S&P deals blow to top stablecoins, citing risks

Major credit rating agency S&P Global has initiated assessments of prominent stablecoins, handing lacklustre inaugural scores to the two most widely used – Tether and Dai.

Stablecoins aim to maintain parity with fiat currencies via asset backing. However, S&P cited inadequate transparency and regulation around Tether’s reserves for its “constrained” rating of 4 out of 5, with 5 being the highest risk. Dai received the same score, while fifth-ranked TrueUSD garnered a “weak” rating of 5 amid absent details on its holdings.

The calls come on the heels of 2022’s implosion of Terra USD, where a supposed stablecoin lost its 1:1 dollar peg and cratered in value, exposing fragility.

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While the new ratings intend to spur due diligence, some coins like USD Coin and Pax Dollar earned “strong” marks of 2. Still, the watchdog’s dim view of segment leaders signals enduring instability around these cryptos designed to hold steady value.

“The assets (backing the stablecoins), for us, are the most fundamental starting point,” said S&P analyst Lapo Guadagnuolo.