BIS Unveils New Stablecoin and Defi Monitoring Platform, With Focus on CBDC

BIS Unveils New Stablecoin and Defi Monitoring Platform, With Focus on CBDC

by February 15, 2023

The Bank of International Settlements (BIS) Innovation Hub has just unveiled its 2023 priorities, focusing on stablecoins, central bank digital currencies (CBDC), data monitoring, and cybersecurity.

Over the past years, the BIS Innovation Hub has been at the forefront of exploring and developing cutting-edge solutions to central banks’ challenges, as evidenced by the number of ongoing and completed projects.

Pyxtrial: Transparency and Stability to the Stablecoin market

The BIS Innovation Hub recently announced the launch of its new project, Pyxtrial, initiated by the London branch to ensure the financial sector’s stability.

Pyxtrial refers to a traditional British judicial process that dates back many centuries. The Trial of the Pyx is one of the oldest and most established procedures for assessing the quality of coins in the country.

The project is poised to bring transparency and stability to the stablecoin market by providing real-time visibility into their financial health.

Stablecoins such as USD Coin (USDC) and Tether USD (USDT) play a vital role in the cryptocurrency exchange market, enabling investors to transfer between digital and fiat currencies effortlessly.

However, the recent failure of TerraUSD, an algorithmic stablecoin, has highlighted some of the risks associated with these digital assets.

As a result, regulators are taking a closer look at stablecoins, particularly those not backed by physical fiat currencies, to ensure their stability and prevent similar incidents.

By developing a platform to monitor stablecoins, Pyxtrial will play a crucial role in shaping the future of financial regulation and supervision.

The bank has noted that most central banks lack the tools to monitor stablecoins and prevent asset-liability mismatches systematically, and Pyxtrial aims to fill this gap. The project will explore technological solutions to help supervisors and regulators establish policy frameworks based on integrated data.

Tools for monitoring cryptocurrencies and DeFi in real-time

The BIS Innovation Hub is a crucial player in shaping the future of regulation, supervision, and finance. The hub recognises the increasing importance of digital assets, particularly cryptocurrencies and decentralized finance, and is focused on developing real-time tools to monitor these spaces.

The Atlas project is one of the popular projects undertaken by the BIS Innovation Hub in this regard. The project is designed to be decentralized, making it easy for investors and traders to access information freely and make informed decisions.

With the use of technical tools for data vetting and analysis, Atlas aims to provide a comprehensive overview of the crypto and DeFi markets, including market trends, price movements, and other essential metrics.

Central Bank Digital Currency: Major focus for BIS Innovation Hub

The BIS Innovation Hub announced its plans to increase its focus on central bank digital currencies (CBDCs) in 2023.

The hub recognises the need to improve payment systems and is dedicating a significant portion of its efforts to exploring the potential of CBDCs. Of its various projects, 15 focus on CBDCs, and three cross-border CBDCs projects have already been concluded, including Jura, Dunbar, and Project Helvetia.

BIS Innovation CBDC

One of the most notable projects is MBridge, exploring wholesale cross-border payment solutions. The Central Banks of Thailand, China, Hong Kong, the United Arab Emirates, and over 20 commercial banks in different countries utilised MBridge cross-border payment solutions.

In addition, the BIS is also focusing on retail CBDCs, such as the two-tiered system known as Aurum, which was piloted in Hong Kong in July. Another project, in collaboration with the Bank of England, will experiment with the distribution of a retail CBDC through an open API ecosystem known as Rosalind.

Only 11 countries have fully launched a CBDC, all located in the Caribbean, except for Nigeria. Pilots are underway in 17 nations, mainly in Asia, including China, Russia, Kazakhstan, India, South Korea, Thailand, and Malaysia.

Project Sela: Exploring the cyber security and technical feasibility of retail CBDC architecture

Project Sela, a collaboration between the BIS Innovation Hub Hong Kong Centre, the Hong Kong Monetary Authority, and the Bank of Israel, aims to test the technical feasibility and cyber security of a two-tier retail CBDC architecture.

This project aims to provide broader access to CBDC services by allowing intermediaries, such as commercial banks, payment service providers, and financial technology firms, to offer these services without any financial exposure. This means that the CBDC will never reside on the intermediary’s balance sheet, reducing financial risk for these entities.

However, more comprehensive access to CBDC services raises concerns about cyber security. If the project proves successful, it could lead to a more widely accessible CBDC system that is secure against cyber threats, providing greater financial stability and security to the end users.