moody's - Pwim.Net

Moody’s: Blockchain Technology to be Standardized in 2021

A research report published on September 5th by financial services company Moody’s stated that blockchain technology would most likely be standardized in 2021.

The drive towards the growth of blockchain and a deeper understanding of its potential and possibility will only start happening in 2021. Time and cost savings, automation, and faster data availability would be a result of the standardization. According to Moody’s, interoperability will also be improved, which would lead to better efficiencies in operations in business and related sectors.

Frank Cerveny, a senior research analyst at Moody’s, said:

“Standardization of blockchain technology would make its benefits more accessible for securitizations. Standardization would improve interoperability across systems and market participants, but also reduce counterparty concentration, operational and legal/regulatory risks for transactions that use blockchain technology.”

As suggested by Moody’s, interoperability will only start coming around in 2021; therefore, there is still a year and a half before blockchain will be widely adopted. The report also states that global blockchain standardization is primarily driven by the International Organization for Standardization (ISO).

Image via Shutterstock

Japan’s Digitalization Effort will have Mixed Credit Impact across Sectors, says Moody’s Report

Japan’s digitalization effort will have mixed credit impact across sectors according to a new report by Moody’s investor services.

Under Prime Minister Yoshihide Suga, Japan’s (A1 stable) government is aiming to promote digital transformation (DX) through the newly formed Digital Agency.

The Digital Agency will lead efforts to digitalize Japanese government operations, and to increase the efficiency of public services. To differing degrees, the initiative will shape the credit quality of not only the central, and regional and local governments (RLGs), but also Japan’s businesses and financial institutions, and structured finance instruments.

The aim of the government-led initiative is to generate efficiencies in Japan as it is falling behind others in digital adoption and readiness. Businesses that support digitalization could stand to gain, but the rise of new competitors could threaten existing players.

Japan’s new initiative to digitalize government operations and the delivery of public services will bolster policy effectiveness, supporting sovereign credit quality, but will bring mixed credit implications for regional and local governments (RLGs), businesses and financial institutions, according to a new report by Moody’s Japan K.K.

Motoki Yanase, a Moody’s Vice President and Senior Credit Officer:

“Digital transformation will lower operating costs by increasing operational efficiency and dismantling silos between ministries. It could also spur digitalization in the private sector – which if achieved will support economic growth.”

But remote working could bring mixed credit implications to RLGs, some of which could face pressure on their revenues. For instance, fare revenues at RLG-operated mass transit systems will come under pressure as more workers work from home, while property tax revenues could fall as fewer offices are leased out. On the other hand, some local governments could enjoy more tax revenue from companies that open exurban satellite offices.

Meanwhile, businesses that support the digitalization effort, such as startups and companies providing IT infrastructure, stand to benefit from rising demand, but office property and office equipment companies could lose out as remote working takes hold. And financial institutions will benefit from more streamlined operations, although the near-term cost of investing in technology and cyber-risk prevention will be high.

Finally, for the structured finance sector, digital adoption will optimize the origination process, support volumes in an aging society with a shrinking working-age population and strengthen the credit screening process through the use of artificial intelligence. On the flip side, greater digitalization could create cybersecurity risks such as fraud and identity theft.

Moody’s Getting into Crypto Space, Wants to Hire Cryptocurrency Analyst

Moody’s Investors Service Limited, one of the world’s largest credit-rating firms, is seeking to hire a cryptocurrency analyst, according to the recent job posting.

As for the job ads, the major credit rating company based in New York placed a new opening on LinkedIn’s employment listings. The positing signals that Moody’s is taking a more serious look at digital assets such as cryptocurrency, non-fungible tokens, and DeFi assets.

The job listing indicates that Moody’s Blockchain C4E team is seeking to hire an experienced crypto analyst to develop the company’s digital currency, NFTs, and DeFi strategies and leverage the research and development the team has put together.

