The Bank for International Settlements’ (BIS) Project Atlas report offers yet another indication that the worlds of crypto and traditional finance may be converging.
On the surface, this proof-of-concept project backed by some of Europe’s biggest central banks — like German central bank Deutsche Bundesbank and Dutch central bank De Nederlandsche Bank — seems modest enough: securing more crypto-related data, like cross-border Bitcoin (BTC) flows.
But the mere fact that these giants of the incumbent financial order now want such information suggests that crypto assets and decentralized finance (DeFi) applications are becoming, in the report’s words, “part of an emerging financial ecosystem that spans the globe.”
BIS, a bank for central banks, and its partners still have some serious concerns about this new ecosystem, including its “lack of transparency.” For instance, it’s still hard to find seemingly simple things, like the countries where crypto exchanges are domiciled.
And then, there are the abiding potential risks to financial stability presented by these new financial assets. Indeed, in the introduction of the 40-page report, published in early October, BIS references how recent crypto failures — such as the recent theft of $61 million from Curve Finance’s pools — “exposed vulnerabilities across DeFi projects.” Moreover:
“The crash of the Terra (Luna) protocol’s algorithmic stablecoin in a downward spiral and the bankruptcy of centralised crypto exchange FTX also highlight the pitfalls of unregulated markets.”
Overall, this seemingly innocuous report raises some knotty questions. Does crypto have a macro data problem? Why are cross-border flows so difficult to discern? Is there an easy solution to this opaqueness?
Finally, assuming there is a problem, wouldn’t it behoove the industry to meet the central banks at least halfway in supplying some answers?
Is crypto data really lacking?
“It’s a valid concern,” Clemens Graf von Luckner, a former World Bank economist now conducting foreign portfolio investment research for the International Monetary Fund, told Cointelegraph.
Central banks generally want to know what assets their residents hold in other parts of the world. Large amounts of overseas assets can be a buffer in times of financial stress.
So, central banks want to know how much crypto is going out of their country and for what purpose. “Foreign assets can be handy,” said von Luckner. A large stock…