Morningstar Credit Ratings, the ratings agency associated with the $6.4 billion Morningstar Inc, is working with a number of blockchain-based companies to securitize debt on the blockchain, and is also considering rating a number of investment opportunities similar to Bitcoin but backed by real-world assets, according to Forbes. The move represents another move by an institution towards the blockchain and cryptocurrency space, and Morningstar’s entrance could help transform the negative perception of digital assets and unlock billions of dollars waiting for the right time to invest.
$117 Trillion Industry
Morningstar traditionally uses grades of 1-5 to rate a wide range of assets based on their past returns relative to the risk of the investment. In spite of the credit rating division only being given permission to rate corporate debt in 2016, it has already surpassed passed $1 billion in revenue, and is now eyeing the burgeoning digital asset market in order to close the gap to the ‘Big Three’ ratings agencies – Fitch, Moody’s, and Standard and Poor’s. Forbes states that while its blockchain work so far is limited to structured finance debt instruments, it already has a diverse set of clients including a company that offers small business loans securitized on the Ethereum blockchain and an organization that helps companies raise capital selling blockchain securities. According to the Bank for International Settlements, the global debt securities industry had $117 trillion outstanding as of March 2019, which Morningstar wants to leverage with blockchain technology.
The Morning Bird Catching the Blockchain Worm
Morningstar began looking into blockchain in June 2018, as did the Big Three, but Morningstar are the ones who, outwardly at least, have taken the plunge into blockchain to the biggest extent, as the firm’s Chief Operating Officer Michael Brawer told Forbes:
We’re working very closely with a number of blockchain-oriented firms who are looking to issue debt instruments on a blockchain. 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.
Should Morningstar continue to embed blockchain into traditional debt and credit instruments, this could represent the best chance for blockchain technology to do what it has promised for years and revolutionize the banking system, just perhaps not in the way many expected.