S&P Global Ratings, a leading provider of credit ratings and risk assessments, has launched its stablecoin stability assessment, which evaluates a stablecoin’s ability to maintain its peg to a fiat currency. This is a significant advance in the firm’s commitment to supporting both TradFi and DeFi clients with its robust analytical and risk assessment capabilities.
S&P Global Ratings uses its analytical approach to assess a stablecoin’s stability on a scale of 1 (very strong) to 5 (weak). The approach considers various factors that can affect a pegged cryptocurrency’s stability, such as asset quality risks, over-collateralization requirements, and governance.
Eight Leading Stablecoins Ranked From Strong To Weak
As part of the launch, S&P Global Ratings has published public assessments of eight leading stablecoins: DAI, FDUSD, FRAX, GUSD, USDP, USDT, TUSD, and USDC. These pegged digital currencies have different designs and features, such as the type of assets backing them, the degree of decentralization, and the governance structure.
According to S&P Global Ratings’ analytical approach, the pegged digital currency stability assessments for the eight stablecoins range from 2 (strong) to 5 (weak) in terms of their ability to maintain their peg to a fiat currency. The table below shows the summary of the assessments:
The quality of the assets backing the stablecoin is a critical driver of the final assessment. Stablecoins backed by crypto assets, such as DAI and FDUSD, have higher assessments than those backed by US dollars or other assets, such as USDT and USDC.
Crypto assets have lower credit risk and higher market value than fiat currencies or other assets. However, crypto-backed pegged digital currencies also face higher custody and volatility risks, which require over-collateralization and liquidation mechanisms to mitigate.
Pegged Cryptocurrencies Are Not Immune To Risks
As we look to the future, we see stablecoins becoming further embedded into the fabric of financial markets, acting as an important bridge between digital and real-world assets. Nonetheless, it’s important to acknowledge that stablecoins are not immune to factors such as asset quality, governance, and liquidity, said Lapo Guadagnuolo, senior analyst at S&P Global Ratings.
Pegged cryptocurrencies are not without challenges and risks. They face regulatory uncertainty, operational complexity, and technological vulnerabilities. They also depend on the trust and transparency of their issuers and operators. Therefore, robust stability assessments are essential to inform investors and users about the risks and benefits of using pegged digital currency.
S&P Global Ratings’ stablecoin stability assessment is a valuable tool for the digital asset ecosystem, as it provides an independent and objective evaluation of a pegged cryptocurrency’s stability. By applying its deep expertise in risk assessment, S&P Global Ratings aims to support the growth and innovation of both TradFi and DeFi with its pegged digital currency stability assessment.
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