Moody's, the credit rating division of Moody's Corporation, is establishing a new stablecoin grading methodology that will allow it to categorize as many as 20 stablecoins inside the digital money system.
According to a story (1) published by Bloomberg, which cited people who want to stay anonymous, the grading system will be based on the quality of the confirmations on the reserves supporting each of these stablecoins.
Stablecoins are digital currencies whose values may not be susceptible to the extreme volatility typically encountered with other cryptos in the sector. This contrasts with other crypto currencies, which are subject to price swings due to market forces.
Other physical assets often back them, and their value is frequently meant to be fixed to that of the United States Dollar at a ratio of one to one.
Stablecoins may be the digital currencies that are exchanged the most. The trading pairings they make with other assets, such as Bitcoin (BTC) and Ethereum (ETH), are among the most popular crypto currencies in the developing world.
Moody's is developing a scoring system that will assist in rating 20 stablecoins to enable traders to determine which of these stablecoins fits some of the traders' fundamental requirements for legitimacy.
The sources claim that the rating system will not be representative of an official credit rating and that the plans may be subject to change over time, given that it is still in its first stages.
Traditional financiers are arguably increasing their attention in the asset category, some even advocating for the government to allow its handling and storage for clients.
The expanded study into the acknowledgments of stablecoins, in general, can help these institutions, as they are a trusted source of credit ratings for companies on Wall Street. In addition, the enhanced study into the attestations of stablecoins can grant schemes to financial institutions.
Tether (USDT) and USD Coin (USDC) are the most prominent examples of stablecoins today. Tether and USD Coin hold a third and fifth place among the most valuable digital currencies based on market capitalization.
Because of the significant amount of money they may gain, more focus is currently being directed in their direction.
Help in Regulating Process
As has been said, stablecoins provide an easy option to take on risk-off positions since they function as the unofficial fiat currency in the crypto currency market.
The fact that entrepreneurs in the realm of blockchain and Web 3.0 are being creative and investigating alternative forms of establishing a stablecoin is an interesting development worthy of noting.
One such non-conventional creation, the algorithmic TerraUSD (UST) stablecoin, ran into trouble in May last year when it unpegged from the USD.
This contributed to the failure of its sister token, LUNA, and paved the way for the majority of the bankruptcies that the industry has seen up to this point.
Because of the failure of UST, several regulators all over the world have been compelled to reconsider their strategy for the regulation of stablecoins. There are a lot of people who are entirely against the circulation of crypto currencies like Bitcoin and altcoins.
Still, there is an acknowledgment of how well stablecoins can impact the larger payment landscape. As a result, more regulators are looking into controlling it comprehensively.
It will be possible to move more quickly toward these standards if the planned stablecoin grading system from Moody's is implemented.