Introduction
New York, November 6, 2023 – There have been 609 depegs among large cap fiat-backed stablecoins so far this year, said Moody’s Analytics today, as it launched the AI-enabled Digital Asset Monitor (DAM) to track volatility and risk in the Decentralized Finance (DeFi) space, using a unique range of data sources.
Depegs are defined by the price of stablecoins fluctuating by more than three percent in a day against their fiat currency peg. Among a total of 1,914 depegs up to mid-September this year, large cap stablecoins represented 609 depegs. By comparison, in 2022, there were 707 large cap depegs (including the top five stablecoins by market cap, including Ethereum blockchain’s DAI) and a total of 2,847 depegs.
The high number of depegs provides context to headline volatility seen in the sector. In 2022, there were high-profile depegs triggered by rising interest rates, a trend seen again in March 2023. However, Moody’s data shows that depegs are remarkably common among stablecoins and seen for a host of macro and coin-specific factors.
The new Moody’s Analytics Digital Asset Monitor, which is not linked to Moody’s Ratings business and is not a credit rating, is designed to signal the probability of a stablecoin depeg from a fiat currency in a 24-hour time horizon. The launch version of DAM will track 25 fiat-backed stablecoins, including Tether, USDC, and PayPal Coin, representing over 92% of the total stablecoin market capitalization, backed by most major fiat currencies. DAM will progressively add other digital assets to the platform.
“We have seen the stablecoin market grow into a multibillion dollar asset class accounting for about 10 percent of the crypto market and most on-chain activity. However, given ongoing volatility in the asset class, we saw substantial demand from our customers to fill a gap in this space with a comprehensive risk assessment tool for digital assets. The tool was built in a year using agile-development frameworks to address customer needs, said Yiannis Giokas, Senior Director, Product Innovation at Moody’s Analytics.
Moody’s DAM will provide real time insights including: the stablecoin’s market and liquidity dynamics, the stability of the stablecoin issuer, the custodians that hold the stablecoin’s assets, and the quality of these reserves. These analytics will be paired with a transparency index that will highlight the quality of disclosures made by the entities behind these fiat-backed stablecoins. For more on Moody’s DAM methodology, click here.
The tool combines off-chain and on-chain risk factors to provide a singular and comprehensive view on risks associated with fiat-backed stablecoins, driven by Moody’s deep experience in global integrated risk assessment. The off-chain capabilities are paired with next generation machine learning models that run on top of on-chain data. Clients can purchase a subscription to access the tool via a SaaS platform.
Yiannis Giokas added: “We are committed to producing best-in-class research and insights to allow our customers to identify, measure, monitor and manage risk leveraging our unique data, analytics and expertise. Our customers are increasingly exploring the broader DeFi space, and we are exploring ways to support them.”
Moody’s Analytics also announced today the launch of its DeFi Communities, a platform for DAM users to exchange ideas and share views in the constantly evolving decentralized finance space. Submit your interest to join our community by following this link.
About Moody’s Analytics
Moody’s Analytics provides financial intelligence and analytical tools to help business leaders make better, faster decisions. Our deep risk expertise, expansive information resources, and innovative application of technology help our clients confidently navigate an evolving marketplace. We are known for our industry-leading and award-winning solutions, made up of research, data, software, and professional services, assembled to deliver a seamless customer experience. We create confidence in thousands of organizations worldwide, with our commitment to excellence, open mindset approach, and focus on meeting customer needs. For more information about Moody’s Analytics, visit our website or connect with us on Twitter and LinkedIn.
Moody's Analytics, Inc. is a subsidiary of Moody's Corporation (NYSE: MCO). Moody’s (NYSE: MCO) is a global risk assessment firm that empowers organizations to make better decisions. Its data, analytical solutions and insights help decision-makers identify opportunities and manage the risks of doing business with others. We believe that greater transparency, more informed decisions, and fair access to information open the door to shared progress. With approximately 14,500 employees in more than 40 countries, Moody’s combines international presence with local expertise and over a century of experience in financial markets. Learn more at moodys.com/about.
FAQ
1.How does Digital Asset Monitor (DAM) work and what can it monitor?
Moody’s can assess both on-chain and off-chain risk components looking at both open and internal Moody’s proprietary data to offer an integrated risk assessment for DeFi assets like stablecoins across 5 categories of risk monitored across fiat-backed stablecoins, namely:
- Issuer Risk: Assessing the quality of the issuer of the stablecoin
- Market Risk: Assessing the intra-day volatility to compare it with fiat alternatives
- Liquidity Risk: Assessing the depth of the market to make sure that investors will not be locked in an illiquid environment
- Custodian Risk: Assessing the quality of the custodians that hold the reserves on behalf of the stablecoin issuers
- Reserves Risk: Assessing the quality of reserves based on their volatility & risk. For more on Moody’s DAM methodology click here.
2.Is Moody’s assessing all types of stablecoins? No, Moody’s is currently exploring the risks associated with fiat-backed stablecoins.
3.What type of assessment is Moody’s doing on fiat backed stablecoins? Moody’s is assessing stablecoins in five risk categories Issuer, Market, Liquidity, Custodian and Reserves Risks. Moody’s also assesses the stablecoins against an overall risk and transparency index.
4.Does this assessment have a connection to credit ratings? No, this solution is not connected to Moody's Investor Service and is not a credit rating.
5.Which are the top stablecoins by market capitalization? As of 11 October, 2023 9am ET:
TrueUSD
USD Coin
Gemini Dollar
Pax Dollar
Binance USD
Tether
Digital USD
Euro Coin
Stasis Euro
StraitsX Singapore Dollar
Digital JPY
BIDR
Rupiah Token
CryptoFranc
StraitsX Indonesian Rupiah
Tether EURt
Tether CNHt
Tether MXNt
Poundtoken
TrueGBP
TrueAUD
TrueCAD
PayPal USD
First Digital USD
6. What data is used to create the DAM? What is publicly derived and what is proprietary to Moody’s?
DAM utilizes three types of data:
- Token information including market cap, volumes, smart contracts etc. via a 3rd party
- Market data that are collected via a 3rd party and include data from CEX and DEX exchanges
- Blockchain data that are collected via a 3rd party and include information around on-chain volumes, transactions, tokens distributions, token locked etc.
- Entities and Securities data that are derived from Moody’s Analytics flagship EDF-X product.
7. How did you develop DAM? Do you have dialogue with stablecoin issuers and are they providing any non-public information?
- We used an API-first agile methodology, utilizing continuous feedback from customers and advance ML modeling. During the product development stage we had a number of meetings with market participants, including stablecoins, in order to get feedback on the product and its direction.
8. What is the customer base/demand for DAM?
The demand we see for DAM is originated from traditional finance, fintechs and DeFi entities that are looking for a tool that would allow them to:
- Screen tokens prior to doing business with them or list them for their customers
- Decide which token is more suitable for a transaction
- Decide which token to use as a store of value and/or investment
Currently there are more than two dozen customers using the beta or have requested to participate in the beta.
9. What are your future plans to enhance DAM?
DAM’s next releases may incorporate the following capabilities:
- Cybersecurity metrics from a smart contract and blockchain point of view
- Market sentiment for the fiat-backed stablecoins
- Tokenized T-bills
- Overcollateralized stablecoins
