Moodys is working on a rating system for stablecoins

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(Bloomberg) – Moodys Corp. is working on a rating system for stablecoins, the most traded tokens in the crypto sectors, as the asset class grows and comes under increased scrutiny from regulators and investors.

The system will include analysis of up to 20 stablecoins based on the quality of attestations on the reserves that back them, according to a person familiar with the plans who asked not to be named while discussing private information.

Stablecoins are digital tokens designed to hold individual value with a less volatile asset, typically the US dollar. To do this, their issuers generally hold at least an equivalent amount of this asset in reserve.

The project is still in its early stages and will not represent an official credit score, said another person with knowledge of the plan. A Moodys spokesperson declined to comment. The company provides credit ratings for publicly traded crypto companies such as Coinbase Global Inc., while its research arm publishes broader analytical reports on the sector.

Stablecoin reserve attestations have come under greater scrutiny in recent years as token usage has grown and questions have arisen over the assets backing the largest, Tethers USDT. Tether, which has $67 billion worth of dollar-pegged stablecoins in circulation, was fined by US authorities in 2021 for lying about its reserves.

Lis: Why Tether and its USDT coin make people nervous? :QuickTake

Reserve statements are generally issued on a monthly or quarterly basis, certified by third-party audit firms. These collateral stacks typically consist of short-term US Treasuries, but some more experimental stablecoins like MakerDAOs DAI rely on other cryptocurrencies to hold their pegs.

Banks and traditional financial institutions are increasingly interested in stablecoins as a means of exploiting distributed ledger technology. Some have opted to develop their own tokens, such as JPMorgans JPM Coin for Internal Payments which launched in 2019.

The entire crypto sector was shaken in May when the Terra ecosystem collapsed, due to the failure of its algorithmic stablecoin TerraUSD which was trying to maintain its peg to the dollar through a complex system of codes and incentives for traders.

The ripple effect wiped out many of the biggest players in the industry, drove down crypto prices, and caused regulators to crack down on the lack of transparency from stablecoin issuers.

Read: Crypto rules crackdown looms for $150 billion stable market

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