Moody’s Analytics has come up with a new stablecoin service that will make use of AI to predict any possible stablecoin depegs. The tool will use machine learning and other indicators to review stablecoins and make a prediction about their short-term future performance.
Quick Take:
- Moody’s DAM tool will analyze and predict the performance of stablecoins.
- The report shows that the stablecoin market is plagued with hundreds of depegs every year.
- The Analytical tool will review the performance of 25 fiat-backed stablecoins.
As per the report released by Moody’s Analytics, the AI tool will be able to make predictions in a 24-hour time horizon. It will further provide real-time insight and analysis of the liquidity and stability of the stablecoin issuer.
Moreover, the analysis has predicted rather underwhelming patterns in the stablecoin market in the crypto world. It shows that a total of 707 stablecoin depegs were reported in 2022 amid the fierce crypto winter, including Terra’s UST.
However, the stats could not really improve in 2023. To the surprise of the market, large-cap stablecoins with a market cap of over $10 billion suffered depegging a total of 609 times in 2023. This figure is seriously close to last year’s figure despite the improvements in the global crypto market.
The Unstable Stablecoins in the Crypto Space
In 2023, the total depeggings reached 1,914 which is a point of concern for the stability of the market. As per Moody’s the rising interest rates were a major contributor to this development. However, many coins also suffered due to their own reasons and internal systematic problems.
One of the most prominent depegs of this year was of Circle’s USDC. The stablecoin fell to $0.88 amid the fall of the Silicon Valley Bank. Tether’s USDT also had slight niggles throughout the year. Therefore, the report suggests that there are consistent volatility risks that plague the stablecoin sector.
The report shows that there are a ton of macroeconomic and coin-specific factors that pose a threat to the stability of these tokens. Therefore, a stablecoin is not free of large swings in terms of its price and market cap even with a strong repute and market position.
Yiannis Giokas, Senior Director of product Innovation at Moody’s Analytics said,
“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.”
Moody’s DAM to Track the Stablecoin Market
The Digital Asset Monitor (DAM) tool of Moody’s will keep a check on 25 fiat-backed stablecoins. These coins represent more than 92% of the total stablecoin market cap in the crypto space. These coins include the likes of USDT, USDC, PUSD and other renowned stablecoins.
Moody’s further said,
“Digital Asset Monitor (DAM) is a machine learning model that combines on and off chain data, financial statements and economic indicators.”
The tool will be used to identify and point out depegging risks while analyzing the liquidity, custodians, and reserves of stablecoin and its issuer. Moreover, the tool will keep a transparency index to highlight the quality and authenticity of the disclosures made by the companies behind any stablecoin.
