UK Central Bank, BIS Launch Stablecoin Monitoring Project

The UK Central Bank and the Bank for International Settlements (BIS) have announced a new project focused on tracking stablecoins. This initiative aims to improve oversight and ensure stability in the growing world of digital currencies.

UK Central Bank, BIS Start Stablecoin Monitoring Project

The Bank for International Settlements and the Bank of England have collaborated to create a system that offers near real-time insights into stablecoin liabilities and their underlying assets.

The project, known as Pyxtrial, might also be used to track other tokenized assets supported by real-world holdings. This effort aims to tackle key issues faced by financial regulators, as noted in a report released on Wednesday.

Pyxtrial includes tools that allow authorities to access data directly from issuers' systems for accurate verification of on-chain liabilities.

This initiative comes in response to past concerns about the legitimacy of the reserves claimed by stablecoin issuers.

In response to the collapse of the FTX exchange in 2022, various exchanges and issuers have chosen to implement self-regulation. They have been addressing concerns by publishing their “proof of reserves.”

What is Proof of Reserves?

Proof of reserves is a process that verifies whether a trading platform or cryptocurrency firm has sufficient backing for the digital assets it manages on behalf of its users, ensuring a one-to-one match between assets held and customer deposits.

Proof of Reserves (PoR) is a clear and objective auditing practice for cryptocurrency firms, offering a detailed report on their reserve assets. Independent auditors utilize cryptographic proofs to confirm the total value of customer assets and verify that the company holds sufficient reserves to cover all potential withdrawals.

This approach helps avert liquidity problems during large-scale withdrawals and provides clarity to users about the security of their funds. By employing blockchain technology, Proof of Reserves ensures a secure auditing process without revealing any private user information.

Tether’s Reserve Attestations and Pyxtrial’s Modular Monitoring Solution

Tether Ltd., which issues the largest stablecoin by market value, frequently publishes reports verifying the reserves backing its token. However, it acknowledges that the data might not always accurately reflect the number of Tether Tokens in circulation at the time of review.

Pyxtrial, with its “modular” and “customizable” features, allows regulators to tailor the technology to different regulatory environments around the world, as outlined in the report. This adaptability means that Pyxtrial could potentially be used for other digital assets as well.

As a proof of concept, Pyxtrial has demonstrated that a swiftly developed technological solution can help regulators track liabilities and assets in near real-time. This feature enables authorities to verify that stablecoins are fully backed, addressing the shortcomings of traditional data collection methods that can be irregular and outdated.

Although Pyxtrial has shown initial success, it still requires further testing and refinement before full-scale deployment. The report notes that successful implementation will depend on having skilled personnel to support and operate the system.

Additionally, the project provides valuable insights into creating backend solutions that integrate both on-chain and off-chain data.