The Bank for International Settlements has published initial results from a research initiative on decentralized finance and cryptoassets, alongside details for the development of a prototype crypto monitoring system known as Atlas.
According to the BIS, this innovative system is designed to provide regulatory authorities with a more comprehensive understanding of how, when, and where cryptoassets are utilized. The project initially focused on international cryptoasset flows, recognizing that while these markets introduce groundbreaking technologies, they often operate with limited transparency, posing potential risks to financial stability.
Recent events, such as the collapses of certain exchanges, stablecoins, and DeFi platforms have opened and highlighted the challenges in assessing and managing such risks.
Data Aggregation for DeFi and Cryptoassets
Atlas has created a "proof of concept" platform that aggregates data from bolth publicly available "on-chain" crypto ledgers and more challenging-to-obtain "off-chain" data, reported only by select exchanges and users. This data compilation offers a preliminary insight into cryptocurrency activity. This approach relies on transactions associated with crypto exchanges in the Bitcoin network, coupled with the geographic locations of these exchanges, serving as a proxy for cross-border capital flows.
Cross-border crypto flows hold particular relevance for central banks concerning cross-border payments, economic analysis, and balance of payments statistics. These, in turn, may constitute a significant portion of cross-border transfers for some countries, making quantification challenging due to current data gaps.
Preliminary findings from the project's researchers have highlighted the substantial economic impact of identified flows between crypto exchanges, despite their relatively modest share of total on-chain network activity. The attribution of geographical areas to exchanges, whenever feasible, offers insights into the structure of cross-border flows. As a result, Project Atlas serves as a foundational resource for conducting structural analyses across varying jurisdictions.
Informed Policymaking for Crypto and DeFi
On the outset, global regulators have also expressed mounting concerns over the decentralized nature of cryptocurrencies, especially following the collapse of widely-used stablecoin pair Luna and TerraUSD, as well as the FTX platform last year.
As a sort of response to these concerns from regulators, the BIS' 'innovation hub' prototype generates informative "dashboards" illustrating various aspects of bitcoin conversion into U.S. dollars in specific parts of the world. These dashboards can also shed light on the adoption and relative significance of crypto markets as they fluctuate in popularity.
The BIS emphasizes the necessity for central banks to acquire first-hand knowledge about cryptocurrencies and decentralized finance (DeFi), understanding the associated risks and opportunities for the financial system, as well as the urgent need to equip policymakers with vital tools for informed decision-making on matters involving crypto and decentralized finance. In effect, the project also enhances the analytical and technical capabilities of central banks, contributing to an enriched comprehension of the underlying technology.
According to the BIS, the dashboards will soon be made available to a select group of central banks for testing, gathering feedback, and further refinement.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
