Value in a Stablecoin Rating System to Further Silk Education?

Crypto needs a stablecoin rating system.

Both new and experienced users would benefit from being able to compare and contrast key criteria that make stablecoins more or less trustworthy.

I’ve been interested in seeing a rating system for a couple years now. So far there’s nothing out there. Go deep into a Google search and you won’t find much.

This Bitcoin Journal piece assessing USDC, USDT, DAI, and BUSD

And there’s a lot of buzz that Moody’s, a major credit rating agency, will build some kind of rating system. However, I’m suspicious about how well their criteria and analysis would align with the core ethos of crypto. Would they be inclined to favor centralized stables over decentralized? It’s possible.

Of course, in almost any kind of rating system you can rig up - Silk will shine. If you are reading this, you likely have a strong understanding about how Silk is different and why the world’s first private, basket (and non-USD)-pegged stablecoin deserves some attention.

I wonder if a legit rating system could help showcase those distinctions and educate users about how stables stack up relative to each other.

Sadly, whatever rating system Moody cooks up will almost certainly not have Silk on it. But when you google “stablecoin rating system”… there’s not a lot going on.

Imagine if a tool like this topped those search results and helped the crypto world assess stablecoin options…

So here are the main questions I’m interested to dialogue around (but feel free to add others)

  1. Would a rating system like this benefit users - helping them DYOR? Would you, personally, appreciate a tool like this if it existed?

  2. What would the key criteria for rating and evaluation be? (I asked this to AI and will share that response in the replies)

  3. How difficult would it be to build and ship this? Could it be a static web page that gets updated annually with the new scores, new stables added, etc? Or, perhaps, if your mind doesn’t generate an answer there – as a user, what would you want a UI/UX for a tool like this to be like?

Finally, if you are personally interested in a project like this, please reply below and/or DM me with how you might be willing to help (TG = @sean_pop). I’m not “doing” or leading this in any way. Just trying to get a pulse on if people even see value in the concept. But, theoretically, if we had enough talent and individual strengths brought to the table… would be amazing to see something like this in the world.

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This is what AI produced on the idea. Not too bad actually but definitely some missing pieces…

If there were a stablecoin rating system, some important criteria to consider might include the following:

1. Stability: This refers to how well the stablecoin maintains its peg to the underlying asset. A stablecoin with a more stable price history would score higher on this criterion.

2. Transparency: This refers to how much information is available to stakeholders regarding the stablecoin’s operations and reserve backing. A stablecoin that provides regular updates on its reserves, audits, and other relevant information would score higher on this criterion.

3. Liquidity: This refers to how easily the stablecoin can be bought and sold on exchanges. A stablecoin with high liquidity would score higher on this criterion because it would be easier for users to buy and sell the stablecoin at fair prices.

4. Security: This refers to how secure the stablecoin is from hacks and other attacks. A stablecoin with strong security measures would score higher on this criterion.

5. Reputation: This refers to how well the stablecoin is perceived by the public and the industry at large. A stablecoin with a good reputation would score higher on this criterion.

6. Governance: This refers to the structure and process by which decisions are made for the stablecoin. A stablecoin with a transparent and fair governance process would score higher on this criterion.

7. Network effects: This refers to the size of the stablecoin’s user base and the number of companies and entities supporting it. A stablecoin with a large user base and a diverse ecosystem of partners and supporters would score higher on this criterion.

These variables would be used to evaluate and compare stablecoins with each other based on the aforementioned criteria. However, it is important to note that these variables are subject to change over time as the stablecoin market evolves and new risk factors emerge.

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This is an interesting idea for sure, and would like to brainstorm further. Also, see if other users are open to contributing further to this idea.

I would like to address some other things:-
Adaptability: This refers to how fast the underlying Stablecoin can move during global economic changes.
Scalability: This refers to can the model sustain 1 Million USD or 1 Trillion USD is liability and assets.
Integration: How can we get this stable integrated in different markets (both crypto and non crypto)

I know you mentioned there is not much content on this. Feel free to write something in the domain, and if you feature SILK, we may share it around through our channels too.

The goal of content is to understand of the need for something like this for end users, then we can think of products around this.


Both of those criteria are key.

In particular, I think adaptability isn’t even on the radar as a criteria for most projects. In other words, “we are pegged to the dollar and the peg is the peg is the peg.”… a very fixed mindset versus a set of principles whereby a DAO can evolve the stable.

This discussion thread reminded me of a research paper I had stumbled across on the effect of rating systems for bonds and securities. I am sure there are some just as ‘nerdy’ as I am, and would find it rather interesting, so I thought I would share. The abstract and link to the full paper is below. What the research basically suggests is that “ratings reduce information asymmetries and produce improved liquidity.”

The Value of Ratings: Evidence from their Introduction in Securities Markets
by Bernstein, Frydman, & Hilt

Abstract: We study the introduction of the first-ever letter-graded ratings for corporate securities. In 1909, John Moody published a book containing assessments of the credit risk of the majority of listed railroad bonds. These ratings had no regulatory implications and were largely explainable using publicly available information. Despite this, we find that lower than market-implied ratings caused a rise in secondary market bond yields. Using an instrumental-variables design, we show that bonds that were rated experienced a substantial decline in their bid-ask spreads, implying that ratings reduced information asymmetries and improved liquidity. Our findings suggest that coarse ratings systems can improve information transmission, even in settings with the highest monetary stakes, and highlight the potential value of ratings for the functioning of financial markets.

A 2022 version of the working paper can be downloaded from Google Scholar: View article