TLDR
- The Bank for International Settlements (BIS) and Bank of England (BoE) have developed Project Pyxtrial to monitor stablecoin reserves in near real-time.
- Pyxtrial allows supervisors to pull data directly from stablecoin issuers’ systems to verify on-chain liabilities.
- The project aims to address challenges in regulating stablecoins and could potentially be applied to other tokenized assets.
- Pyxtrial demonstrated that stablecoin balance sheets can be supervised, but requires further testing before full deployment.
- The technology could help regulators detect issues with stablecoin backing and respond more efficiently to risks.
The Bank for International Settlements (BIS) and the Bank of England (BoE) have unveiled a new project aimed at monitoring stablecoin reserves in near real-time.
Named Pyxtrial, this initiative demonstrates that the balance sheets of asset-referenced stablecoins can be supervised effectively.
Pyxtrial has developed a prototype data analytics pipeline that provides supervisors with up-to-date information about stablecoins’ liabilities and the assets backing them.
The project includes features that allow authorities to pull data directly from issuers’ systems to verify on-chain liabilities.
The project’s “modular” and “customizable” approach allows regulators to adapt its technology to different setups worldwide, potentially extending its application to other digital assets.
The BIS and BoE report highlights that Pyxtrial is a first step towards a tool that could support supervisors and regulators in proactively detecting issues in stablecoin backing. It could also aid in developing policy frameworks based on integrated data.
The creation of Pyxtrial was motivated by the growing and largely unregulated stablecoin sector, which has a market capitalization of $163.7 billion.
The report notes that a mismatch between a stablecoin issuer’s liabilities and backing assets could undermine confidence and prompt a ‘run’ on the stablecoin.
Central banks, including the U.S. Federal Reserve, have previously stressed the risks of stablecoins experiencing runs. Two years ago, the Fed warned that stablecoins backed by national currencies could face runs if there was a sudden drop in value.
While Pyxtrial has demonstrated its potential, the BIS and BoE acknowledge that further testing and refinement are needed before full deployment. Effective implementation and operation will require skilled personnel to support the system’s users.
The project also provides insights into building backend solutions that will enable authorities to interact with both on-chain and off-chain data. This could be particularly useful as the stablecoin ecosystem continues to evolve.
Pyxtrial’s potential extends beyond stablecoins. The BIS report suggests that the technology could also be applied to monitoring other tokenized products backed by real-world assets.
The Hong Kong Monetary Authority (HKMA) has recently proposed rules for ‘fiat-referenced’ stablecoins, aiming to roll out a comprehensive regulatory framework. HKMA Chief Executive Eddie Yue stated,
“We believe that a well-regulated environment is conducive to the sustainable and responsible development of the stablecoin ecosystem in Hong Kong.”
As regulators worldwide grapple with the challenges posed by stablecoins, tools like Pyxtrial could play a crucial role in maintaining financial stability and protecting consumers. However, no timeframe has been given for a finalized product stemming from this technology.
