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With the proposed Moody’s stablecoin scoring system, the shift to the stablecoin regulations can be fast-tracked.
Moody’s, the credit rating arm of Moody’s Corp (NYSE: MCO) is developing a new stablecoin scoring system that will see it classify as many as 20 stablecoins in the digital currency ecosystem. According to a report from Bloomberg citing sources who wish to remain anonymous, the scoring system will be hinged on the quality of the attestations on the reserves backing each of these stablecoins.
Stablecoins are digital currencies whose prices are not subject to the high volatility that is often experienced with other cryptocurrencies in the space. They are typically backed by other tangible assets and often designed to be pegged at a ratio of 1 to 1 with the United States Dollar.
Stablecoins are arguably the most traded digital currencies and the trading pairs they form with other assets like Bitcoin (BTC), and Ethereum (ETH) comes off as some of the most popular in the emerging crypto world. The scoring system being planned by Moody’s will help rank these 20 stablecoins in a way that will help traders to see which meets some of their most basic criteria in terms of legitimacy.
According to the sources, the scoring system will not represent an official credit rating and the plans may change over time as it is still in its early phases.
As a trusted provider of credit ratings for firms on Wall Street, the increased research into the attestations of stablecoins, in general, can help traditional financial institutions who are arguably growing their interest in the asset class with some even lobbying the government to permit its storage and handling for clients.
The biggest stablecoins today include Tether (USDT), and USD Coin (USDC), both of them occupy the third and fifth positions as the largest digital currencies by market capitalization. Based on their high monetary value, increased attention is being placed on them.
Moody’s Stablecoin Scoring Can Help Fasttrack Regulation
As noted, stablecoins are a way to easily take on risk off positions as it acts as the de facto fiat currency in the crypto world. Worthy of note is the fact that innovators in the blockchain and Web 3.0 world are being creative and exploring different versions of developing a stablecoin.
One such non-convention creation, the algorithmic TerraUSD (UST) stablecoin hit the rocks last year May when it depegged from the USD, and it fueled the collapse of its sister token LUNA and set the stage for most of the bankruptcies the industry has witnessed so far.
The collapse of UST has forced many regulators across the board to rethink their approach to regulating stablecoins. While many are fully against the distribution of Bitcoin and altcoins, there is a recognition of how well stablecoins can impact the broader payment landscape, hence, more regulators are beginning to consider regulating it comprehensively.
With the proposed Moody’s stablecoin scoring system, the shift to these regulations can be fast-tracked.