UK Central Bank, BIS Showcase Project for Monitoring Stablecoin

A joint effort by the Bank for International Settlements and the Bank of England has shown it can deliver near real-time data on stablecoins’ liabilities and the assets backing them.

Dubbed Pyxtrial, the initiative could also extend to monitoring other tokenized products backed by real-world assets in an attempt to address major challenges for financial watchdogs, a report published on Wednesday reads.

Pyxtrial includes features that allow authorities to pull data directly from issuers' systems to verify on-chain liabilities.

It follows a tumultuous period of bygone years where stablecoin issuers have previously been called into question over the validity of the reserves they claim they have on hand to back their tokens.

Several exchanges and issuers have opted for a self-regulated approach, attempting to assuage concerns by posting their “proof of reserves” following the collapse of former exchange FTX in 2022. 

Proof of reserves refers to a method of verifying that a trading platform or crypto firm does indeed have one-to-one backing across the digital assets it holds in custody on behalf of its customers.

Tether Ltd., the issuer of the world’s largest stablecoin by market capitalization, regularly posts attestations for reserves it claims back its token. Though the issuer does concede data available to it “may not reflect the Tether Tokens in circulation at the time the information is reviewed.”

In any case, Pyxtrial's “modular” and “customizable” approach allows regulators to adapt its technology to different setups worldwide, per the report. The flexibility means Pyxtrial could potentially be applied to other digital assets as well.

As a proof of concept, Pyxtrial demonstrated a quickly developed technological solution can support regulators in tracking liabilities and assets in near real-time. 

That would allow authorities to verify that stablecoins are always fully backed, addressing the irregular and time-bound nature inherent in traditional data collection methods, according to the report.

Despite its initial success, Pyxtrial requires further testing and refinement before a full deployment is rolled out. Effective implementation and operation will demand skilled personnel to support the system's users, the report reads.

The project also provides insights into building backend solutions that will enable authorities to interact with both on-chain and off-chain data.

No timeframe was given for a finalized product stemming from the tec. Decrypt has reached out to learn more.