S&P Global launches stablecoin ratings, ranks GUSD, USDP, USDC highest

S&P Global has launched a stablecoin stability assessment. In its initial ratings of the eight stablecoins, none were given the top mark, but two received the lowest, based on their ability to maintain their fiat pegs.

According to a statement, to establish its ratings, S&P Global first examines asset quality risks, then factors mitigating the risks, and then considers governance, legal and regulatory framework, redeemability and liquidity, technology and third-party dependencies, and track record.

S&P Global, formerly known as Standard & Poor’s, is best known for the S&P 500 Index of large companies listed on United States stock exchanges. It has turned its attention to stablecoin before, but not with the depth of the new ratings. S&P Global Ratings senior analyst Lapo Guadagnuolo said:

“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.”

Gemini (GUSD), Pax (USDP) and USD Coin (USDC) received ratings of 2 (strong), the highest given, thanks to the quality of their asset backing. Gemini and Pax are both supervised by the New York State Department of Financial Services.

Related: France’s 3rd-largest bank, Société Générale, launches euro-pegged stablecoin

Tether (USDT), by far the leading stablecoin by market cap, was rated 4 (constrained). The assessment was largely based on the lack of transparency of its assets. TrueUSD’s 5 (weak) rating was also based on a lack of information. FRAX was rated 5 as well, due to its continuing dependence on an algorithm, despite a community decision in March to transition to USD backing.

Crypto may not care, but the much bigger mainstream will. S&P releases stablecoin assessments using 1-5 score.

1 “Very Strong” none
2 “Strong” USDC/USDP/GUSD
3 “Adequate” none
4 “Constrained” USDT/FDUSD/DAI
5 “Weak”FRAX/TUSDhttps://t.co/D1VkXZ3NkG

— Novacula Occami (@OccamiCrypto) December 12, 2023

Moody’s rating service moved into stablecoin analysis in November with its Digital Asset Monitor service based on artificial intelligence.

Magazine: Unstablecoins: Depegging, bank runs and other risks loom