The Bank for International Settlements (BIS) has revealed a proof-of-concept (PoC) called Project Atlas, which aims to track both on-chain and off-chain transactions from cryptocurrency exchanges and public blockchains. Partnering with the Deutsche Bundesbank, De Nederlandsche Bank, the European Central Bank, and the Bank of France, the BIS developed this PoC to analyze the macroeconomic importance of cryptocurrency markets and decentralized finance (DeFi) protocols.
Published by the BIS Innovation Hub, the concept of Project Atlas hopes to address the lack of transparency surrounding the sector and the potential risks it poses to financial stability. One of the catalysts for pursuing this endeavor was the collapse of the Terra ecosystem in 2022, which exposed the need for better monitoring systems in the crypto-space.
The project combines off-chain data from cryptocurrency exchanges with on-chain data from public blockchains, which is collected by nodes. The first phase of the proof-of-concept involved Project Atlas tracking the flow of cryptocurrencies across different geographical locations.
To conduct this analysis, Project Atlas primarily utilized transactions associated with centralized exchanges on the Bitcoin network, along with determining the location of these exchanges as a proxy for cross-border capital flows. There is, however, an acknowledgment that these flows may underestimate actual transaction volumes, as determining the country location of exchanges is not always straightforward. Nevertheless, the initial pilot of Project Atlas demonstrated that inter-exchange activity is economically significant and substantial.
Project Atlas currently showcases a front-end interface that visualizes the results of data aggregation and analysis. The dashboards provide insights into on-chain transfers and the global movement of funds.
The PoC aims to offer an overview of cross-border flows and enable central banks to evaluate the economic importance of the cryptocurrency ecosystem across different jurisdictions. It will enable structural analysis of flows and investigations into the influence of price shocks, financial market developments, and country characteristics on crypto flows.
Looking ahead, Project Atlas plans to incorporate more data sources in its next development phase, including extracting and analyzing data from Ethereum network nodes and DeFi protocols.
This initiative by the BIS and its collaborating central banks demonstrates a significant step toward understanding and monitoring the impact of cryptocurrencies and DeFi in the global economy. By bringing transparency to the sector and evaluating its macroeconomic relevance, policymakers can make informed decisions and mitigate potential risks to financial stability.