Moody’s, the credit rating arm of Moody’s Corporation, is establishing a new stablecoin grading system that will allow 20 stablecoins to be classified within the digital money system.
According to a story (1) Bloomberg published, citing people who wish to remain anonymous, that the grading system will be based on the quality of the confirmations of reserves backing each of these stablecoins.
Stablecoins are digital currencies whose values are not subject to the extreme volatility typically encountered with other cryptos in the sector. This contrasts with other cryptocurrencies, which are subject to price fluctuations due to market forces.
Other physical assets often back them, and their value is often pegged at a one-to-one ratio to the US dollar.
Stablecoins are probably the most traded digital currencies. Their trading links with other assets like Bitcoin (BTC) and Ethereum (ETH) are among the most popular cryptocurrencies in developing countries.
Moody’s is developing a scoring system that will help rate 20 stablecoins to help traders determine which of these stablecoins meet traders’ basic requirements for legitimacy.
Sources said the rating system may not be representative of an official credit rating and as it is still in its early stages, plans may be subject to change over time.
While traditional financiers are increasing their focus on asset classes, some argue that they should allow clients to manage and store it.
As they are a reliable source of credit ratings for companies on Wall Street, expanded scrutiny of approval of stablecoins in general could help these companies. In addition, an improved study of the proofs of stablecoins can provide programs for financial institutions.
Tether (USDT) and USD Coin (USDC) are the most prominent examples of stablecoins today. Tether and USD coin are ranked third and fifth most valuable digital currencies by market capitalization.
Due to the considerable amount of money they can get, a lot of attention is currently being paid in their direction.
Help in streamlining the process
As stablecoins act as an unofficial fiat currency in the cryptocurrency market, stablecoins offer an easy option to take risk-off positions.
An interesting development to note is that entrepreneurs in the blockchain and web 3.0 industry are getting creative and exploring alternative forms of establishing a stablecoin.
One such unorthodox creation, the algorithmic TerraUSD (USD) stablecoin, ran into trouble when it was delinked from the US dollar in May last year.
This contributed to the failure of its sister token, Luna, and paved the way for most of the bankruptcies the industry has seen to date.
Due to the failure of UST, many regulators around the world were forced to rethink their strategy for regulating stablecoins. There are a lot of people who are totally against the circulation of cryptocurrencies like bitcoin and altcoins.
However, there is an acknowledgment of how well stablecoins can impact the larger payments landscape. As a result, more and more regulators are looking to fully regulate it.
If the proposed stablecoin grading system from Moody’s is implemented, these standards can be moved quickly.