“You will be part of a team of individuals responsible for supporting successful project deliveries for our C4E. The role also includes advocating for operational and process changes to move towards a more data-driven organizational paradigm,” the Moody’s job listing notes.

Moody’s job posting indicates that an understanding of DeFi is a very vital part of the job. The company is looking for someone with “[Managing and maintaining] deep understanding of the financial markets and the potential wide-reaching impact of decentralized finance (DeFi) on [an] existing ecosystem. [Alongside performing] back-testing of assessment framework(s) developed by Blockchain C4E using market data to analyze crypto-assets and other related products; provide detailed feedback for further refinement of risk factors.”

The employment listing shows that Moody’s is also interested in stablecoins, CBDCs, and NFTs. The company wants the analyst to develop in-depth knowledge on DeFi and blockchain-based elements like stablecoins, non-fungible token (NFT) assets, and central bank digital currencies (CBDCs).

Moody’s expects the crypto analyst to stay up-to-date on development within the industry and carry out a risk analysis of DeFi (blockchain) protocols and other features. Of course, the company wants a person who is very passionate about blockchain and DeFi.

Companies on Crypto Hiring Spree

Based on its current commitment to hiring a cryptocurrency expert, Moody’s, therefore, joins a rising number of major companies exploring the viability of digital currencies such as Bitcoin, NFTs, and DeFi.

Moody’s recruitment efforts come after similar job postings listed by major corporations like Amazon, JPMorgan, British billionaire Simon Nixon’s family office, among others.

On July 25, Amazon Inc. announced that it would hire a blockchain and digital expert to join its payment team. The corporation stated that an experienced digital currency and blockchain product lead would help the firm develop its digital currency and blockchain strategy and product roadmap. Amazon took such a decision because of what it termed as being “inspired by the innovation taking place in the crypto sector” and therefore needs to examine what it could look like within the company.

Last month, Walmart multinational retail giant announced its intention to hire a leader for cryptocurrency and digital products. According to the job posting, Walmart wanted to employ talent with experience in product or project management and technology commercialization and an in-depth understanding of cryptocurrency and related technologies.

In addition, late last month, Seek Capital family office, owned by UK Billionaire Simon Nixon, announced plans to hire a cryptocurrency analyst to help the firm expand its investment products into the crypto sector.

Silvergate Loses Additional Ratings From Moody's

Things at Silvergate Bank seem to be going from bad to worse after receiving a downgrade to its rating from Moody’s and having ARK Invest give up part of its shares in the bank. The bank has already been attacked by customers in a run, and its demise has been connected to that of FTX.

Cathy Wood’s investment vehicle, ARK Invest, reportedly sold more than 400,000 shares of its parent company, Silvergate Capital, on January 6, for a total value of $4.3 million. After the transaction, ARK Invest was left with just 4,000 shares of the company’s stock. This information comes from a number of stories that were published in the media.

During the course of the previous day, the value of those shares saw a decrease that was equivalent to 43 percent.

Moody’s Investors Service has also taken action in reaction to the problem at the bank, downgrading its ratings of both Silvergate Capital and the bank as a result of the situation.

Both the long-term deposit rating of the bank and the long-term issuer rating of the bank were downgraded, with a negative outlook for both entities. The long-term deposit rating of the bank was downgraded from Baa2 (“lower-medium grade”) to Ba1 (“junk”), and the long-term issuer rating of the bank was also downgraded from Ba2 (“junk”) to B1 (“junk”).

The key elements that lead Moody’s to reach their judgment were the decline in deposits, the losses that were suffered by selling securities to fulfill liquidity needs, and the layoffs that occurred.

As a consequence of liquidating debt in order to return $8.1 billion in withdrawals, Silvergate Bank reportedly sustained a loss of $718 million on January 5th, according to sources. This loss was due to the fact that the bank had to pay back the money.

In addition to that, they terminated the employment of around two hundred workers, which is equivalent to forty percent of their whole workforce.

