Crypto classification seeks to make the industry more welcoming to TradFi participants
Cryptocurrency data provider CoinGecko and 21.co, the parent company of investment product provider 21Shares, are rolling out a classification system for cryptoassets, the latest in a growing number of efforts to map the industry’s taxonomies and make it more accessible to participants in traditional finance (TradFi).
The Global Crypto Classification Standard, announced on Wednesday, categorizes digital assets according to three levels. It joins a classification system called datonomy, constructed by financial services firm Goldman Sachs (GS) and MSCI (MSCI) with data provider Coin Metrics, and the Digital Assets Classification Standard (DACS) from CoinDesk Indices which classifies the top 500 digital assets by market. capitalization to use case and technology and then to industry and sector.
At the heart of this trend is an attempt to impose structure on apparent chaos, and help guide conventional investors as they consider putting money into crypto. There is a huge variety of cryptoassets, many of which have virtually nothing in common with each other, making the industry a daunting one to enter.
“It is crucial as there are still many misconceptions regarding crypto from traditional financial institutions,” a 21.co spokesperson told CoinDesk. “The term ‘cryptocurrency’, widely used, is a misnomer as cryptoassets can vary dramatically in nature, both in terms of the asset (token) itself and the protocol behind it.”
The Global Crypto Classification Standard, for example, categorizes assets into three levels. The first deals with networks and protocols, be it cryptocurrencies (bitcoin, monero, etc), smart contract platforms (for example Ethereum or Solana), decentralized apps (like Aave, Uniswap) and so on. The second groups assets by industry and sector, including centralized finance, decentralized finance (DeFi), metaverse, identity and infrastructure. Third-level agreements identify the nature of the assets: a cryptocurrency, a native currency of a particular network, a stablecoin, a derivative token, or a governance or utility token, and so on.
In short, the goal is to help companies and investors answer some basic questions about a network or protocol: What does it do? What type of token is associated with it? What asset class does it belong to?
Having the answers helps TradFi firms know what to expect when entering a new asset class. It allows them to create index-based products such as exchange-traded funds (ETFs), which help attract investors who prefer passive rather than active exposure to an asset or basket of assets.
On Tuesday, for example, digital asset management platform HeightZero used CoinDesk Indices Large Cap Select Index, which provides a weighted performance of the largest digital assets, to offer crypto exposure to its financial advisory and wealth management clients.
The value such products offer is illustrated by last year’s collapse of the crypto exchange FTX and lenders Celsius Network and Voyager Digital. All of these operated as centralized platforms. In contrast, many DeFi lending protocols continued with business as usual, offering an alternative investment opportunity if only it could be identified.
That is what these products are looking to provide.
