Gemini

Pax Dollar

First Digital USD

Frax

<p>S&amp;P Global, a renowned credit rating firm, has ventured into the volatile terrain of cryptocurrencies by launching a risk assessment scale for the world’s top stablecoins. Notably, <a href="https://www.cryptopolitan.com/tether-announces-new-wallet-freezing-policy/" data-type="post" data-id="419504" rel="noopener noreferrer nofollow">Tether</a>, a name synonymous with the stablecoin market, received a near-bottom ranking, a surprising twist given its widespread use and prominence in the digital currency sphere.<a href="https://www.reuters.com/technology/sp-gives-tether-poor-marks-new-stablecoin-scale-2023-12-12/" rel="noopener noreferrer nofollow" target="_blank"> </a></p>
<h3 class="wp-block-heading" id="assessing-the-stability-in-stablecoins">Assessing the Stability in Stablecoins</h3>
<p>Stablecoins, digital currencies pegged to assets or fiat currencies, have risen in popularity, offering a bridge between the traditional financial world and the often turbulent crypto markets. S&amp;P’s novel risk assessment system, ranging from 1 (most stable) to 5 (least stable), diverges from their typical triple-A to default scale used for evaluating governments and companies. This system aims to dissect the qualities and shortcomings of these digital assets.</p>
<p>Tether (USDT), the most widely-used stablecoin, and Dai, ranking fourth in usage, found themselves in the “constrained” category with a score of 4. This rating raises eyebrows and questions about their stability and reliability. TrueUSD, another key player, landed a “weak” 5, indicating significant concerns about its foundation. These scores throw a spotlight on the inherent risks and challenges within the stablecoin ecosystem, particularly following last year’s collapse of TerraUSD and its sister coin Luna, which sent shockwaves through the crypto market.</p>
<h3 class="wp-block-heading" id="the-underlying-factors-influencing-scores">The Underlying Factors Influencing Scores</h3>
<p>The S&amp;P’s approach to rating these digital currencies focuses heavily on the assets backing them. According to S&amp;P analyst Lapo Guadagnuolo, the nature and management of these backing assets are crucial in determining the stability and viability of a stablecoin. The growing use of stablecoins as a payment method necessitates a deeper scrutiny of their underlying structure.</p>
<p>Other stablecoins such as Frax and First Digital USD also received less favorable scores, indicating potential vulnerabilities in their frameworks. In contrast, USD Coin, Gemini Dollar, and Pax Dollar received a “strong” 2 score, reflecting their robustness in key areas such as asset backing and operational soundness.</p>
<p>The ratings also consider factors like regulatory compliance, governance, transparency, liquidity, and redeemability. These elements are critical in understanding the overall health and sustainability of a stablecoin. Weaknesses in these areas can significantly impact a stablecoin’s score, leading to lower ratings and potential investor skepticism.</p>
<p>Guadagnuolo’s poignant remark that “Stablecoin is just a name” underscores the volatile nature of these assets. The Terra-luna debacle, where a so-called stablecoin proved to be anything but, exemplifies the need for a rigorous and nuanced evaluation system like the one S&amp;P has introduced.</p>
<p>In this dynamic landscape, S&amp;P’s scoring system for stablecoins is a pioneering effort to bring clarity and insight into an often opaque and complex market. It signals a shift in the perception and treatment of digital currencies, as they become increasingly intertwined with mainstream financial systems. The lower scores for Tether and other stablecoins serve as a wake-up call for the crypto industry, highlighting the need for greater stability, transparency, and regulation to gain and retain investor confidence.</p>
<p>As the crypto world continues to evolve and mature, assessments like S&amp;P’s will play a crucial role in shaping its future. They provide a much-needed framework for evaluating the risks and potentials of digital currencies, allowing investors and regulators to navigate this new frontier with more information and caution.</p>

Tether tumbles in S&P’s stablecoin scorecard

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