Stable Asset Eligibility

Data as of September 2021

Operational Risk

1. Issuance Eligibility

There are two primary forms of stablecoin issuance: centralized issuance and decentralized issuance, as explained in Section 1.2, and this factor can affect investor confidence. Decentralized issuance is the most trusted form of issuance because the backing asset or supply level is governed by the smart contract, which the public can verify. It is also very difficult to defraud or steal stablecoin. On the other hand, centralized issuance should require auditing from the third party to ensure that the backing asset value is equivalent to or greater than the total circulating supply in the system. In some cases, the issuers choose to do self-auditing, which results in reduced credibility.

The fund will evaluate this factor by considering types of asset issuance and its auditing frequency according to the table below.

Score	Types of Asset Issuance
5	Decentralized
4	Centralized with third-party auditing all the time
3	Centralized with third-party auditing at least once a month
2	Centralized with third-party auditing at least once a year
1	Centralized with self-auditing at least once a year
0	Cannot be identified

2. Maturity Eligibility

Usage period analysis allows the fund to evaluate stablecoin design and structural robustness to market conditions and real users. For example, if the stablecoin has been used for a more extended period, this stablecoin will likely have greater reliability than stablecoin with a shorter usage period.

Therefore, this factor will be assessed by counting the number of months from the launch date to the assessment date according to the table below.

Score	Usage period
5	More than or equal to 24 months
4	More than or equal to 18 months
3	More than or equal to 12 months
2	More than or equal to 6 months
1	More than or equal to 3 months
0	Less than 3 months

3. Asset-backed Eligibility

Asset-backed is another critical factor in stablecoin risk assessment, as mentioned earlier in section 1.2. Stablecoin with no asset-backed is considered the most reliable stablecoin since the investors don’t have to worry about its backed-asset value, and the system will automatically handle the supply-demand level for optimized stability. On the other hand, stablecoin with asset-backed is considered less reliable.

Asset-backed stablecoin with US dollar is considered the most suitable stablecoin with asset-backed. However, some stablecoins can mix their backed asset with other asset classes or use only one asset class, such as traditional or digital assets. Therefore, the fund needs to evaluate risks associated with volatility from these asset classes.

This factor can be assessed by considering the forms and classes of the backed assets according to the table below.

Score	Forms of backed asset
5	No backed asset
4	Asset-backed with US dollar
3	Asset-backed with US dollar and traditional asset
2	Asset-backed with US dollar and traditional asset/digital asset
1	Asset-backed with asset classes other than US dollar
0	Cannot be identified

Financial Risk

1. Liquidity Eligibility

Liquidity assessment can be used to assessed investment suitability. For example, if the stablecoin has high liquidity, the fund will experience less market impact risk.

This factor can be calculated from the average daily turnover denominated in the US dollar. Therefore, the fund will use data from the last one month and three months, as shown below.

Score	Liquidity Level Last 1-month average	Liquidity Level Last 3 months average
5	Greater than or equal to 10.0 Billion USD	Greater than or equal to 10.0 Billion USD
4	Greater than or equal to 1.0 Billion USD	Greater than or equal to 1.0 Billion USD
3	Greater than or equal to 100.0 Million USD	Greater than or equal to 100.0 Million USD
2	Greater than or equal to 10.0 Million USD	Greater than or equal to 10.0 Million USD
1	Greater than or equal to 1.0 Million USD	Greater than or equal to 1.0 Million USD
0	Less than 1.0 Million USD	Less than 1.0 Million USD

2. Stability Eligibility

Stability assessment can tell us about the price fluctuation. If the stablecoin has high price stability, this stablecoin is safer for investment.

Stability factor can be calculated from the volatility of stablecoin/USD exchange rate by using the average of daily high and daily low rate for one month and three months as shown in the equation:

$$volatility = \sqrt{\frac{1}{T}\sum_{t=1}^{T}max\{(high_t-1)^2,(low_t-1)^2\}}$$

This value is calculated in percentage corresponding with the scores as shown below.

Score	Stability Level Last 1-month average	Stability Level Last 3 months average
5	Less than or equal to 1%	Less than or equal to 1%
4	Less than or equal to 2%	Less than or equal to 2%
3	Less than or equal to 5%	Less than or equal to 5%
2	Less than or equal to 8%	Less than or equal to 8%
1	Less than or equal to 10%	Less than or equal to 10%
0	Greater than 10%	Greater than 10%

Adoption Eligibility

1. Market Capitalization

Market cap assessment can show the level of stablecoin adoption in the real market. Therefore, if the stablecoin has a high market cap, it should have high credibility and expectation.

Market cap calculation can be done according to this formula:

$$\text{market capitalization} = \text{total supply} \cdot \text{price}$$

Total supply is the total coin supply in the system. Price is the current market price. We will rate this factor according to the table below.

Score	Market capitalization
5	Greater than 50.0 Billion USD
4	Greater than or equal to 10.0 Billion USD
3	Greater than or equal to 5.0 Billion USD
2	Greater than or equal to 2.0 Billion USD
1	Greater than or equal to 1.0 Billion USD
0	Less than 1.0 Billion USD

2. Supported Centralized Exchange

Currently, more than 90% of the digital asset trading volume is on the centralized exchange. These service providers are essential contributors to this digital ecosystem. Allowing stablecoin to be listed on the exchange can indicate the level of industry acceptance, which can significantly increase the level of adoption.

Reference: https://www.theblockcrypto.com/data/decentralized-finance/dex-non-custodial/dex-to-cex-spot-trade-volume

We rate this factor by counting the number of supported centralized exchanges, as shown below.

Score	Market capitalization
5	Greater than 50.0 Billion USD
4	Greater than or equal to 10.0 Billion USD
3	Greater than or equal to 5.0 Billion USD
2	Greater than or equal to 2.0 Billion USD
1	Greater than or equal to 1.0 Billion USD
0	Less than 1.0 Billion USD

3. Number of Cryptocurrency Wallets

The investors can do transactions on the decentralized exchange. Cryptocurrency wallets are wallets that investors use to keep their money. Keeping more digital assets on these wallets can imply customer confidence and more adoption for the digital assets.

We will rate this factor based on the number of accounts holding digital assets on every blockchain ecosystem (the same stablecoin can be in different blockchain ecosystems), as shown below.

Score	Number of accounts holding digital assets
5	Greater than 1 Million accounts
4	Greater than or equal to 500,000 accounts
3	Greater than or equal to 100,000 accounts
2	Greater than or equal to 10,000 accounts
1	Greater than or equal to 5,000 accounts
0	Less than 5,000 accounts

We summarize all factors and sub-factors for the asset assessment with risk scores in table 2.1. We also show an example of the input data from the top 10 market cap stablecoins in table 2.2 and then rate the risk scores on each factor from table 2.2 in table 2.3.

Table 2.1 Eligibility assessment details

Table 2.2 An example of data input from top 10 market cap stablecoins

Table 2.3 An example of risk scores for each asset based on the input data