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BIS and EU central banks developing data system to monitor cryptocurrency and DeFi transactions.
The Bank of International Settlements (BIS) has created a proof of concept (PoC) for a system that monitors both on-chain and off-chain transactions from cryptocurrency exchanges and public blockchains, including Bitcoin.
In collaboration with the Deutsche Bundesbank, De Nederlandsche Bank, European Central Bank, and the Bank of France, BIS has unveiled a successful PoC named Project Atlas, which seeks to assess the macroeconomic significance of cryptocurrency markets and decentralized finance (DeFi) protocols.
The BIS Innovation Hub released information about the concept, which aims to deliver insights, data, and economic ramifications of the sector, highlighting a lack of transparency and potential threats to financial stability, as evidenced by notable failures in the crypto industry, such as the collapse of the Terra/LUNA algorithmic stablecoin in 2022.
Project Atlas’s initial proof of concept is designed to monitor on-chain and off-chain data from public blockchains and cryptocurrency exchanges. Source: BIS Project Atlas
The initiative merges off-chain data from cryptocurrency exchanges with on-chain data from public blockchains collected by nodes. The first version of the proof of concept enabled Project Atlas to track cryptocurrency flows across different geographical regions.
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The preliminary method employs transactions linked to centralized exchanges within the Bitcoin network, along with the geographical locations of those exchanges as a proxy for cross-border capital movements.
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The methodology indicates that the flows are likely to be lower-bound estimates of actual transaction volumes, as the country locations of exchanges are not easily identifiable. Nonetheless, Project Atlas’ initial pilot suggests that inter-exchange flows are “significant and substantial economically.”
The Project Atlas dashboard displays on-chain transfers on the Bitcoin network alongside cross-exchange transactions. Source: BIS Project Atlas
In its current phase, Project Atlas includes a front end that presents dashboards visualizing the outcomes of data aggregation and analysis, encompassing on-chain transfers as well as the global movement of funds.
The PoC is designed to offer an overview of cross-border flows and will serve as a tool for Central Banks to assess the relative economic importance of the cryptocurrency ecosystem across various jurisdictions:
“The data will allow flows to be analyzed structurally and the influence of price shocks, financial market developments and country characteristics on crypto flows to be investigated.”
The project is poised to continue integrating additional data sources as it progresses to the next development phase, with plans to extract and analyze data from Ethereum network nodes and DeFi protocols also in the works.
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