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Which Stablecoin is the Most Stable? S&P Global Highlights Frax, TUSD Concerns

Last Updated December 13, 2023 2:44 PM
James Morales
Last Updated December 13, 2023 2:44 PM

Key Takeaways

  • S&P Global Ratings has published a “stablecoin stability assessment.”
  • The S&P evaluation flags concerns over Frax, TUSD’s collateral assets.
  • Meanwhile, it deemed USDC, GUSD and PUSD to be the lowest risk stablecoins.

By definition, a successful stablecoin maintains its peg to the fiat currency it approximates through thick or thin. Yet, there isn’t a single one that hasn’t fallen victim to market volatility at some point. So how can users determine which is the most stable or them all?

Weighing in on the debate, financial index provider S&P Global has launched a comparative stability assessment, rating eight leading dollar-based stablecoins on a five-point scale from “very strong” to “weak.” While the firm didn’t rate any of the coins it assessed as very strong, two of them – Frax and TrueUSD (TUSD) – received the worst rating, deeming them weak according to S&P’s analysis. 

S&P Stablecoin Rating Focuses on Collateral Risk

To form its assessment of DAI, FDUSD, FRAX, GUSD, USDP, USDT, TUSD, and USDC, S&P considered both the quality of underlying assets and their collateral ratio.

Drawing from a risk assessment model that applies across all S&P ratings, stablecoins that are exposed to cryptocurrencies or other risky investments fared poorly in the assessment. The ratings agency also repudiated those not backed by reserves equivalent to at least the value of coins in circulation.

S&P stablecoin ratings
  S&P’s assessment of different stablecoins.

S&P gave the undercollateralized, crypto-backed stablecoin Frax the worst score of 5 (weak). The assessment of TUSD was similarly critical. It took particular issue with the lack of verifiable information about the composition and custody of collateral assets. 

In contrast, stablecoins that are overcollateralized and backed by only cash or cash equivalent reserve assets were deemed the most stable. S&P awarded a rating of 2 (strong) to Gemini dollar (GUSD), Pax dollar (USD) and Circle’s USDC.

Which Stablecoins Have the Strongest Track Record?

While the logic behind S&P’s rating system is oriented toward minimizing risks for stablecoin users, it places less emphasis on their previous track record, which the firm takes into account only as a secondary consideration. 

However, a comparative view of the stablecoins evaluated by S&P reveals that their ability to maintain dollar parity diverges significantly. Considering most people access stablecoins by purchasing them on crypto exchanges, such historical volatility is an important factor.

For example, the S&P rated Gemini’s GUSD higher than Tether’s USDT. However, the former typically trades within a range of $0.04 while the latter rarely strays more than $0.002 away from a dollar.

stablecoin volatility
  stablecoin volatility rates.

Analysis by crypto information site Coin Kickoff says USDT recorded the lowest volatility of any stablecoin in the 2022/23 financial year. It registered an annualized rate of just 0.88%. At 7.8% volatility, Frax was the most volatile of the stablecoins S&P assessed.

In 2023, the most notable depegging event of any major stablecoin occurred in March. It was then that USDC briefly traded as low as $0.87 on some exchanges after Silicon Valley Bank collapsed. In acknowledgment of that event, S&P downgraded USDC from “very strong” based on the strength of its reserve assets alone.


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