CoinGecko and 21Shares Work Together to Create a Universal Crypto Classification Standard

Understanding the New Crypto Classification Standard

On February 8, 2023, CoinGecko and crypto investment firm 21Shares announced a monumental partnership aimed at developing a universal standard for classifying various crypto assets. As the crypto world continues to expand like an overinflated balloon, this initiative strives to guide investors and regulators by providing a clearer understanding of the multitude of assets available.

The Need for Classification

In the last 13 years, the crypto space has burgeoned with over 12,000 distinct assets, each boasting unique features and characteristics. According to Carlos Gonzalez, a research analyst at 21Shares, “Unlike traditional financial assets, crypto assets can vary dramatically in nature, both as it relates to the asset itself and the protocol behind it.” This level of diversity makes it increasingly difficult for investors to navigate the cryptosphere, thus the need for a comprehensive classification system emerges.

The Layers of Classification

The classification system proposed by CoinGecko and 21Shares operates on three distinct levels:

• Crypto Stack: This first level categorizes crypto assets into broad classes such as cryptocurrencies, smart contract platforms, and decentralized applications. Interestingly, this level only references networks or protocols and skips over the underlying tokens themselves.
• Market Mapping by Sectors: The second level dives deeper by segmenting assets into sectors like infrastructure, metaverse, and decentralized finance (DeFi). In some cases where protocols might overlap industries, the classification attempts to identify the most relevant category.
• Taxonomy of Crypto Assets: The final level classifies assets based on a proposed taxonomy by crypto analyst Chris Burniske, aligning closely with traditional asset classes. Here, assets are termed as capital assets or store of value assets, emphasizing intrinsic value without generating income.

Examples of Asset Classification

To illustrate, notable examples in the store of value asset category include Bitcoin (BTC), Zcash (ZEC), and Monero (XMR). The key takeaway is that these assets have value but are unable to generate income or be consumed. So, while you can’t exactly have a picnic with them, they can still provide a comforting sense of financial security.

Global Efforts in Crypto Categorization

This initiative by CoinGecko and 21Shares is not an isolated case. Countries like Australia and Belgium are also working on their own classification systems. The Department of the Treasury in Australia has released a consultation paper on “token mapping,” showing a growing trend in global efforts to classify the plethora of cryptocurrencies accurately.

Conclusion: Navigating the Crypto Jungle

With confusion surrounding the classification of digital assets often resulting in misinterpretation by traditional investors, the collaboration between CoinGecko and 21Shares aims to simplify complex crypto landscapes. As Gonzalez aptly pointed out, many existing classification efforts are one-dimensional, mixing the actual tokens with the protocols backing them, adding to the confusion. The hope is that the newly developed standard will resonate with retail and institutional investors alike, providing clarity in the sometimes murky crypto waters.