Deep Dive: Stablecoins' Stability and Their Impact on the Crypto Market

By: Eliza Bennet

S&P Global Ratings recently conducted a stability assessment for different stablecoins, including USD Coin (USDC), Gemini Dollar (GUSD), and Paxos' Pax Dollar (USDP), among others. The assessment evaluated the ability of stablecoins to maintain a stable value against a fiat currency based on a five-point scale considering the quality of assets, over-collateralization, liquidation mechanisms, and other factors.

Stablecoins such as USDC, GUSD, and USDP received high scores for being fully backed by low-risk assets. However, Tether (USDT) secured a lower rating due to lack of transparency on reserve management and risk appetite, non-segregation of assets to protect against issuer's insolvency, and redemption limitation. This underscores the fact that, despite being pegged to stable assets, the inherent stability of stablecoins is deeply intertwined with their intrinsic financial management and governance.

For a deeper understanding of the topic, check the original article here.