TheChek News Flow

Conference host, the United Arab Emirates, brokered the compromise that calls for a clean energy shift to accelerate this decade

DUBAI—More than 190 governments at the United Nations climate conference approved an agreement Wednesday calling for the world to transition away from fossil fuels, an accord that bridged differences between big energy-producing nations and countries that want to completely phase out coal, oil and natural gas.

The deal, the result of all-night talks, calls for “transitioning away from fossil fuels in energy systems, in a just, orderly and equitable manner.” It says the shift to clean energy for the global economy should accelerate this decade with the aim of net-zero greenhouse gas emissions by 2050. Scientists say that is crucial to fulfilling the Paris Accord, the landmark climate agreement that calls for governments to attempt to limit global warming to 1.5 degrees Celsius above preindustrial temperatures.

The deal marks the first time a U.N. climate agreement has called for governments to cut back on all fossil fuels. Scientists have long said it, but big fossil-fuel producers led by Saudi Arabia and fast-growing developing nations such as China and India have rebuffed pressure to call for burning less.

“We should be proud of our historic achievement,” said Sultan Al Jaber, the chief executive of the U.A.E.’s national oil company who is running COP28. “We have delivered a robust action plan to keep 1.5 within reach.”

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Officials are likely to leave rates unchanged and could temper investors’ expectations of earlier rate cuts

Federal Reserve officials are set to hold interest rates steady this week at a 22-year high and will likely project cutting them next year.

Still, they won’t declare an end to rate hikes this week, even though they are growing more convinced that they have done enough to bring inflation down.

Officials will release a new policy statement and economic and rate projections at the conclusion of their two-day meeting, Wednesday at 2 p.m. Eastern time. Fed Chair Jerome Powell’s press conference at 2:30 p.m. will be heavily parsed for clues about when and why the central bank might shift its policy stance next year.

Here’s what to watch for:

The policy decision

After raising interest rates last year at the fastest pace in 40 years to combat inflation that soared to four-decade highs, Fed officials slowed the pace of increases this year to see how the economy was responding. They raised their benchmark federal-funds rate by a quarter-point at four meetings this year, most recently in July, to a range between 5.25% and 5.5%.

By holding rates steady this week, officials will extend their rate-hike pause to six months because their next meeting is at the end of January.

Officials are likely to maintain language in their policy statement that suggests their next rate change is more likely to be an increase than a cut. Any softening of this so-called tightening bias will be closely watched by financial-market participants because it could be a precursor to a neutral stance in January or March—meaning their next change is as equally likely to be a hike as a cut. And a neutral bias could be a precursor to a rate cut.

The economic projections

Inflation is on track to end the year slightly lower than what Fed officials projected in September. Officials then expected core prices, which exclude volatile food and energy prices, to be 3.7% higher in the fourth quarter of 2023 than a year earlier. Core inflation was 3.5% in October, according to the Commerce Department.

Much of the slowdown has occurred recently. Core inflation was 2.5% at an annualized rate over the six months through October, down from 4.5% over the previous six-month period, according to the Commerce Department.

In September, most officials projected one more rate increase this year and then penciled in at least two rate cuts next year, which would leave the Fed’s benchmark rate at around 5.1% by the end of 2024. One big question this week is how officials revise their projections for inflation and interest rates for next year.

If officials project that rates will still end next year at 5.1%, that would result in just one rate cut, assuming no additional increases. If officials maintain their projection of two rate cuts despite not hiking again, that would lower the year-end projection to around 4.9%.

Investors in interest-rate futures markets anticipate the Fed will cut rates by 1 percentage point next year, implying four cuts of a quarter-point. Any Fed projection of more than two rate cuts next year would likely cheer markets by validating expectations of an earlier turn toward cuts than most officials have publicly supported.

Officials find themselves in “a weird situation because you don’t want to say ‘We’re not going to cut,’ and then end up cutting rates five times next year. But if they say, ‘Four cuts next year,’ then the market might price in six or seven cuts, and they don’t want that,” said Jón Steinsson, an economist at the University of California, Berkeley.

The press conference

Powell’s press conference could focus heavily on a topic officials have been reluctant to discuss: when rate cuts are coming. Officials don’t want to declare victory yet on inflation or cause a market rally that makes it harder to sustain the slower economic growth they believe necessary to conquer inflation.

“The market is a little carried away on the possibility of near-term cuts,” said Antulio Bomfim, a former adviser to Powell who is now at Northern Trust Asset Management. “My expectation is that he will gently push against that view.”

