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When rating tokenized yield bearing products on blockchain-based platforms, Cicada analyzes the underlying Asset Quality, observing the reserve assets, liquidity, counterparties, leverage and base currency instruments, collateral, and historical performance data. We also examine issuer and Operational Workflow to understand the chain of events to tokenize various financial assets. Next, we analyze Management’s capital and legal structures, transaction documents, and legal opinions to assess the effectiveness of structural enhancements that may support higher or lower ratings in the event of heightened structural dependencies. Lastly, we examine key External Factors of regulation and network adoption and diversification.
All of Cicada’s risk ratings work employs judgement. Our stablecoin risk framework is designed to capture a multitude of asset, operational, counterparty, and market risks into account. While our methodologies are rigorously tested, the unique nature of tokenized asset structuring, supporting collateral, and varying legal systems introduces idiosyncratic risks. In our judgment, these factors may reduce the effectiveness of certain risk mitigations, and we account for this in our ratings process to ensure a more accurate reflection of the risks involved. Consequently, there may be times when certain components are de-emphasized or deemed irrelevant. We invite those with further questions related to our ratings to reach out to members of the Cicada team.