Moody’s unveils service that uses AI to predict stablecoin depeggings

Moody’s Analytics will use machine learning and a host of indicators to compile and analyze large-cap stablecoins and identify probable depeggings.

Moody’s Analytics is launching a new stablecoin service that will use AI to predict probable depeggings “in a 24-hour time horizon” while providing real-time insights about stablecoin issuers’ liquidity and stability.

The stablecoin market is getting stabler, Moody’s observed in its Nov. 6 announcement for the launch of Digital Asset Monitor. 

So far in 2023, there have been 1,914 depeggings, of which 609 were of fiat-backed large-cap stablecoins. This compares with 2,847 in all of 2022, of which 707 were large-cap. While some correlation to rising interest rates can be observed, a number of coin-specific causes can also be detected, Moody’s said.

Moody’s DAM will track 25 fiat-backed stablecoins that represent over 92% of total stablecoin market capitalization. They include Tether (USDT), USD Coin (USDC), and PayPal Coin (PYUSD). More stablecoins will be incorporated into the service in time, according to its website:

“Digital Asset Monitor (DAM) is a machine learning model that combines on and off chain data, financial statements and economic indicators.”

Besides identifying depegging risks, the service will indicate “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.” In addition, it will provide “a transparency index that will highlight the quality of disclosures made by the entities behind these fiat-backed stablecoins.”

Related: AI and blockchain will ‘reshape sectors’ and create new markets from scratch — Moody’s

“The tool was built in a year using agile-development frameworks to address customer needs,” Moody’s Analytics’ product innovation senior director, Yiannis Giokas, said in the announcement.

In 2023, Moody’s Analytics reported 609 depegging instances among large fiat-backed stablecoins, down from 707 in 2022
Depegging indicates fluctuations of more than 3% in a day against their fiat pegs, highlighting the volatile nature of the sector

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— PakoCrypto₿ox (@PakoCryptoBox) November 6, 2023

Reports that the company was developing the new service emerged at the beginning of the year. Moody’s Analytics is a separate company from Moody’s Ratings. It provides commentary on aspects of the crypto assets market on a regular basis.

Magazine: Unstablecoins: Depegging, bank runs and other risks loom