The new crypto classification effort aims to help investors and regulators spot potential crypto failures like those seen in 2022.
Major cryptocurrency data aggregator CoinGecko and crypto investment firm 21Shares have joined forces to launch a global standard for classifying various crypto asset.
On Feb. 8, CoinGecko and 21Shares released The Global Crypto Classification Standard report, proposing a uniform method to categorize crypto assets. The effort aims to help investors and regulators better understand the specifics of each asset class in crypto, including potential failures like those seen by the industry in 2022.
“Since Bitcoin’s inception around 13 years ago, thousands of unique crypto assets and protocols have emerged, each with unique characteristics and different value propositions,” Carlos Gonzalez, research analyst at 21Shares’ parent firm 21.co, told Cointelegraph, adding:
“Unlike traditional financial assets, crypto assets can vary dramatically in nature, both as it relates to the asset itself and the protocol behind it.”
At the time of writing, there are more than 12,000 diverse crypto assets listed on CoinGecko’s website, with each coin having its unique characteristics and features. CoinGecko and 21Shares’ classification standard is based on three categorization levels, differentiating these thousands of assets by stack, market sectors, industries and taxonomy.
The first level, dubbed “crypto stack,” breaks down crypto assets into classes like cryptocurrencies, smart contract platforms, centralized applications, decentralized applications, interoperable blockchains and others. The methodology only refers to networks or protocols in the first two levels, not the underlying token.
Six examples of “crypto stack” classification. Source: 21Shares and CoinGecko
The second level, called “market mapping by sectors and industries,” further divides cryptocurrencies by segments like infrastructure, metaverse and decentralized finance (DeFi), as well as groups like payment platform, lending, developer tooling and others. As some protocols might fit into multiple industries, the methodology attempts to place the assets in the most relevant category in such cases.
The third level, “taxonomy of crypto assets,” classified crypto assets according to related asset “superclass” based on the cryptocurrency taxonomy system proposed by crypto analyst Chris Burniske in 2019. Burniske’s system follows Robert Greer’s 1997 paper, “What is an Asset Class Anyway?” categorizing crypto assets across their superclasses like capital assets, consumable or transformable assets and store of value assets.
Some of the examples in the store of value asset category include Bitcoin (BTC), Monero (XMR), Zcash (ZEC) and Dogecoin (DOGE). This type of crypto asset “cannot be consumed; nor can it generate income. Nevertheless, it has value; it is a store of value asset,” the proposed classification standard reads.
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CoinGecko and 21Shares’ effort to bring a global crypto classification standard is one of many global efforts to categorize cryptocurrencies. On Feb. 3, the Department of the Treasury in Australia released a consultation paper on “token mapping,” aiming to have its own taxonomy of crypto assets. Previously, Belgium’s Financial Services and Markets Authority was also seeking feedback on its classification of crypto assets as securities, investment instruments or financial instruments in July 2022.
“While the classification of digital assets is quite commonplace, many classification efforts are one-dimensional and confuse traditional investors by mixing crypto assets — the investable tokens — directly with the protocols behind them,” Gonzalez said.
The exec also expressed confidence that 21Shares’ collaboration with CoinGecko — a major independent crypto data website — will allow the newly proposed standard to appeal to both retail and institutional investors, as well as policymakers across the world.