S&P Global Assigns Low Ratings to Tether and Dai Among Leading Stablecoins

Prominent credit rating firm S&P Global S&P Global conducted evaluations for eight leading stablecoins, assigning lower ratings particularly to Tether and Dai. This ranking aims to showcase the increasing significance of stablecoins in finance and the necessity for thorough risk assessments.

In contrast to the conventional triple-A to default ratings used by governments and corporations, S&P's scoring system for stablecoins ranges from 1 to 5. This system evaluates the strengths and weaknesses of stablecoins, with the scores being as dynamic as traditional credit ratings.

Tether, recognized as the most widely used stablecoin, and Dai, which ranks fourth, both achieved a 'constrained' score of 4 in S&P's new evaluation framework. TrueUSD As the fifth most popular stablecoin, it received a 'weak' score of 5, raising concerns about the stability of its underlying assets and the transparency surrounding its reserves.

Elements Affecting S&P Global 's Stablecoin Ratings

The ratings consider several elements, such as the type and transparency of underlying assets that support the stablecoins, alongside the reliability of entities managing these assets. For Tether, the low score stemmed from vague information regarding its reserve holdings and its exposure to high-risk assets. Tether - The second most prominent stablecoin received a 'strong' rating of 2, matching that of Gemini Dollar and Pax Dollar. These ratings indicate a more solid and clear backing compared to their counterparts with lower scores.

In contrast, USD Coin Stablecoins utilize varied strategies to maintain their value or 'peg,' such as holding pools of fixed-income assets, employing overcollateralization, and establishing mechanisms for early liquidation or safeguards against unfavorable fluctuations.

Other factors influencing the stablecoin ratings encompass regulatory oversight, governance structures, transparency, volatility levels, liquidity, and redeemability. These aspects are crucial in assessing the overall stability and trustworthiness of a stablecoin.

The evaluation by S&P Global represents an important advancement in recognizing and quantifying the risks related to stablecoins, emphasizing the need for more stringent oversight and transparency within the market, particularly after notable collapses such as TerraUSD and Luna.

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