Source: Cointelegraph
Original: “Standardization is Essential to Enable Adoption”

Views from: Axel Schorn and Dr. Duc Au

Traditional markets for stocks, bonds, and commodities have long benefited from well-established standards for information and data flow. These standards support the seamless operation of trading, settlement, and compliance regulation, ensuring that all participants can rely on a unified and consistent framework.

As the financial industry moves towards decentralized finance (DeFi) by introducing digital assets (such as crypto assets and tokenized securities), the lack of such standards has become an increasingly severe challenge.

Despite the transformative potential promised by digital assets, their fragmented information environment could undermine their adoption and integration within the broader financial ecosystem.

Independent platforms like CoinMarketCap or CoinGecko provide information on various tokens, but there are significant discrepancies in data regarding market capitalization, total supply, and other relevant reference data. Several global initiatives launched by private foundations and associations are working to advance standardization.

Guided by Traditional Frameworks

Just as standardized financial data has played a key role in building trust and facilitating growth, digital assets also require globally unified standards. Research indicates that in Germany alone, the overall economic benefit brought by standardization is estimated at 17 billion euros annually.

For traditional assets, the International Organization for Standardization (ISO) has established a clear hierarchical system for the classification and identification of each asset. The International Securities Identification Number (ISIN) is the global standard for uniquely identifying all types of financial instruments, including stocks, debt, derivatives, and indices. The Classification of Financial Instruments (CFI) is an internationally recognized classification system for financial instruments, defined and maintained unchanged at the time of issuance of financial or reference tools. The Financial Instrument Short Name (FISN) outlines a standardized method for the short name and description of financial instruments. Unlike ISIN and CFI, FISN is not intended for machine reading but provides a brief key information format for human use.

National Numbering Agencies (NNA) are responsible for collecting registration data, such as issuer information, instrument type, terms, and trading conditions, and assigning ISIN, CFI, and FISN. The Association of National Numbering Agencies (ANNA) maintains these identifiers and data in a global database. For countries without an NNA, four global alternative numbering agencies assign identification codes.

ISINs are assigned to various financial instruments, regardless of whether the technology used to create these instruments is paper-based or electronic, thus also including crypto securities issued under Germany's Electronic Securities Act. For tokens with a clear geographical reference (e.g., security tokens issued in Germany), ISINs are assigned by the corresponding National Numbering Agency. For reference instruments without a clear geographical reference (e.g., Bitcoin, which cannot determine the issuing country), ISINs prefixed with "XT" are assigned by Etrading Software.

This helps identify the financial instrument at the token level. Other exemplary data fields at the token level include token type, hash function, and generation mechanism. At the financial instrument level, additional data elements such as the blockchain to which the token belongs are also required.

To this end, the Digital Token Identifier Foundation, responsible for assigning this new identifier, provides what is known as the Digital Token Identifier (e.g., DTI, ISO24165).

Key Working Assumptions on Digital Asset Standardization

Crypto asset identifiers may become mandatory. Similar to traditional assets using systems like ISIN, digital assets will adopt unique identifiers for cryptocurrencies and tokenized securities. These identifiers will facilitate tracking, trading, and reporting between exchanges and custodial providers, achieving seamless integration with traditional financial systems.

Data standards will enhance transparency and compliance: As regulatory scrutiny increases, a unified data format will emerge for compliance management and risk control.

Global coordination will drive interoperability: The standardization of digital assets will rely on global collaboration between regulators and financial institutions. International organizations will play a key role in creating frameworks that ensure interoperability across jurisdictions, reduce market fragmentation, and address inconsistencies in information processing.

Initial steps have been taken to clearly identify digital assets using widely accepted ISO identifiers. Combined with regulations such as the EU's Markets in Crypto-Assets Regulation (MiCA), the industry is laying the groundwork for broader adoption.

It remains to be seen how investors and digital asset participants will further advance the standardization process and what obstacles may arise that need to be addressed.

Views from: Axel Schorn and Dr. Duc Au

Related: Stop Complicating Cryptocurrency

This article is for general informational purposes only and is not intended and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed in this article are solely those of the author and do not necessarily reflect or represent the views and positions of Cointelegraph.

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