The reasons why officials lower rates matter. Often, the central bank trims rates to shore up a deteriorating economy and job market. Indeed, this forms the basis for several analysts’ forecasts of cuts next year.

Matthew Luzzetti, chief U.S. economist at Deutsche Bank, expects the Fed to begin cutting rates in June and to lower the fed-funds rate to around 3.5% next year as the economy slides into recession. Under this scenario, “the case for cutting rates would be very, very clear for the Fed,” he said.

But Fed officials have acknowledged that they could lower rates next year simply because inflation is well on its way to their 2% target. Holding rates steady as inflation falls would lead inflation-adjusted or “real” rates to rise, which the Fed doesn’t want. Officials could lower nominal rates simply to prevent real interest rates from turning too tight.

Risk management and rate cuts

Markets are craving a degree of clarity that Powell isn’t likely to offer.

Fed officials are trying to balance the risk of moving too slowly to ease policy, which could lead the economy to slump under the weight of its past increases, against the risk of easing prematurely and seeing inflation settle above 3%—well above their 2% target.

It is likely too soon for many officials to be confident that they have done enough to keep inflation declining to 2%, said Vincent Reinhart, chief economist at Dreyfus and Mellon. “We are going to be in a period that’s got to feel very unsatisfactory for them,” he said.

James Bullard, who stepped down in July as president of the St. Louis Fed, said he would want to see the 12-month core-inflation rate drop below 3% before entertaining cuts.

He worries about a “worst-case scenario” where the Fed cuts rates and then inflation stalls out at 3% or even reaccelerates. “That would put the committee and markets in a very difficult situation, so why get into that if you don’t have to?” said Bullard, who is now dean of the Daniels School of Business at Purdue University.

Anglo American’s stock market woes turn up heat on chief’s strategy

Duncan Wanblad insists events outside his control are responsible for tumbling share price

Anglo American’s worst day on the London stock exchange for 15 years has heaped pressure on relatively new boss Duncan Wanblad, prompting questions over why the British miner has been so badly driven off course.

The FTSE 100 group’s third downgrade in production expectations in 20 months since the ex-director of strategy took charge sent shares 19 per cent lower on Friday — its biggest one-day fall since the financial crisis.

Compounding this year’s 48 per cent tumble, the platinum, iron ore, copper, steelmaking coal and diamond producer is easily the poorest performing mining stock of the large groups, including BHP, Rio Tinto and Vale.

With market capitalisation down to £23bn compared with a peak of more than £50bn when Mark Cutifani handed Wanblad the reins in April 2022, questions centre on whether it is a victim of circumstance or poor management.

Has the troubled South African economy, where it mines platinum, iron ore and diamonds, geological problems in Latin America and the commodity downturn caused its woes or is Wanblad’s strategy misfiring?

Either way, as market chatter increases over the potential for a takeover or an activist-led break-up as shares start to look attractively cheap, investors want action to arrest the decline.

“The share price has materially underperformed peers in 2023 and it is not just because of their commodity mix. Management is under pressure now to deliver the cost savings and to improve the operational performance,” said Myles Allsop, analyst at UBS. “Shareholders want to see a turnaround.”

Cutifani, who took Anglo’s share price to record highs just before he left, told the Financial Times on Monday “it was easier to be quick and aggressive” in his day.

Then, he slashed headcount from 160,000 people to 90,000 and strengthened a balance sheet bloated with debt during 2015’s brutal commodity market downturn.

He added that “costs continue to rise so investment in new technology and change is relentless”, as mining becomes more challenging across the world.

But Cutifani, chair at rival Vale’s copper, nickel and cobalt production arm Vale Base Metals, observed that “the organisation has revisited its investment strategy in innovation”, although he refused to be drawn on whether that was good or bad.

Known for being shy and introverted, Wanblad was quick to come forward on Friday to make clear that the company’s problems were largely out of his control and due to a “very unique set of circumstances coming out of the Covid years and then some specific logistics and infrastructural issues”.

People familiar with the matter add that the group’s production forecasts had overestimated the role of technology to boost output, with these now more realistic under Wanblad, who has prioritised innovations to improve output.

The biggest shock for investors on Friday was a savage downgrade to the company’s forecast copper production in the next two years.

This was owing to geological issues at Quellaveco, the large copper mine in Peru and a driver of near-term growth, and plans to temporarily close one of two processing plants at the 156-year-old Los Bronces mine in Chile.

