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USDT's Stability Questioned By S&P Global Ratings
S&P Global Ratings assesses stablecoins; USDT's transparency issues lead to lower rating.
S&P Global Ratings, a prominent financial analytics firm, recently conducted a comprehensive assessment of the stability of various stablecoins, including USDT, which has raised concerns due to its transparency issues.
Stablecoin Stability Assessment
S&P Global Ratings embarked on a detailed study to evaluate the stability of eight major stablecoins. The analysis involved a range of criteria, including asset quality, risk mitigation, asset management, legal and regulatory framework, redeemability, liquidity, underlying technology, third-party dependencies, and historical performance. Each stablecoin was rated on a scale from 1 to 5, with 1 being the highest and 5 the lowest. Remarkably, none of the stablecoins analyzed achieved the top rating.
USDT Under Scrutiny
The largest stablecoin by capitalization, Tether (USDT), received a “constrained” rating of 4, primarily due to transparency concerns regarding the issuer’s assets. This rating highlights significant trust issues in the stablecoin, which is a crucial player in the digital asset market.
Ratings Of Other Major Stablecoins
The study also revealed varying levels of stability among other prominent stablecoins. First Digital USD (FDUSD) and Dai (DAI) were rated similarly to USDT for reasons including lack of creditworthiness information and limited liquidity risks, respectively.
TrueUSD and Frax scored even worse at 5, with concerns over public information availability and algorithmic reliance. On the positive side, Gemini Dollar (GUSD), Pax Dollar (USDP), and USD Coin (USDC) received favorable ratings for their asset quality, earning them a "strong" score of 2. Notably, GUSD and USDP are regulated by the NYC Department of Finance.
Implications And Future Monitoring
Senior Analyst at S&P Global Ratings, Lapo Guadagnuolo, emphasized the growing integration of stablecoins in financial markets, highlighting their role as a bridge between digital and fiat currencies. He noted that their stability is heavily dependent on the issuers' liquidity management and asset quality. S&P Global Ratings plans to regularly update their Stablecoin Stability Assessments. Additionally, Chief DeFi Officer Chuck Mounts stressed the agency’s commitment to staying ahead in digital asset market trends, assisting clients in making informed decisions. This analysis comes on the heels of Moody’s recently-introduced AI service for predicting stablecoin devaluation within 24 hours.
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