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Stablecoin Balance Sheets Can Be Supervised, BIS and UK Central Bank Project Claims
Project Pyxtrial is a first step towards a tool that could support supervisors and regulators in proactively detecting issues in stablecoin backing, a report said.
Updated Jul 31, 2024, 3:28 p.m. Published Jul 31, 2024, 3:25 p.m.
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- The Bank for International Settlements and Bank of England have found that the balance sheet of asset referenced stablecoins can be supervised.
- The technology could help nations respond more efficiently to risks from stablecoins, the report added.
- Nations have stressed concerns over stablecoins experiencing runs in recent years.
The Bank for International Settlements (BIS), the so-called central bank for central banks, and the Bank of England (BoE) have been able to demonstrate that the balance sheet of asset-referenced stablecoins can be supervised, a Wednesday report on their latest project said.
Project Pyxtrial developed a prototype data analytics pipeline which can provide supervisors with near real-time data about stablecoins' liabilities and the assets that back them, the groups said Wednesday. Stablecoins are digital coins which are pegged to other assets like fiat currencies for example.
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"The technology is a first step towards a tool that could support supervisors and regulators in proactively detecting issues in stablecoin backing and aid the development of policy frameworks based on integrated data," the report said.
The creation of Pyxtrial was motivated by these facts: Stablecoins are a growing and largely unregulated sector with a market capitalization of $163.7 billion that lacks supervisory technology, the report said.
"Should a mismatch occur between a stablecoin issuer’s liabilities (the coins in circulation) and the assets backing that stablecoin, this could undermine confidence in the ability of the issuer to offer redemption at par and prompt a 'run,' ie a sudden loss of belief in the stablecoin’s value," the report said.
Central banks have stressed the risks of stablecoin's experiencing runs. Two years ago the U.S. Federal Reserve said that stablecoins backed by national currencies could face runs if there was a sudden drop in value.
“These vulnerabilities may be exacerbated by a lack of transparency regarding the riskiness and liquidity of assets backing stablecoins," the Federal Reserve report said at the time. Meanwhile, the Financial Stability Board (FSB) is examining the global requirements that could apply to stablecoins.
Project Pyxtrial also has the potential to monitor tokenized products that are backed by real-world assets, the BIS said.
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