The predicted 200,000-tonne reduction in production of copper next year compared with a previous range of 910,000 to 1mn tonnes is equivalent to removing one of the world’s largest mines for the metal, a vital component for power lines and electric cars.

Shares took a big hit because the production cut “has taken away the near-term growth in the portfolio” with the company’s fortunes more exposed to “potential commodity movements”, said Tyler Broda, analyst at RBC.

This could lead to large structural changes at Anglo next year, with the potential for spin-offs and divestment, he added.

Another big problem for the group is its reliance on South Africa, where the group has a long history, stretching back more than a century to Ernest Oppenheimer’s founding of the company in 1917, with its platinum and iron ore operations driving most of the company’s earnings.

Almost 8mn tonnes of material has been stockpiled at the country’s Kumba iron ore site, forcing production cuts, because of transport hold-ups and blockages after the collapse of Transnet, the state rail, port and pipeline monopoly.

The group has also been hit by the problems at Eskom, South Africa’s other big state monopoly responsible for most of the country’s electricity production. Eskom has imposed rolling blackouts because of constant breakdowns at its coal power stations.

In addition, De Beers, the group’s diamond producer, and Anglo American Platinum have suffered because of a sharp plunge in prices, caused by the steep rise in interest rates and tepid demand in China.

Investors fret that diamond and platinum and palladium production are in structural decline. This is because of lab-grown gemstones and the replacement of petrol and diesel cars with electric vehicles, which do not rely as heavily on platinum and palladium.

Wanblad rejects this, insisting these commodities have a bright future.

Other investors added that Wanblad had been dealt a difficult hand, with mining becoming harder as the quality of ore deteriorated and ESG standards required complex desalination plants to supply freshwater and mining waste storage infrastructure.

“Duncan has had a perfect storm, a lot of which is not of his own making,” said one person familiar with internal decision-making at the group.

Even so, despite an overhaul in senior management, $1bn of identified cost cuts and a public plea to work with the South African government to try to resolve its power and logistics problems since he joined, not everyone believes he has been decisive enough.

“Duncan has taken too long — he has been there a year and a half and he’s still reorganising,” said one resources investor who does not hold Anglo stock. “There’s a lot of fires and he hasn’t been able to control it.”

He has also been responsible for proceeding with Woodsmith, a fertiliser mine in Yorkshire considered a high-stakes bet on the niche product polyhalite, that led to a $1.7bn writedown in February and will not generate revenue until 2027.

Bankers and analysts said a further drop in shares would make the company a takeover target for the likes of Glencore or Rio Tinto.

But they warned any deal would be complex and a more likely outcome was an activist building a stake and demanding a spin-off sale of its diamonds, platinum or steelmaking coal operations, something Wanblad was acutely aware of.

“Is this time to review elements of the portfolio? Well, I think all of the time is the right time to review elements of the portfolio,” he said on Friday. “There are no sacred cows.”

France seeks weaker EU due diligence rules for banks

Paris pushes against lenders being held liable for clients’ environmental or human rights shortcomings

France is pushing for banks not to be held liable for the environmental or labour shortcomings of their clients as crunch talks get under way on new EU due diligence rules, effectively calling for the proposed regulations to be watered down.

Negotiators from the bloc’s governments, European parliament and the European Commission will seek to reach an agreement on the text on Wednesday, with Paris leading calls for banks to be exempt from the new due diligence rules, at least temporarily, or to have the rules altered.

Home to one of the bloc’s largest banking sectors, France has argued that a broader application of the rules to include end customers would hamper lending, though some EU lawmakers disagree. Financial institutions could be excluded from the new rules during a phase-in period, or the directive could be watered down, people close to the talks said.

The requirements for companies to not only report on but also prevent environmental and social governance abuses in their supply chains could affect more than 13,000 businesses in the EU depending on the outcome of the negotiations.

Under the rules, civil society groups would be able to take businesses to court over harm caused by impacts from their supply chains. Another contentious requirement is whether companies will have to make and fulfil climate transition plans.

Paris has argued that in its current form, the text would make banks liable for their clients as well as suppliers, unlike companies which are only liable for suppliers.

“What we’re asking is for the same rules for all companies and banks,” one of the officials said. A second official insisted France was not seeking a carve-out for banks, just an “equal application of the rules”.

Members of the EU parliament, who must sign off on the final text, have argued for financial institutions to be included given their impact on business investment decisions and ability to influence company behaviour through lending rules.

