Rating giants are in! Moody's plans to introduce a stablecoin rating system to anchor reserve assets and redemption risks

The Zhitong Finance App learned that the rating agency Moody's will adopt a new stablecoin rating system, which may redefine the way investors evaluate this $300 billion market.

Moody's, a 116-year-old credit rating company, proposed a plan to assign deposit ratings to stablecoins based on the quality of each token's reserve assets, market capitalization risk, and operational guarantees. Moody's published the proposal last Friday and plans to formally adopt it after considering public comments. The deadline for receiving comments is January 29.

The proposal comes at a time when the use of stablecoins is growing, and new regulatory systems are emerging around the world. In July of this year, the US passed the Genius Act, which provides a regulatory framework for stablecoins. These cryptocurrencies are seen as a key source of liquidity for the digital asset market, as they are designed to maintain a stable value by usually pegging 1:1 to the US dollar.

“Stablecoins are becoming increasingly relevant to banks, corporate treasurers, and payment systems,” Moody's said in a statement. The company added that its goal is to provide an independent assessment of this “still evolving and often opaque” market.

Robert Franklin III, managing partner of RFS Consulting, called the current plan a “transition plan” that requires continuous evolution. “On-chain liquidity is really, really important,” he said, adding that blockchain liquidity will become more critical in a stressful environment. “This is something you must look at in your evaluation framework.”

According to the proposed methodology, Moody's will evaluate the credit quality of each asset in the stablecoin reserve pool to calculate a weighted average. It will also consider the market value of the asset. Afterwards, Moody's will take the credit quality analysis results of the reserve pool value and the lower one in the market value analysis results, and award the rating after making necessary adjustments.

Stablecoins are usually supported by a combination of cash and cash equivalents (such as short-term treasury bonds), and issuers regularly publish reserve reports. Not all issuers have been fully audited, and this has always been the focus of controversy within the industry. This includes Tether, the issuer of USDT, the world's most widely used stablecoin.

As with credit ratings, stablecoin issuers must voluntarily apply for and pay an evaluation fee. Moody's did not say whether it would rate Tether, but the proposal included a consideration of whether an “impartial third party” reviewed the issuer's data as part of the assessment.

According to the proposal, stablecoin ratings would be subject to the “weakest link”, the lowest rated asset in its reserves. Moody's plans to apply an advance rate based on risk indicators, including liquidity — essentially an impairment treatment.

The proposal identified five types of liquid assets, of which cash deposits and central government securities in the same currency would receive higher ratings. Other factors to consider include stablecoin governance, regulatory context, and possible stress scenarios. The company said that portfolios with high-quality liquid assets may qualify for a P-1 short-term deposit rating.

The proposal will also assess technical risks, such as blockchain security flaws or forks that could complicate transaction verification. Moody's has excluded algorithmic stablecoins, which use automated supply control methods rather than collateral to maintain value. In the past, these tokens were easier to decouple from their target assets.

Moody's emphasized that the new rating should not be used to assess the stability or investment performance of stablecoins, as it only aims to reflect the possibility that stablecoins can be redeemed in a timely manner.