Stablecoin Credit Ratings & Credit Intelligence On Chain

Transcript

[applause] >> Hello everyone. Good evening. What I will try to touch upon today for the next 15-20 minutes is question that sits underneath every discussion we are having in the institutional capital markets today. And that's not which stable coin is fastest. That's not which protocol is the most efficient. But the question is actually which one of these are safer and more importantly, how would you ever know? So let's look at what's the what are the major concerns in traditional financial infrastructure. We have a lot of friction, we know that. There's a lot of issues.

But at Moody's we identified three main uh expensive measurable problems. 240 trillion dollars uh liquidity trapped across hundreds of siloed ledgers that are designed not to talk to each other. That's the mobility problem mobility problem. Over 100 billion dollars is spent reconciling data across the siloed ledgers. This is not lending, not investing. This is the cost the market pays to reconcile data every single year.

That's the volume problem. And over 10 trillion dollars in FX turns over every single day exposed to settlement risk because our execution speed and our settlement speed are completely mismatched. That's the speed problem. And the thing is these three problems are not waiting for a solution because the markets are already responding. Tokenization potentially can solve the or unlock the collateral and stable coins can potentially settle them. That solve that's would potentially solve the mobility problem.

Shared ledger across institutions or intra institution or across jurisdictions can potentially solve the reconciliation problem. Potentially a solution for volume. An atomic settlement or T+0 settlement or instantaneous settlements done right can solve the speed problem. But if you look behind the mechanics, US dollar denominated stable coins are already driving the de facto digital dollarization in markets where traditional financial institutions have historically not had a major footprint.

Some major stable coin issuers hold more US Treasury debt than some mid-size sovereigns. Incoming payment providers who are not fighting the stable coin issuers, but are actually finding innovative ways of integrating with them. So, stable coins have already crossed from parallel ecosystem into core infrastructure. And they are actually potentially being looked at as a stable settlement asset that may end up driving everything else within the digital economy or digital finance ecosystem.

And regulators have noticed this. This map shows that this the regulators are signaling requirements about mandatory reserve standards, redemption rights, operational requirements, and it's unambiguous. So, stable coin issuers that are able to uh prove the credit quality of their stable coins that meet these credit these regulatory requirements in whichever jurisdiction they are operating in would pass the test of time, and those who will not uh will have to um uh work out of jurisdictions where there are no regulatory requirements.

But let me try to answer a a question about why I'm talking about credit quality. Moody's is a leading credit rating agency. What have they got to do with stable coins? And I will try to answer that by asking you a question first. Imagine you're buying a house, any house. Would you hand over your life savings without having an independent structural survey done? Anybody? You would not. Even if the house is perfect, your dream house. The seller is honest, someone you may probably know.

You will still want or need an independent structural surveyor to go into the house, check the foundations, look at the plumbing, and give you an independent honest verdict. That's exactly what a credit rating does in the capital market industry. A credit rating is nothing but a forward-looking opinion, independent opinion, of how an issuer or a financial obligation may perform over time, over its lifetime, under stressful market conditions. And that is an institutional question or an institutional requirement.

And that's why we think that the key to stablecoin adoption is potentially a credit rating of a stablecoin. So, what would uh need to be assessed in order to actually think about a potential credit assessment of stablecoins? There are a lot of risks. We've kind of bucketed them in four main boxes or circles in this case. First and foremost is underlying collateral. Pure credit fundamental for any debt instrument that needs a credit rating if they want to meet the investment mandates that govern the decision to decide how capital should be allocated, right? So, the underlying collateral, the reserve quality, are they sitting in

a bankruptcy remote account, segregated? Our credit analysts run stress scenarios, something like what would happen if 30% of stablecoin holders or investors decide to redeem at the same time. Does the issuer have enough liquid assets or cash available to hold the peg of the stablecoin? So, very important to identify or understand and assess the credit quality of the underlying of the of the stablecoin. Second, transaction structure. Credit assessments or credit risk end up being very important when we think about legal enforceability.

Is your stake or claim of holding a digital asset or a token, in this case a stablecoin, enforceable in court of law? And if it is, which jurisdictions can you assert that claim? So, very important to have the legal enforceability between a token and the underlying collateral. Third, operations and counterparties. Who's running the underlying blockchain? What's the minting or burning mechanism? What's the governance mechanism around it? If stablecoins are being embedded into corporate treasuries, wholesale banking, even agent e-commerce, it's already being tested and potential and people are seeing the potential of stablecoins

playing a big role in age and AI agents. The systemic interdependency [snorts] is equal is as important as the underlying collateral quality that matters to that instrument or an issuance of an asset. So, it's very important to assess that that risk. And last but not the least, technology risk. Oracle risk, smart contract audits, key management, the digital custody value chain, validator concentration.

