Chicago-based financial service provider, Morningstar Credit Ratings announced plans to diversify its business operation by providing ratings for debt securities issued on public blockchains, also known as crypto-assets. Morningstar Inc, the parent company of the rating agency is valued at $6.4 billion. Last year it generated $1.7 billion in revenue. The company is well known for rating mutual funds from giants of the financial world like Prudential and Morgan Stanley among others.
At the moment Morningstar rating agency offers grades on a wide range of traditional financial assets based on their past returns and potential risks to the investors. Potentially the new rating system offers an opportunity to move the whole debt securities industry valued at $117 trillion, from the custodians and trustees to a decentralized financial network based on blockchain technology.
The new rating system will offer publicly available ratings of one to five stars of different crypto assets, whereas premium service will help clients evaluate the attractiveness of such investments. It seems that Morningstar’s rating system will utilize Ethereum blockchain at first and eventually move on to other blockchains platforms, through a technology called an oracle. The public ratings could be launched as soon as this year whereas the premium service would be rolled out closer to the end of 2020. Morningstar also suggested it will make its internally used quantitative rating models available on public blockchains so that investors would be able to analyze investment opportunities by themselves, without having to pay a fee for premium service.
“We’re working very closely with a number of blockchain-oriented firms who are looking to issue debt instruments on a blockchain,” says Morningstar Credit Ratings chief operating officer Michael Brawer. “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” he adds.
At the moment there are several potential candidates that possibly can partner with Morningstar to launch its new service, including fintech startups Figure, Cadence and crypto lending platform Polymath.
Morningstar Inc. move to introduce blockchain technology to the investment rating industry is the first such attempt among the main U.S rating companies and it just increases the number of world-class companies and government institutions experimenting and implementing blockchain-based products and services to improve their business models.