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S&P Global Ratings, a leader in providing credit ratings, announced a crucial series of stability assessments for various stablecoins on Dec. 12, rating each asset’s stability strength on a five-point scale.

Lapo Guadagnuolo, senior analyst at S&P Global Ratings, said:

“We see stablecoins becoming further embedded into the fabric of financial markets, acting as an important bridge between digital and real-world assets … Our evaluations consider a variety of elements that can cause [stablecoins] to depeg below or above their targeted value”

Guadagnuolo noted that stablecoins are “not immune” to factors including asset quality, governance, and liquidity. Elsewhere in the announcement, S&P Global said that its ratings take into account quality risks, how over-collateralization and liquidation mechanisms limit risks, plus factors in five other areas.

The scale specifically aims to assess each stablecoin’s ability to maintain a stable value against a fiat currency, according to S&P Global. All stablecoins assessed so far by the company are pegged to the U.S. dollar.

USDC and Tether among stablecoins assessed

S&P Global identified Circle‘s USD Coin (USDC) as one of the strongest stablecoins on the market. In a dedicated report, the firm said that USDC is fully backed by low-risk assets and granted a score of 1 — the best possible rating. However, it ultimately adjusted the score downward to a rating of 2, writing that there is “insufficient precedent” on whether assets would be protected if Circle were to enter bankruptcy.

The company also listed the Gemini Dollar (GUSD) and Paxos’ Pax Dollar (USDP) among the strongest stablecoins, granting each an overall rating of 2.

In another report, S&P Global said that Tether (USDT)’s ability to maintain its fiat peg is ‘constrained’ and granted a rating of 4 — the second worst possible rating. The firm noted a lack of information about the parties involved in USDT’s reserves. It also said that Tether lacks transparency on reserve management and risk appetite, lacks a regulatory framework, and does not segregate assets to protect against the issuer’s insolvency. It also described redemption limitations.

S&P similarly assigned overall ratings of 4 or “constrained” to First Digital USD (FDUSD) and Dai (DAI). Finally, the company assigned ratings of 5 to TrueUSD (TUSD) and Frax (FRAX), identifying those stablecoins as the weakest.

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