BIS, EU central banks building data platform to track crypto, DeFi flows

The Bank of International Settlements (BIS) has developed a proof of concept (PoC) for a system tracking on-chain and off-chain transactions from cryptocurrency exchanges and public blockchains including Bitcoin.

Working with the Deutsche Bundesbank, De Nederlandsche Bank, European Central Bank and the Bank of France, BIS has announced a successful PoC called Project Atlas that aims to gauge the macroeconomic relevance of cryptocurrency markets and decentralized finance (DeFi) protocols.

The BIS Innovation Hub published details of the concept which aims to provide insights, information and economic implications of the sector, citing a lack of transparency and potential risks to financial stability characterized by high-profile failings in the crypto-space like the Terra/LUNA algorithmic stablecoin collapse in 2022.

The project combines off-chain data from cryptocurrency exchanges with on-chain data from public blockchains gathered by nodes. The first iteration of the proof of concept saw Project Atlas tracking cryptocurrency flows across geographical locations.

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The initial approach uses transactions attributed to centralized exchanges in the Bitcoin network, along with the location of those exchanges as a proxy for cross-border capital flows.

The methodology notes that flows are likely lower-bound estimates of actual transaction volumes, given that the country location of exchanges is not easily discernible. Nevertheless Project Atlas’ initial pilot indicates that inter-exchange are “significant and substantial economically.”

In its current iteration, Project Atlas features a front end showcasing dashboards which visualise the results of data aggregation and analysis, including on-chain transfers as well as global movement of funds.

The PoC is set to provide an overnview of cross-border flows and will provide a means for Central Banks to evaluate the relative economic significance of the cryptocurrency ecosystem across different 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 set to continue incorporating more data sources to move into the next phase of development, while extracting and analyzing data from Ethereum network nodes is also in the pipeline as well as DeFi protocols.

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