American Credit Rating Agency Recognizes USDC and GUSD as Strong Stablecoins
American credit rating agency S&P Global Ratings has released its first stablecoin stability assessment report, which evaluates the performance of various stablecoins. According to the report, USDC and GUSD have been recognized as strong assets in terms of maintaining their peg to a fiat currency.
USDC’s Performance and Weaknesses
S&P Global Ratings considers USDC to be one of the top performers due to its full backing by low-risk assets such as short-dated securities and bank deposits. However, USDC did not receive the highest mark because of concerns about the protection of assets in the event of Circle’s bankruptcy. The stablecoin experienced weakness in March 2023 when its peg to the USD dropped by 13% during the Silicon Valley Bank crisis.
Nevertheless, if there is increased certainty regarding asset segregation and bankruptcy remoteness, USDC’s stability assessment could improve.
Gemini’s GUSD and Low Liquidity
S&P Global Ratings also recognizes Gemini’s stablecoin GUSD as a top performer. However, GUSD’s liquidity on the secondary market is relatively modest compared to other stablecoins in the market. The rating agency notes that despite being available on certain centralized exchanges like Coinbase, GUSD has not gained widespread adoption. It also allocates a substantial portion of its funds to the DAI peg stability module, indicating limited involvement in decentralized finance applications.
Tether’s USDT and Lack of Information
S&P Global Ratings labels Tether’s USDT stablecoin as a “constrained” asset due to a lack of information about entities involved in custodianship, counterparties, or bank account providers for USDT’s reserves. The report also highlights significant exposure to higher-risk assets with limited disclosure, which exposes USDT to credit, market, interest rate, or foreign currency risks.
USDT’s lack of a regulatory framework and asset segregation to protect against insolvency are additional concerns.
The Lowest Rating: FRAX Stablecoin
Among the stablecoins evaluated, FRAX received the lowest rating. S&P Global Ratings notes that FRAX is undercollateralized and incorporates uncertainty about the future composition of assets when collateralization exceeds 100%. The stablecoin primarily relies on collateral on the blockchain using smart contract protocols, some of which have not been substantially tested.
Hot Take: S&P Global Ratings Assesses Stablecoin Performance
S&P Global Ratings has released its first stability assessment report for stablecoins, evaluating their ability to maintain their pegs to fiat currencies. The report recognizes USDC and GUSD as strong performers in terms of stability. However, concerns about asset protection in the event of bankruptcy affect USDC’s rating. GUSD’s liquidity on the secondary market is relatively low compared to other stablecoins. Tether’s USDT is labeled as a “constrained” asset due to a lack of information and exposure to higher-risk assets. FRAX receives the lowest rating due to undercollateralization and uncertainty about asset composition. This assessment provides valuable insights into the performance and risks associated with stablecoins.
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