By Marc Jones
LONDON (Reuters) – Credit rating firm S&P Global has started providing risk assessments of eight of the world’s top stablecoins, with the two mostly widely-used, Tether and Dai given near bottom marks.
Stablecoins are a form of cryptocurrency backed by an asset or fiat currency. They have surged in popularity but their weaknesses were exposed last year by the spectacular collapse of TerraUSD and its sister coin Luna.
S&P’s risk scale will go from 1 to 5 rather than the triple-A to default range it uses for governments and companies, but the focus is on the qualities and drawbacks much the same.
Tether, the most widely-used and Dai the fourth most widely used stablecoins, have been given “constrained” 4 scores in the new system while the fifth most popular TrueUSD is graded a “weak” 5.
“The assets (backing the stablecoins), for us, are the most fundamental starting point” S&P analyst Lapo Guadagnuolo said, explaining one of the key reasons for calculating the scores was their growing use as a means of payment.
Another coin Frax was also assessed a 5. First Digital USD was rated a 4, while number two stable coin USD Coin was classed as a “strong” 2 alongside Gemini Dollar and Pax Dollar.
Some stablecoins promise to maintain their “pegs” via pools of fixed-income assets of varying liquidity. Other stablecoins promise to do so via crypto-assets. Some are based on a mix of both.
Some stablecoins also seek to reduce the risks related to their underlying assets by requiring overcollateralization and establishing mechanisms for early liquidation or support against “adverse movement in the value of the assets”.
Weaknesses in other areas, however such as regulation and supervision, governance, transparency or “liquidity and redeemability” contribute to lower scores, S&P said.
“Stablecoin is just a name,” Guadagnuolo added. “Last year Terra-luna was called a stablecoin but it was anything but.”
(Reporting by Marc Jones; editing by David Evans)
