The rating on the issuer of the USDS stablecoin carries a stable outlook and matches S&P's B-. Moody's identified the level of Sky's reserves as a central factor.
A major credit rating agency has put a grade on a decentralized stablecoin issuer, the first such rating from Moody's according to the protocol's foundation. The grade is deep in speculative territory.
Moody's Ratings assigned a B3 rating to Sky Protocol, the issuer of the USDS stablecoin, according to its ratings listing dated . The Sky Frontier Foundation said the rating carries a stable outlook and is the first Moody's has issued on any stablecoin protocol. S&P Global had previously rated Sky at B-.
Where B3 sits
On Moody's scale, the lowest investment-grade rating is Baa3. Below it come Ba1, Ba2, Ba3, B1, B2 and B3. That puts Sky six notches into speculative grade. B3 is the equivalent of S&P's B-, so the two agencies have reached the same assessment.
The rating factors
The Sky Frontier Foundation said Moody's identified the level of Sky's reserves as a central factor in the rating. Reserves are the capital a stablecoin issuer holds to absorb losses before holders are affected, and their size relative to the stablecoins in circulation is the main measure of how much stress the system can take.
The protocol said it aims to reach investment grade over the long term.
The two documents describe the rating differently. Moody's listing calls it a counterparty risk rating, while the foundation's release calls it an issuer rating.
Why it matters
A rating gives institutional investors a way to fit a decentralized stablecoin into existing credit processes. Many funds and treasuries can only hold assets that carry a rating, and a rating from a major agency gives them a common language for comparing USDS with other short-term instruments.
The grade itself limits that. Many institutional mandates restrict or prohibit holdings rated below investment grade.
SKY, the protocol's governance token, fell about 4% in one hour on Wednesday morning, in line with a broad crypto selloff.
The range of views
One reading is that the rating is a validation. A major agency has done the work to assess a decentralized protocol, which may open the door to institutional use.
A second reading is that the rating is a warning label. B3 signals significant credit risk, and the agency's focus on reserves points to thin capital.
A third reading is that the precedent matters most. If Moody's can rate Sky, other stablecoins and DeFi protocols may seek ratings, creating a basis for comparing them.
Upgrade conditions
Any increase in Sky's reserves relative to its stablecoin supply would be the first input toward a higher rating. A Moody's rating on a second stablecoin issuer would show whether Sky was a one-off or the start of a category.