“Why do we want financial services in there? Because we need them to enforce due diligence on real economy operators because they create the impact on human rights on the ground,” said René Repasi, a German socialist lawmaker

A proposal circulated by the Spanish, who currently negotiate on behalf of the member states, in November said that “given the delicate balance on the issue . . . and the difficulties to find a compromise” the financial sector should be excluded from the directive for now. They could end up being included but with a later phase-in date, the second French official said.

A parliament official said lawmakers could “tweak a little” in order to include some downstream activities of financial services. The commission has previously proposed keeping banks in the scope but limiting the requirements to lighter touch checks, according to a document seen by the Financial Times.

Italy, Spain and the Czech Republic are among countries sympathetic with the French position, said three people familiar with the talks, while Germany’s position is less clear-cut and some other member states disagree.

In a preliminary agreement among EU governments last year, Paris had signed up to the idea that banks could be covered at the discretion of national governments. But Paris has since strengthened its opposition to the draft law.

The rules are part of a wider push by the EU to ensure that the bloc’s environmental impact does not stretch beyond its borders. The latest negotiations come in the wake of heated discussions at the UN COP28 climate summit where finance from developed nations to help countries vulnerable to climate change were a central part of negotiations.

French officials said their government was behind the initial European impetus for the law, but that it was now going in a direction they disagreed with. France brought in its own “vigilance law” in 2017, following the 2013 deadly collapse of the Rana Plaza clothing factory in Bangladesh that was used by western brands. The law has already been used by non-profits to challenge businesses in court.

In the EU, Germany also has a due diligence act for companies.

Part of the reason Paris has led the charge for amendments is the size of its financial sector, home to lenders such as BNP Paribas and Crédit Agricole, which aims to rival London after the UK’s exit from the EU. In the run-up to discussions at EU level, the European Banking Federation had also called for caution in distinguishing liability for supply chains and clients.

ShareAction, the responsible investment charity, said that the “stark divide” between the positions of EU legislators “sets the stage for challenging and tense discussions, expected to unfold until the early morning hours”.

Task force appointed by UK Treasury struggles to agree on date to narrow window for finalising securities deals

A government drive to boost the attractiveness of UK financial markets by reducing settlement times for trades has stalled because of divisions in the City of London over whether to align the new rules with the US or the EU.

A task force appointed by the Treasury is struggling to agree on a date to cut the time for finalising securities deals from the current two-day period to next-day settlement, according to four people with direct knowledge of the talks.

The stalemate, between businesses with US interests and those tilted towards Europe, has cast a shadow on one of the UK government’s “Edinburgh reforms” — a 31-point plan to try and make London a more attractive market to international investors after Brexit.

The Treasury has taken soundings from the City on whether reform of trade settlement could boost UK competitiveness and growth and bring it into line with the US and Canada. The unglamorous activity, where share and bond trades are finalised and ownership is legally transferred, was thrown into the global spotlight by the meme stock craze in 2021.

North American markets are being modernised after a rush to buy stocks such as GameStop gummed up the market and led to complaints that the two-day window held up customers’ money for too long, increasing credit risks and slowing the pace of trading.

The US and Canada will shift to single-day settlement next May, while India is also making a similar shift. The UK Treasury has set up a committee of representatives from the City to steer the process. It is due to produce a progress report at the end of the year and final report by December 2024.

The task force, headed by Charlie Geffen, a senior adviser at consultancy Flint, includes City trade bodies such as banking lobby group UK Finance and The Investment Association, which represents fund managers.

People involved in the discussions said the draft of the report had recommended the UK make the shift but it had not been submitted to the Treasury because of a difference of opinion on which of the two big financial markets it should follow.

Discussions have grown “more heated than you might imagine . . . but in a very City gentleman type of way,” said one person who had seen a draft of the report.

Some banks and asset managers with extensive business in the US are pushing for an implementation date in spring 2026, the people said. Those with strong links to the EU are keen to align with the bloc, which only began consulting the market in October.

Some other parties have worries that their back office systems will not be ready in time by early 2026, the people added. The dispute may mean the implementation date is dropped for the end-of-year report and a decision taken after the US goes live at the end of May, two people with knowledge of the talks said.

UK Finance has suggested a decision be made in the next year, according to a person with knowledge of the discussions.

The hold-up comes as the Treasury faces criticism from MPs that progress on the Edinburgh reforms has been slow or exaggerated, and has yet to stem the flow of companies looking beyond the City. In the latest move Marex Group, a UK commodities financial group, opted to list in New York after it pulled a planned float in London two years ago.

