Opinions: Axel Schon and Dr. Duc Au
Traditional stocks, bonds and commodity markets have long benefited from established standards that govern information and data flows. These standards underpin the seamless capabilities of transaction, settlement and regulatory compliance, allowing all participants to rely on the same consistent framework.
The lack of such standards poses an increasing challenge as the financial industry moves to decentralized finance (DEFI) with the introduction of digital assets such as crypto assets and tokenized securities.
While digital assets promise potential for change, their fragmented information environment risks eroding adoption and integration into the broader financial ecosystem.
Independent platforms such as Coinmarketcap and Coingecko provide information about various tokens, but this data differs significantly in terms of market capitalization, total supply and other related reference data. Several global initiatives by private foundations and associations are working towards standardization.
Traditional frameworks as guidelines
Just as standardized financial data helps build trust and drive growth, digital assets need global standards. Research shows that the standard generates an overall economic profit, estimated at 17 billion euros per year in Germany alone.
For traditional assets, there is a clear hierarchy of International Standardization Organizations (ISOs) that clearly classify and identify each asset. International Securities Identification Number (ISIN) is a global standard that uniquely identifies all types of financial products, including stocks, debts, derivatives, and indexes. Financial Instruments Certification (CFI) is an internationally recognized system for classifying financial instruments. Defined when a financial or reference device has been issued and has not been modified. The Financial Instrument Short Name (FISN) outlines a standardized approach to short names and descriptions of financial instruments. Unlike ISIN and CFI, FISN is not machine-readable and is intended to provide short forms of critical security information regarding human use.
The National Numbering Agency (NNA), responsible for collecting registered data such as issuer information, equipment type, terms and conditions, assigns ISIN, CFI, and FISN. The National Association of Numbers Associations maintains identifiers and data in a global database. For countries that do not have an NNA, the four global alternative number agencies assign IDs to those countries.
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An ISIN is assigned in both paper and electronic formats, regardless of the technology used to create each device, and thus includes tokenized devices such as cryptographic securities under German electronic securities laws. For tokens with obvious geographical references, such as issuers of security tokens residing in Germany, the responsible NNA assigns an ISIN. For reference devices tokens with no obvious geographical references (e.g. Bitcoin (BTC) that cannot identify the country of the issuer), an ISIN with the prefix “XT” is assigned by the etrading software.
This helps to identify token-level devices. More exemplary data fields at the token level are types of tokens, hash functions, and generation mechanisms. It focuses on the device level and requires additional data elements such as the Token blockchain.
For this purpose, the Digital Token Identifier Foundation, which is responsible for assigning this new identifier, provides so-called digital token identifiers (such as DTI, ISO 24165).
Important working paper on standardization of digital assets
A cryptographic identifier may be required. Similar to traditional assets using systems such as ISINS, digital assets employ unique identifiers for cryptocurrencies and tokenized securities. These identifiers facilitate tracking, trading and reporting between exchanges and custody providers, allowing for seamless integration with legacy financial systems.
Data standards increase transparency and compliance. Increased regulatory scrutiny brings the emergence of standardized data formats for compliance and risk management.
Global coordination promotes interoperability. Standardization of digital assets relies on global cooperation between regulatory and financial institutions. International organizations play a pivotal role in creating frameworks that ensure interoperability across jurisdictions, reduce market fragmentation and thus reduce inconsistencies in information processing.
The first steps have been taken to clearly identify digital assets using commonly accepted ISO identifiers. In combination with European Union-wide regulations, such as market regulations for crypto assets (MICA), the industry lays the foundation for more important adoption.
It remains to be seen how investors and digital asset players can advance further towards more standardization and what obstacles will be resolved.
Opinions: Axel Schon and Dr. Duc Au
This article is for general informational purposes and is not intended to be considered legal or investment advice, and should not be done. The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or express Cointregraph’s views and opinions.
