The Bank of England and the BIS shared the results of a proof of concept (PoC) for a regulatory or supervisory tool, Pyxtrial, to monitor the asset backing of stablecoins. It allows a supervisor to get a single view of stablecoin liabilities across multiple coins and blockchains and the corresponding reserves. The trial covered Tether, USDC, Binance USD, True USD and the Pax Dollar.
We thought the tool would connect to the back offices of the custodians, trust companies and banks that manage the stablecoin reserves. Hence, we expected the supervisor would get a more up-to-date and reliable view than the public sees. But that’s not what Pyxtrial does.
As the paper highlights, currently supervisors have access to the same data that the public sees. So this tool helps to standardize that data and pulls it into a database to give the regulator a bird’s eye view in a single dashboard.
Stablecoin reporting regularity
At the moment, stablecoins have very different reporting schedules. While the paper mentions the issue, it doesn’t cover the details. We’d note that Tether only reports its reserves every three months and a month in arrears. It published a report yesterday, but earlier this week, one could only see the March report. At the other end of the spectrum, Circle’s USDC provides monthly attested reports a month in arrears. However, its website reports weekly and BlackRock provides daily updates a day or two in arrears. BlackRock manages 87% of the USDC reserves.
We’d also observe that some of the newly proposed stablecoin legislation is quite relaxed in reporting requirements.
The report notes, “A key challenge in monitoring the balance sheets of stablecoin issuers is the significant disconnect between the availability of liabilities-side data, which is in effect in real-time, and that of the assets-side data, where stablecoin issuers’ reports might be published only monthly or even quarterly.”
It continues that for systemic stablecoins this is “unsustainable from a regulatory point of view.” It wants to see a far higher frequency than is currently the case. Potentially the data could be classified as confidential, so just the regulator or supervisor gets to see it. We’d observe that end users will always prefer maximum transparency, but some research shows that more data can sometimes make stablecoins less stable.
Valuing reserves
For now, the Pyxtrial tool simply pulls the data that’s published. Valuation was not part of the scope of the tool, although it says that might be worth discussing. It also does not assess asset quality. However, it mentioned that Pyxtrial incorporates regulatory tags that rank assets by quality and liquidity. This may be quite high level as it says it ranks sovereign debt as more liquid and higher quality than private debt.
Most stablecoins are issued on multiple chains. One of the future considerations is that the regulators would like to see assets segregated by chain. In the conclusion, the authors note that Pyxtrial could also be useful to monitor the reserves for tokenized US Treasuries and tokenized securities.
