk that the company may not have enough liquid assets to weather a large redemption event, meaning it could be susceptible to a liquidity crunch that would deliver another solvency shock to the crypto marketplace.

Noting events of the past year, the Office of the Comptroller of the Currency (OCC) said in December report about crypto assets that “stablecoins may be unstable.”

OCC said that the potential for run risk with stablecoins was demonstrated by the collapse of an algorithmic stablecoin in the spring, which also affected asset-backed stablecoins, and that most stablecoins remain vulnerable to run risk.