Stablecoin Methodology

Methodologies Stablecoins
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Introduction

The Stablecoin Methodology is a comprehensive framework for assessing the risk associated with stablecoins. Stablecoins are designed to maintain a stable value, typically pegged to fiat currencies or a basket of assets, with varying stability mechanisms that influence their risk profiles. Part of the Calibration Layer of the Token Rating Framework, this methodology captures additional risk factors pertaining to Stablecoins that are not captured in the Sub-Methology Layer. The scope includes:

  • Fiat-Backed Stablecoins: Backed by reserves of fiat currency or equivalent assets (e.g., USDT, USDC).
  • Alternative Asset-Collateralized Stablecoins: Backed by alternative assets or strategies (e.g., DAI, USDe).

Key Sections

Below is an overview of the sections covered in the methodology:

  1. Anchor PD: Combines Counterparty Risk and Asset Quality, leveraging outputs from relevant sub-methodologies.

    • Counterparty Risk: Evaluates the risks associated with the custody of reserve assets through:
      • Centralized Custody: Assesses custodians’ creditworthiness, operational risks, and governance.
      • Smart Contract Custody: Evaluates smart contract risk, considering audits, maturity, and dependencies.
    • Asset Quality: Evaluates the quality of reserve assets depending on the type of stablecoin
      • Fiat-Backed Stablecoins: Assesses risks from Treasury Bills, repurchase agreements, and cash equivalents.
      • Alternative Asset Stablecoins: Utilizes either the Merton Model, or a direct analysis of the underlying asset. The selection depends on the nature of the underlying asset, and the information available.

  2. Calibration Layer Modifiers: Applies Stablecoin Modifiers to account for stablecoin specific risks which are not fully captured by the Anchor PD, including the following.

    • Reserve Management Operations
    • Legal Claims (Terms of Service and Tokenholder Rights)
    • Regulatory Cover
    • Smart Contract Risk

  3. Framework Integration: Outputs form the foundation of the Primary Layer evaluation.

Access the Full Documentation

You can view the complete and detailed Stablecoin Methodology on GitBook.

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  3. Ask Questions: Feel free to ask about any section of the methodology or its applications.

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