Morningstar Credit Ratings aims to become the market-leading rating agency for blockchain-based assets.
Morningstar Credit Ratings – a subsidiary of Chicago-based Morningstar Inc. plans to move into the digital asset markets by offering a range of crypto asset rating services according to a report by Forbes.
From Bonds to Blockchain
Morningstar Credit Ratings launched in 2016. Its primary business is to rate debt securities such as government bonds, corporate bonds, and structured finance. Despite only being in the market for three years the financial services company managed to generate over $1 billion in revenue in 2018. In comparison, Fitch Ratings, the third-largest credit ratings agency after S&P, and Moody’s, generated $1.7 billion in revenue in the same year.
Now, Morningstar’s rating agency wants to push into the blockchain market in an attempt to outcompete the “big three” rating agencies in the burgeoning crypto asset industry. While S&P, Moody’s, and Fitch have all voiced interest in this new digital asset class, Morningstar wants to be the first to establish its brand in the blockchain industry.
“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,” Morningstar Credit Ratings COO, Michael Brawer, told Forbes.
Morningstar already has experience in dealing with blockchain companies. In September 2018, the company was approached by San Francisco-based fintech startup Figure, which provides home equity loan solutions. Since then, Morningstar Credit Ratings has dealt with several other DLT companies.
Morningstar’s crypto asset offering
Morningstar is currently working on two offerings that involve rating debt securities on the blockchain.
The first offering focuses on placing the company’s debt ratings on the Ethereum blockchain (and eventually other blockchains) using oracles. Oracles enable data to move securely onto a blockchain to ensure the information contained is not altered. That enables oracles to be used in smart contracts.. This technology could enable enterprises to tokenize aspects of their business and sell the tokens to investors with Morningstar’s credit rating “living” on the blockchain together with the investment (smart) contracts’ terms.
“We refer to it as an oracle of ratings that would be able to come directly from a third party, such as us, and tell interested parties our opinion of the creditworthiness of a particular debt issuance,” Brawer told Forbes.
The second offering will involve making Morningstar’s rating model available on a blockchain to enable investors to determine the creditworthiness of a debt security themselves (for a fee). “The objective would be to allow investors in a digital debt security to be able to run an independent, third-party model and see the results of that model on the blockchain,” says Brawer.