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Moody's to develop a stablecoin scoring system: Bloomberg

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(Kitco News) - Moody’s Corp., a leading global integrated risk assessment firm, is reportedly working on a scoring system for stablecoins due to their rising prominence in both the crypto ecosystem and the broader global economy.

Bloomberg reports that the risk assessment firm is developing a system that will provide analysis for up to 20 stablecoins “based on the quality of attestations on the reserves backing them,” according to an anonymous source.

A reserve attestation is an official verification by a reputable auditing and accounting firm that the reserves claimed to be held in a company’s treasury do, in fact, exist.

Moody’s stablecoin scoring system is still in the early stages of development and won’t represent an official credit rating, the report from Bloomberg said.

Regulatory oversight of stablecoins has increased over the past few years due to the rising market cap of top stablecoins Tether (USDT), USD Coin (USDC) and Binance USD (BUSD), which together account for more than $126 billion of the value currently held in the crypto market – equal to roughly 12% of the total market cap.

The collapse of the decentralized algorithmic stablecoin TerraUSD in May of 2022 further added to the scrutiny that stablecoins now face, as its demise sparked a chain reaction that resulted in multiple high-profile bankruptcies.

The main concern surrounding most stablecoin projects relates to whether the assets held in reserve effectively back the value of tokens in circulation.

The top stablecoin project Tether has been front and center when it comes to regulator’s concerns as the project has yet to offer a full audit of its reserves despite years of promises to do so. In October 2021, the U.S. Commodity Futures Trading Commission (CFTC) fined the stablecoin operator $41 million for allegedly misstating its reserves.

In an effort to put these concerns to rest, Tether partnered with BDO Italia last August to conduct regular reviews and attestations of its dollar reserves. But later that month, Tether’s chief technology officer Paolo Ardoino said that the company was pushing the long-awaited full audit of its reserves to an unknown date in the future. This has only added to the unease about the stablecoin issuer and its reserves.

Even the process of providing attestations is suspect for many as companies are able to sign off on the numbers provided for a specific time and date without testing the transactions before or after that date, which means the data can sometimes be misleading.

Cardano's first native stablecoin will launch next week

Despite these concerns, the stablecoin market is expected to continue growing for the foreseeable future as big banks and even governments are getting in on the action and announcing new stablecoin plans.

Last week, the Central Bank of Iran revealed that it is in discussions with Russia to create a new stablecoin backed by gold that can be used as a means of payment in foreign trade settlements instead of the U.S. dollar, the Russian ruble, or the Iranian rial. And in Australia, the National Australia Bank (NAB) announced that it is preparing to launch an Australian dollar-pegged stablecoin on the Ethereum network, becoming the second bank in the country to do so.

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