The Treasury said the task force was “independent”. It added: “We look forward to receiving their recommendations and will consider and respond to them in due course.”

S&P Global looks at stablecoins

What’s left to say about stablecoins?

They exist. You’re supposed to be able to exchange them for one dollar, making them a tenuous link between crypto markets and the US financial system. They’re digital tokens backed either by a) dollar-denominated portfolios of safe assets; b) unaudited promises that they have safe assets; or c) magical confidence maths that only work until a death spiral.

In other words, stablecoins are unregulated* money-market funds for folks who’ve become bored with dreary concepts like government interest rates, liquidity requirements, securities, corporations, profits, creditworthiness, dividends and corporate lawyers**.

If that’s the type of thing that interests you, S&P Ratings is now publishing evaluations — not formal ratings, mind you! — of stablecoins’, er, stability.

The credit-ratings firm looks at eight of these so-called stablecoins and grades them on a scale of 1 (best) to 5 (worst). Here are the grades and their reasoning, from largest market cap to smallest:

Tether: 4 (second-lowest) // market cap of ~$91bn

Our asset assessment of 4 (constrained) reflects a lack of information on entities that are custodians, counterparties, or bank account providers of USDT’s reserves. This is notwithstanding that a large share of USDT’s reserves comprise short-term U.S. treasury bills and other U.S. dollar cash equivalents. There is also significant exposure to higher-risk assets with limited disclosure. Such assets could be subject to credit, market, interest rate, or foreign currency risks.

Looks like S&P Ratings doesn’t find “attestations” especially convincing, either. Beyond the red flags above they also cite the “lack of a regulatory framework, no asset segregation to protect against the issuer’s insolvency, and limitations to USDT’s primary redeemability.”

But other than that, how was the play Mrs Lincoln?

USDC: 2 (second-highest) // market cap of $24bn

USDC benefits from full backing by low-risk assets, primarily short-dated securities and deposits with banks. These are held mainly at SEC-registered Circle Reserve Fund (CRF) at BlackRock. As of Sept. 29, 2023, the collateralization ratio stood above 100%. The audited report shows 36% of assets held in treasuries, 56% in repurchase agreements, and 9% in cash. Overall, 5% of assets are cash held outside the CRF at regulated financial institutions.

Their assets have the highest rating, thanks to the SEC registration and overcollateralisation. Good for them! But there’s a catch that bumps the overall rating down to 2:

The stablecoin stability assessment is 2 (strong) to reflect our view of insufficient precedent on whether assets would be protected in the event of bankruptcy of Circle. This is although Circle reports that USDC’s underlying reserves are segregated from its other assets. Circle is registered with the Financial Crimes Enforcement Network, a department of the U.S. Treasury. USDC is regulated as a form of stored value or prepaid access under laws governing money transmission in various U.S. states and territories. We consider the price stability performance over the past 12 months to be a weakness for USDC. In March 2023, the peg dropped by 13%, in the secondary market, after Circle confirmed that about 8% of the total assets backing USDC at that time were held at Silicon Valley Bank (SVB).

This is not to say that all investment value eventually comes down to legal enforceability. But it sure seems like a lot of investment value does.

TrueUSD: 5 // mkt cap $2.6bn

 . . . we have no information on the nature of the assets in the reserve or the creditworthiness of institutions holding these assets. TUSD uses real-time attestation for its underlying assets, which are made up of deposits with depository institutions in Hong Kong, Switzerland, and the Bahamas, according to public information. The independent accountant’s report states that the assets include cash, cash equivalents, and short-term highly liquid investments, all denominated in U.S. dollars. We understand the Hong Kong-based depository institution also invests in other instruments to generate yield.
The negative adjustment is because of the scarcity of public information about the segregation of the underlying assets and their bankruptcy remoteness from Techteryx, beyond what is mentioned in the independent accountant’s report. We also see the lack of clear guidance on asset management as a weakness. Moreover, TUSD is not regulated.

“ . . . other instruments to generate yield”, eh? 👀

Dai: 4 // mkt cap $5.3bn

Our asset assessment of 4 reflects the lowest quality we observed in Dai’s vaults that we consider material. The collateral (or reserves) backing this stablecoin includes real-world assets (RWAs), such as bonds and securitization. Previously, the collateral comprised mainly cryptocurrencies such as Wrapped Bitcoin (WBTC), Ethereum (ETH). In our view, RWAs increase and diversify the protocol’s revenue, but also the risk profile of the assets, since some RWAs introduce credit risk and are less liquid.
. . . these weaknesses, which relate to a concentration of decision-making powers, untested liquidation processes, and secondary market liquidity, to be commensurate with an assessment of 4. Dai depegged from the U.S. dollar in March 2023, mirroring USD Coin (USDC). We note MakerDAO has enhanced DAI’s peg-stability module using three stablecoins over time.

