By Marc Jones

LONDON (Reuters) – A global central bank test lab run out of London is designing a ‘stablecoin‘ monitoring system aimed at giving authorities a clearer picture on how they work and how to regulate them in future.

Stablecoins are a type of cryptocurrency which aim to maintain a 1:1 peg with a fiat currency such as the dollar. The collapse last year of a widely-used stablecoin pair, Luna and TerraUSD, sparked widespread turmoil in crypto markets.

In a bid to ensure there is more oversight going forward, the Bank for International Settlements (BIS), often dubbed the central bank for the world’s central banks, is to begin work in its London ‘innovation hub’ on a tool to keep tabs on them.

It is expected to run various tests and simulations on a yet to-be-defined number of stablecoins and their balance sheets and come up with preliminary findings by the end of the year.

“Most central banks lack tools to systemically monitor stablecoins and avoid asset-liability mismatches,” the BIS said.

The project, named Pyxtrial after an ancient judicial ceremony in Britain to ensure newly minted coins conformed to required standards, could help regulators “build policy frameworks” the BIS added.

One of the key hopes is that it will give more visibility on what assets stablecoins are backed by.

The Financial Stability Board (FSB), which coordinates financial rulemaking among Group of 20 Economies (G20), made a set of recommendations in October on beefing up cryptomarket oversight.

Currently, the sector is largely unregulated in most countries, having to only comply with rules for safeguarding against money laundering and terrorist financing as regulators warn investors they risk losing every penny.