S&P Global Ratings Reveal Stability Assessment of Major Stablecoins

By: Eliza Bennet

S&P Global, widely known for the S&P 500 Index, announced the launch of a new stability assessment for different stablecoins, ranking USD Coin (USDC), Gemini Dollar (GUSD), and Paxos' Pax Dollar (USDP) among the highest, while tether (USDT) received one of the lowest ratings.

Stablecoins' ability to maintain a stable value against a fiat currency was evaluated on a five-point scale, considering the quality of assets, over-collateralization, liquidation mechanisms, and an array of other factors. S&P Global's Senior Analyst, Lapo Guadagnuolo, highlights that stablecoins are inevitably affected by factors such as asset quality, governance, and liquidity.

USDC was fully backed by low-risk assets, providing it an initially perfect score of 1. However, due to the lack of precedence in asset protection in case Circle, the creator of USDC, goes bankrupt, the score was adjusted to a rating of 2. GUSD and USDP also received an overall rating of 2, placing them among the strongest stablecoins in the market.

Tether, on the other hand, secured a rating of 4, the second-worst possible rating. The lowered score is attributed to Tether’s lack of transparency on reserve management and risk appetite, the non-segregation of assets to protect against the issuer's insolvency, and redemption limitation.