All of this kind of is needed when you talk about a stablecoin running on a blockchain and you need to understand all the mechanisms around it. And these four risks together asked for a rigorous independent credit framework because it doesn't exist today. So, we went ahead and we built one. So, in March of 2026, 3 months 3 3 and 1/2 months ago, we launched the industry's first stablecoin cross-sector stablecoin credit rating methodology.

And based on a recent research, it's the only credit rating methodology in the world till date. It does one basic thing for sure, and that is checking the stablecoin to make sure or assessing the stablecoin to make sure that it can be redeemed at par on demand under stressful market conditions. It's applicable to all fiat-backed stablecoins globally and is portable with the stablecoin in any jurisdiction where stablecoin is legally allowed to operate. So, it's not just US-focused or or EU-focused, but it's it applies to every jurisdiction that has a stablecoin methodology.

But, it's important to understand that the story is not about just stablecoins. It's a larger tokenization, digital finance, digital economy that's evolving. Everything is being digitalized and digitized. You look at tokenization, AI, private credit, transition finance, emerging markets, uh global capital markets altogether, and they are all converging. What makes this moment different from previous cycles is that innovation is not happening in a silo.

Digital economy is no longer a subsector. It's actually becoming the connecting layer of the future digital capital markets. But, what it is also doing is it's introducing new forms of instruments, some tokenized and some novel native digital assets that are being expected to carry the real institutional weight, which is trillions of dollars, right? And the market is not that big yet. And these new asset types bring new risk layers. So, imagine an AI agent executing a financial decision autonomously on chain.

The question of which data point can the financial systems trust becomes even more urgent uh than it has ever been before. >> [snorts] >> And this does not happen overnight. It's been happening for a few years. We saw digital bonds being issued years ago. Small sizes, proof-of-concept. What these digital bond issuances proved is that regulated rated debt instruments could actually live on chain and operate well. And that was kind of the signal that this technology has something that's beneficial and can be tested at scale.

Then we saw issuances of tokenized funds, money market funds, private credit, uh real estate debt, institutional grade instruments sitting on programmable rails. This proved the infrastructure was here to stay, but what this all more importantly, it confirmed the institutional appetite. And the tokenized funds have been growing ever since. >> [snorts] >> But more recently, the evolution of stable coins, they're growing very fast. They're growing at a speed that no other asset has potentially uh nobody has experienced any other asset potentially growing at this space uh in capital markets history or maybe there was just one or two of them ever happened.

So, stable coins are not being looked at as crypto curiosity, but something even more consequential. They are being looked at as a stable settlement layer, a potential cash leg for the tokenized economy. And if you look deep uh beyond the data I just showed and start looking at what blockchains are actually executing and transacting these asset classes, you will notice that one chain stands out, of course, where a lot of stable coins are being settled, a lot of tokenized instruments are being held, and where credit is being extended, and that's the Ethereum blockchain. But that does not mean that other blockchains do not matter because they do, and in our view at Moody's,

we believe that the future ecosystem is going to be multi-chain economy. It won't be about one blockchain, but multiple blockchains interoperating, talking with each other with different permission sets. But one thing was missing in everything that you just saw in the data, and that was a credible credit intelligence layer. Because most of the credit insights and credit opinions, including from Moody's, are currently static, right? Like how do you now automate that and make and program them?

So we used our expertise, over 115 years old incumbent credit rating agency, having rated 33,000 transactions across issuers with almost 200 methodologies, and then there's this digital finance ecosystem that's evolving. We have been rating digital bonds, assessing tokenized funds. We'll potentially have public ratings for stable coins published very soon because of the methodology. But our credit opinions are on press releases, on our research reports, and you have to go on our websites to find them and then take them and embed them, and that's not how digital economy works. We had to come on chain.

So we decided to build a credit intelligence layer, and which we build and we call token integration engine. What it does is it takes that static credit opinion information, still authoritative, but turns it into a programmable signal. Autonomous continuous event-driven, and is available at scale. So, at the end of the day, the bottom line is our credit methodologies answer the credit question, and our token integration engine make sure that answer is available at the volume, at speed, and scale that the digital economy demands.

And token integration engine also makes Moody's the only credit rating agency with native on-chain presence. We operate our no own nodal infrastructure, and we are going to be active on multiple other blockchains beyond where we already are. So, with that, I'll be happy to continue the conversation offstage. Uh you can also reach me on my email or via LinkedIn. Uh once again, Rajiv Bamrah. I see the oversee the global strategy and operations uh for digital economy at Moody's Ratings. Thank you for your time.

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