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Bluechip Gives Synthetix and Beanstalk Stablecoins F Grades; Tokens Added to the ‘Red Flag List’

February 3, 2024 | by stockcoin.net

bluechip-gives-synthetix-and-beanstalk-stablecoins-f-grades-tokens-added-to-the-red-flag-list

Bluechip, the independent stablecoin assessment entity, recently assigned an F grade to Synthetix’s fiat tokens SUSD and SEUR, as well as Beanstalk’s dollar-pegged asset BEAN. These stablecoins have now been added to Bluechip’s “Red Flag List,” indicating a strong recommendation against their usage. Synthetix’s tokens, SUSD and SEUR, rely on liquidity pools for redemption and cannot be exchanged for the underlying SNX token, triggering a red flag. On the other hand, BEAN, which lacks reserves, borrows tokens from holders when its price falls below $1 and burns them to decrease supply. Bluechip’s comprehensive evaluation spectrum showcases only three stablecoins with an A rating, while two earned an A- and five tokens secured a B+ grade.

Bluechip Gives Synthetix and Beanstalk Stablecoins F Grades; Tokens Added to the ‘Red Flag List’

SUSD, SEUR, and BEAN Graded F by Stablecoin Rating Organization Bluechip

Bluechip, an independent, nonprofit stablecoin assessment entity, recently issued F grades for Synthetix’s fiat tokens SUSD and SEUR, as well as Beanstalk’s dollar-pegged asset BEAN. These stablecoins have also been included in Bluechip’s “Red Flag List,” indicating a strong recommendation against using them.

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Bluechip’s Red Flag List

Bluechip has a “Red Flag List,” which includes stablecoins that have triggered red flags outlined in their rating framework. Synthetix’s SUSD and SEUR stablecoins have been flagged due to their collateral and redemption issues. These stablecoins are minted by staking SNX at a collateral ratio of 500%, but they cannot be redeemed for the underlying SNX. Holders must rely on liquidity pools to exit from Synthetix stablecoins to other assets.

BEAN by Beanstalk has also been flagged due to its price fluctuation and lack of reserves. When the price of BEAN falls below $1, the protocol borrows tokens from holders and burns them to reduce the supply. Conversely, when BEAN exceeds $1, new tokens are generated to increase the supply. Bluechip has pointed out that BEAN is not backed by any reserves, which raises concerns.

Furthermore, governance issues have been identified with BEAN. Governance rights are earned by depositing whitelisted assets, but voting is done off-chain, and decisions are implemented by a multi-sig of anonymous contributors. The multi-sig also has unrestricted control over smart contracts as governance enforcement doesn’t exist.

Synthetix Tokens (SUSD and SEUR)

Synthetix’s SUSD and SEUR stablecoins have both received F grades from Bluechip. The main issues with these stablecoins are related to their collateral and redemption mechanisms. SUSD and SEUR are minted by staking SNX at a collateral ratio of 500%, but holders cannot redeem them for the underlying SNX. Instead, they must rely on liquidity pools to exit from Synthetix stablecoins to other assets. These collateral and redemption issues have raised red flags and contributed to the F grades assigned by Bluechip.

BEAN by Beanstalk

BEAN, the dollar-pegged stablecoin offered by Beanstalk, has also received an F grade from Bluechip. The main concerns with BEAN are its price fluctuation and lack of reserves. When the price falls below $1, tokens are borrowed from holders and burned to reduce the supply. Conversely, when the price exceeds $1, new tokens are generated to increase the supply. Bluechip has highlighted that this lack of reserves is a red flag, which has led to the F grade assigned to BEAN.

Collateral and Redemption Issues with Synthetix Stablecoins

The collateral and redemption issues with Synthetix’s SUSD and SEUR stablecoins have been flagged by Bluechip. These stablecoins are minted by staking SNX at a collateral ratio of 500%, but they cannot be redeemed for the underlying SNX. Holders must rely on liquidity pools to exit from Synthetix stablecoins to other assets. This lack of a direct redemption option raises concerns about the stability and trustworthiness of these stablecoins, leading to the F grades assigned by Bluechip.

BEAN’s Price Fluctuation and Lack of Reserves

BEAN, the stablecoin offered by Beanstalk, has been flagged by Bluechip due to its price fluctuation and lack of reserves. When the price of BEAN falls below $1, tokens are borrowed from holders and burned to reduce the supply. Conversely, when the price exceeds $1, new tokens are generated to increase the supply. This price fluctuation, coupled with the lack of reserves to back the stablecoin, raises concerns about its stability and reliability. These red flags have contributed to the F grade assigned to BEAN.

Governance Issues with BEAN

Bluechip has also identified governance issues with BEAN. While governance rights are earned by depositing whitelisted assets, the voting process is done off-chain, and decisions are implemented by a multi-sig of anonymous contributors. This multi-sig group has unrestricted control over smart contracts, as governance enforcement does not exist. These governance issues raise concerns about the transparency and decentralization of BEAN’s governance mechanism, contributing to the F grade assigned by Bluechip.

Introduction of Bluechip and its Rating Framework

Bluechip is an independent, nonprofit stablecoin assessment entity that provides ratings for various stablecoins in the market. They aim to assess the stability, transparency, and overall trustworthiness of stablecoins to help investors make informed decisions. Bluechip was founded by Garett Jones, an associate professor of economics at George Mason University, and two innovators behind the SMIDGE rating framework used by Bluechip.

Bluechip utilizes a comprehensive rating framework to evaluate stablecoins. This framework considers factors such as collateralization, redemption mechanisms, reserves, price stability, governance, and transparency. Based on these criteria, stablecoins are assigned ratings ranging from A to F. The rating framework aims to provide clarity and guidance to investors, helping them understand the risks associated with different stablecoins.

Current Ratings by Bluechip

As of February 2, 2024, Bluechip has assigned A ratings to three stablecoins and A- ratings to two stablecoins. Five stablecoins have received a B+ rating, one stablecoin has a C rating, and six fiat or gold-backed stablecoins have been rated D. The recent F grades assigned to SUSD, SEUR, and BEAN indicate that these stablecoins have significant issues and should be approached with caution.

Opinion on Bluechip’s F Grades

Bluechip’s F grades assigned to SUSD, SEUR, and BEAN reflect the specific issues and concerns raised by the stablecoin rating organization. These grades indicate that these stablecoins have significant red flags and should not be relied upon as stable assets. However, it is important to note that these ratings are based on Bluechip’s assessment framework and should be considered alongside other sources of information and analysis.

Investors and users should carefully evaluate the risks and benefits associated with stablecoins before making any decisions. Bluechip’s ratings serve as a valuable source of information, but they should not be the sole determinant of an investment or usage decision. It is important for individuals to conduct their own research, consider multiple perspectives, and consult with financial professionals to make informed choices regarding stablecoin investments and usage.

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