Moody’s Analytics Introduces AI Service To Predict Stablecoin Depegs

Moody’s DAM is a machine learning model that will provide real time insights regarding 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. — Source: Pixabay

Financial intelligence company Moody’s Analytics is launching a new AI service that can predict stablecoin depeggings while providing real-time insights about stablecoin issuers’ liquidity and stability.

In a press release yesterday, the company unveiled its new Moody’s Analytics Digital Asset Monitor (DAM), which is designed to “signal the probability of a stablecoin depeg from a fiat currency in a 24-hour time horizon.”

The release states that Moody’s DAM is a machine learning model that will provide real time insights regarding 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 combined with a transparency index designed to underscore the disclosure quality of the entities supporting these fiat-backed stablecoins.

Moody’s launch version of DAM will track 25 fiat-backed stablecoins, including Tether, USDC, and PayPal Coin, while noting that other digital assets would be added to the platform later on.

“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,” said Yiannis Giokas, senior director of product innovation at Moody’s Analytics. “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.”

Giokas added that the tool was built in a year using “agile-development frameworks” to confront customer needs.

In its announcement, Moody’s also noted that the stablecoin market is stabilizing. In 2023, there have been 1,914 depeggings so far, 609 of which were fiat-backed large-cap stablecoins. In 2022, there were 707 large cap depegs and a total of 2,847 depegs.

The significant frequency of depegs offers a backdrop to the headline volatility observed within the sector. In 2022, there were prominent depegs triggered by increasing interest rates, a pattern which recurred in March 2023, Moody’s said, concluding that depegging is surprisingly prevalent among stablecoins and can occur due to a variety of macroeconomic and coin-specific factors.

In the release, Moody’s also announced the launch of its DeFi Communities, a platform for DAM users to exchange ideas and share views.