From crypto reserves (lol) to “real-world assets” with credit and liquidity risk (ie not T-bills). That could constitute some type of improvement, we suppose.

First Digital USD: 4 // mkt cap $1.1bn

Our asset assessment is 3 (adequate) due to limited information on the identity or creditworthiness of the financial institutions that hold the stablecoin’s reserves, and which thereby represent potential counterparty risk exposure. FDUSD is backed by reserves comprising low-risk assets, such as short-term U.S. treasury bills, as well as cash and cash equivalents in U.S. dollars. The reserves are held by a custodian, First Digital Trust Ltd., a public trust company registered in Hong Kong, and at financial institutions in Switzerland, Australia, and Hong Kong.
Our stablecoin stability assessment of 4 includes a negative adjustment from the asset assessment. We see weaknesses in relation to the absence of asset segregation to protect holders in the event of the issuer’s insolvency and the lack of a regulatory framework. In addition, we note limitations regarding FDUSD’s primary redeemability, its liquidity not yet being fully established in the secondary market, and its short track record, since it was issued only in June 2023.

On the other hand, it’s got a $1.1bn market cap after just six months, so they’ve got that going for them?

FRAX: 5 // mkt cap $649mn

Our asset assessment of 5 (weak) reflects current undercollateralization and incorporates uncertainty about the future composition of assets when collateralization exceeds 100%. FRAX is primarily backed by collateral on the blockchain (on-chain) using smart contract protocols that balance the amount of FRAX versus other assets to maintain its 1 to 1 peg. The assets include various cryptocurrencies, including stablecoins. FRAX Finance also holds a small portion of cash/cash equivalents with a public benefit corporation, FinResPBC. We also see FRAX as having significant dependencies on smart contracts and oracles. These are necessary to execute various protocols including, trades and loans, and oracles connect information to these protocols. Some of these are new with v3 and have yet to be substantially tested. We believe this is commensurate with an assessment of 5 (weak).

So what is “FRAX”? Some say it’s cryptospeak for undercollateralisation, and one of the least-stable stablecoins. Others say it’s a medical tool to assess the risk of serious bone injury. The true meaning of the word is still a mystery.

Paxos USD: 2 // mkt cap $412mn

Our asset assessment of 2 (strong) reflects USDP’s highly liquid, low-risk reserves. These are held and maintained as either (i) cash deposits at various banking institutions (ii) U.S. treasury bills held by Paxos Trust Co., or (iii) reverse repurchase agreements (repos), backed by treasury bills or money market funds, held by Paxos Trust Co. Paxos Trust Co.’s issuance of U.S. dollar-backed stablecoins has been under the supervision of the New York State Department of Financial Services (NYDFS) since 2018. We note that cash deposits can be held at various rated as well as unrated U.S. financial institutions, albeit under the supervision and restrictions of the NYDFS.
We have not made any adjustment, considering the NYDFS regulation of USDP, as well as USDP’s governance and direct redeemability with Paxos. These factors, in our view, offset the lack of secondary market liquidity.

Regulated by the great state of New York and not very popular.

Gemini USD: 2 // mkt cap $148mn

Our asset assessment is 1 (very strong), given that GUSD is backed by what we consider as very low risk assets. GUSD reserves are held and maintained as either: cash deposits at a variety of highly rated U.S. banking institutions; U.S. treasury bills with maturities of three months or less; or money market funds. Since its inception in July 2018, GUSD has operated under the guidance of the New York State Department of Financial Services (NYDFS) as an issuer of U.S. dollar-backed stablecoins. Our stablecoin stability assessment of 2 is one level below the asset assessment. This reflects the scarcity of liquidity on the secondary market and the current market capitalization of GUSD, which is relatively modest compared with the overall stablecoin market.

Also regulated, but issued by a platform created by the Winklevoss twins, and even less popular.

Looking at all eight tokens, sharp-eyed readers will notice that S&P’s stability ratings have no very little relationship with the popularity of the coins, as measured by market cap, which is an interesting trend for a market that’s supposed to be institutionalising.