Katherine Ross

The S&amp;P Global Ratings unveiled its stablecoin stability assessment on Tuesday.



The launch looked at Dai (DAI), First Digital USD (FDUSD), Tether (USDT), Frax (FRAX), TrueUSD (TUSD) and USD Coin (USDC).



In order to assess the stablecoins, analysts primarily looked at the “quality of the assets backing the stablecoin.” Overall quality is measured by the custody risks, credit and market value.&nbsp;



Read more: <a href="https://blockworks.co/news/stablecoin-tether-castle-island-ventures">Tether is ‘unfairly maligned,’ but will eventually fail, says Nic Carter</a>



Regulation, governance, supervision, liquidity, redeemability and technology are also measured, and “contributed to those stablecoins with lower assessments,” S&amp;P said in a press release.



USDC, USDP and GUSD top the list, all receiving strong assessments. USDT, DAI and FDUSD were middle of the road or “constrained,” with evaluations that put them towards the weaker end.&nbsp;



On the other hand, FRAX and TUSD are weak.



None of the stablecoins listed in the first assessment received a “very strong” evaluation, which is the highest grade.



S&amp;P Global Ratings senior director Mohamed Damak told Blockworks that “out of the 8 <a href="https://blockworks.co/tag/stablecoins">stablecoins</a> that we assessed, four were subject to a negative adjustment.”



The assessments are just that, Damak emphasized, they are not ratings of the stablecoins.



Read more: <a href="https://blockworks.co/news/circle-liquidity-usdc-stablecoin-market-cap">Circle’s liquidity coverage is about double US banks, chief economist says</a>



“The consistent feedback was that the market has no transparency or insight into the inherent risks of the different stablecoins. Although the market is concentrated, as the DeFi ecosystem grows, we foresee a rising universe of coins and use cases,” Damak said.



Since the approach is applicable to many stablecoins — not just the above eight — S&amp;P may expand its assessment in the future.



Outside of stablecoins, S&amp;P is watching the digital assets sector with an eye on “operational and legal risk, blockchain oracle risk, crypto regulation and digital bonds.”



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Tether receives ‘constrained’ assessment from S&P Global

Casey Wagner

<div id="highlights-block_627976653708e" class="highlights">
 <ul>
 <li>The DeFi protocol is the first to receive a credit rating from S&amp;P Global Ratings</li>
 <li>Low capital base, increasing regulatory scrutiny and return obligations were areas of concern for credit raters</li>
 </ul>
 
</div>



The first institutional DeFi company rated by S&amp;P Global received a B-, or junk, grade.



S&amp;P Global Ratings has assigned Compound Prime a B- long-term credit rating. It is the first time an institutional DeFi (decentralized finance) offering has been rated by the agency,&nbsp;



Compound Prime, a Compound Labs subsidiary, has a stable outlook, but ratings issuers cited uncertain regulatory conditions around stablecoins and Compound Treasury’s currently “very low” capital base — as well as its 4% return obligation — as concerns.



Compound Prime oversees Compound Treasury, the company’s security offering that converts US dollars to stablecoin USDC and secures accredited investors a 4% return, according to Reid Cuming, Compound Treasury’s general manager.&nbsp;



The Treasury offering was first announced in June 2021.&nbsp;



A B- rating, a junk rating six levels below investment grade, means the business is more vulnerable to adverse financial conditions, although it “currently has capacity to meet financial obligations,” S&amp;P Global Ratings said in its <a href="https://www.spglobal.com/ratings/_division-assets/pdfs/guide_to_credit_rating_essentials_digital.pdf?utm_medium=cpc&amp;utm_source=google&amp;utm_campaign=Brand_S" target="_blank" rel="noreferrer noopener">explanation</a>.



“As part of ongoing discussions with S&amp;P, Compound Treasury’s ratings could be upgraded in upside scenarios such as greater regulatory clarity for the digital asset industry, or a longer track record of stable performance,” Cuming said in a <a href="https://medium.com/compound-finance/compound-treasury-sp-credit-rating-897aff3a6f8c" target="_blank" rel="noreferrer noopener">statement</a>.



S&amp;P choosing to assign a DeFi protocol a rating, which Compound said is a first, shows that greater adoption is coming, Cuming said.&nbsp;



“Over time, traditional financial markets and DeFi will converge,” Robert Leshner, Compound’s founder, <a href="https://twitter.com/rleshner/status/1523671242922147840?s=20&amp;t=53W-DwecPjQVgf7gkS7Fug" target="_blank" rel="noreferrer noopener">tweeted</a>. “Compound Treasury is one of the products accelerating this transition, by offering institutions a cash-management product powered by the Compound protocol.”



Ratings will become more common, Lesher added, which will help to foster institutional demand.



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Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



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