Tether and Dai Rated Low in S&P Global's Rating for Top Stablecoins

Published: December 13, 2023 at 5:38 am Updated: December 13, 2023 at 5:38 am

Edited and fact-checked:
December 13, 2023 at 5:38 am

In Brief

S&P Global’s assessment of major stablecoins, assigning low scores to Tether and Dai, underscores the varied risks and transparency issues.

S&P Global Rates Top Stablecoins, Tether and Dai Score Low

Prominent credit rating firm S&P Global announced risk assessments for eight leading Stablecoins, assigning lower scores to popular Stablecoins Tether and Dai. The ranking aimed to reflect the growing importance of stablecoins in the financial world and the need for thorough risk evaluation.

Unlike the traditional triple-A to default range used for governments and companies, S&P’s scale for Stablecoins ranges from 1 to 5. This scale assesses the qualities and drawbacks of Stablecoins, with scores subject to change like traditional credit ratings.

Tether, the most widely used Stablecoin and Dai, the fourth most popular, both received a “constrained” score of 4 in S&P’s new system. TrueUSD being the fifth most popular, has been graded a “weak” 5, indicating concerns about their underlying assets and reserve transparency.

Factors Influencing S&P Global‘s Stablecoin Scores

The scores highlight several factors, including the nature and transparency of the assets backing the stablecoins and the creditworthiness of institutions holding these assets. For Tether, the low score results from unclear information about its reserve assets and exposure to riskier assets.

In contrast, USD Coin — the second most popular Stablecoin, received a “strong” 2 rating, alongside Gemini Dollar and Pax Dollar. These ratings suggest a more robust and transparent backing compared to their lower-scored counterparts.

Stablecoins employ various methods to maintain their value or “peg,” such as pools of fixed-income assets, overcollateralization and mechanisms for early liquidation or support against adverse value movements.

Other factors impacting the Stablecoin scores include regulation and supervision, governance, transparency, volatility, liquidity and redeemability. These elements play a critical role in determining the overall stability and reliability of a Stablecoin.

The assessment by S&P Global marks a significant step in recognizing and quantifying the risks associated with Stablecoins, highlighting the need for greater oversight and transparency in the market, especially following high-profile collapses like TerraUSD and Luna.

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About The Author

Nik is an accomplished analyst and writer at Metaverse Post, specializing in delivering cutting-edge insights into the fast-paced world of technology, with a particular emphasis on AI/ML, XR, VR, on-chain analytics, and blockchain development. His articles engage and inform a diverse audience, helping them stay ahead of the technological curve. Possessing a Master’s degree in Economics and Management, Nik has a solid grasp of the nuances of the business world and its intersection with emergent technologies.

Nik Asti