Morningstar, the Chicago-based ratings firm and of the most dominant in the debt securities business has announced that they’ll be venturing into the world of cryptocurrencies and will be rating digital assets as well.
As per a Forbes report, the organizations had already been working on models that can be used to rate blockchain-based securities. Morningstar already has experience in rating some of the mutual funds that are backed by industry giants like Prudential, Morgan and Stanley. Now, as they’re bridging the gap between its debt security business and blockchain, the new service could allow the $117 trillion debt securities industry to move to a decentralized financial network, rather than being governed by trustees and custodians.
Morningstar Credit Ratings chief operating officer Michael Brawer, who oversees the company’s internal strategy said:
“We’re working very closely with a number of blockchain-oriented firms who are looking to issue debt instruments on a blockchain.”
Morningstar will offer ratings that are publicly available, ranging from one to five stars to various digital assets and also introduce a premium customs service that makes use of their internal model to help clients’ asses their investments. This would make the crypto industry more credible and potentially bring in a flow of investments.
The bond-rating system is reportedly going live on the Ethereum blockchain but could be developed on other potential blockchain platforms as well. Brawer elaborated:
“We’re looking to see how we can also provide credit opinions, whether it’s a credit rating or different types of credit data and credit analytics that accompany those debt instruments, and we’re also looking to provide our services on a blockchain.
A better rating system based on Blockchain
With the application of Blockchain technology, Morningstar’s will have added security and will directly connect investors and borrowers thus making the entire process hassle-free, this system also eliminates the extra fee by cutting off custodians and trustees. Brawer noted that despite having a lot of potentials, blockchain startups are still at an early stage and it will take some time before this new system is completely functional. He mentioned:
“I don’t think blockchain startups are at the point where they would say they can eliminate the custodian, but they would like to start to chip away at some of the custodian’s responsibilities. I don’t think anyone is pretending at this stage that they can eliminate the role of the trustee either. But they’re starting to chip away at that too.”
As of now, the public rating system is set to launch this year, and the premium service is set for the end of 2020.