FTX investors have complained about the same issues in a class-action complaint against Lane, the bank, and Silvergate Capital, which was filed on December 16th.

Silvergate Reports $1B Deficit In Q4 2022

A class-action lawsuit is now being brought against Silvergate Bank because of its interactions with FTX and Alameda Research. Silvergate Bank has declared that it expects to report a net loss of $1 billion in the fourth quarter of 2022, which will be due to common shareholders.

The digital asset bank highlighted in a report that was published by the United States Securities and Exchange Commission (SEC) that it saw significant outflows of deposits in the last quarter of 2022 and took actions to maintain cash liquidity, including wholesale funding and selling debt securities. These actions were taken because the bank wanted to ensure that it would continue to have access to cash.

In addition to this, the corporation drew attention to a revolutionary change in the digital asset field. It was pointed out that a crisis of trust had spread across the ecosystem, which caused clients to adopt a “risk off” posture on cryptocurrency trading platforms.

According to the findings of the study, the average value of deposits made by customers of digital assets during the fourth quarter of 2022 was $7.3 billion. When compared to deposits in the third quarter of 2022, which were roughly $12 billion, this figure is much lower.

In spite of the losses, the corporation has said that it is moving forward with plans to be ready for a prolonged period of fewer deposits. The CEO of Silvergate, Alan Lane, emphasized that the firm continues to have faith in the digital asset market and is dedicated to preserving a highly liquid balance sheet together with a solid capital position.

As a part of the company’s attempts to maintain its financial stability, on January 5 it terminated the employment of around 200 of its staff members, which represented approximately forty percent of the total workforce.

In response to the events that transpired, the credit rating agency Moody’s Investors Service cut Silvergate Bank’s rating. The rating dropped from Baa2, which indicates a lower-medium grade, to Ba1, which indicates that the product is “junk.” In addition to this, Moody’s brought attention to the fact that the prognosis for Silvergate Capital and its bank is both pessimistic.

Moody warns of stablecoin adoption risk

In its latest report, Moody’s Investors Service has warned that the recent instability in the traditional banking sector could have a negative impact on the adoption of stablecoins. The credit rating agency has highlighted the risks that fiat-backed stablecoins like USDC face, stating that the reliance of stablecoin issuers on a small set of off-chain financial institutions limits their stability. The depegging of USDC on March 10, which was caused by the sudden collapse of Silicon Valley Bank, has highlighted this risk.

Circle Internet Financial, the issuer of USDC, had $3.3 billion in assets tied up in the bank, and over the span of three days, the company cleared roughly $3 billion in USDC redemptions as the value of its stablecoin plunged to a low of around $0.87. However, USDC quickly regained its peg after the Federal Deposit Insurance Corporation announced that it would backstop all deposits held at Silicon Valley Bank.

Moody’s analysts believe that regulators are likely to pursue more stringent oversight of the stablecoin sector moving forward, given the recent market volatility and the potential risks associated with stablecoins. The credit rating agency has also warned that if USDC had not regained its peg, it could have suffered from a run and been forced to liquidate its assets. Such a scenario could have caused more runs on banks holding Circle’s assets, which could have led to the depegging of other stablecoins.

Despite the collapse of Terra, which led to calls for the regulation of stablecoins, Moody’s believes that fiat-backed stablecoins like USDC operate differently from algorithmic tokens and are less likely to fail. Nevertheless, the credit rating agency warns that stablecoin issuers must take steps to reduce their reliance on a small set of off-chain financial institutions to improve their stability.

In conclusion, the recent instability in the traditional banking sector and the depegging of USDC have highlighted the potential risks associated with stablecoins. While Moody’s believes that fiat-backed stablecoins are less likely to fail than algorithmic tokens, the credit rating agency warns that stablecoin issuers must take steps to reduce their reliance on a small set of off-chain financial institutions. With regulators likely to pursue more stringent oversight of the stablecoin sector moving forward, stablecoin adoption could be negatively impacted.