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Crypto Asset Classification Guide

The advent of distributed ledger technology is facilitating collaboration across world markets — and the tracking of a vast range of transactions and interactions.

For this nascent industry to be effectively evaluated and interpreted a consistent and comprehensive global classification is required.

To that end, Brave New Coin has developed the General Taxonomy for Cryptographic Assets — a tool that seeks to capture the breadth, depth and evolution of distributed ledger technology-based assets across industry sectors globally, as well as to advance the investigation of the assets being classified.

The categories detailed below is designed to help guide Token issuers fill out the crypto asset submission form for being listed in the Brave New Coin Market Data Services.

 

Blockchain Ledger


The distributed ledger, or blockchain, ecosystem can be grouped in three broad categories: public, controlled, and private ledgers.

 

Value Description
Permissionless (public) Public ledgers are permissionless protocols where anyone can contribute to the processing of transactions without the need of a previous relationship with the ledger.
Permissioned (controlled) Controlled protocols are permissioned, the validation process is vetted by a preselected set of nodes, while participation (reading and/ or sending transactions) might be public or restricted to participants previously identified in the ledger.
Private Fully private distributed protocols, read permissions are kept centralized to one organization.

 

Infrastructure Issuance


The type of protocol or infrastructure the token has been issued on.

 

Value Description
Native Blockchain Asset
(Bitcoin, Ethereum, Dash, GAS, Tezos)
A Native Blockchain Asset represent programmable value that can be used freely by anyone, in any sector of industry and society, as a capital, transformable/consumable, or a store of value asset. These assets also serve as the foundation where Second Layer Protocol Tokens or Application Tokens are created, issued, and operated.
Application Token (dApps)
(ERC-20, BEP2)
Does not have its own blockchain but operates on top of a Platform Blockchain Asset. The Asset is considered an Application Token or Smart Contract that can be used in a Dapp. Application Tokens are defined by the General Taxonomy as tokens that are native to decentralized applications and have a cryptographic asset associated with their use or monetization, without locking value in its parent protocol.
Second Layer Protocol Token
(Omni-Layer, Rootstock)
Second Layer Protocol Tokens or Non-native Tokens are assets that have been issued on a second-layer protocol, (formally known as "Side Chains") that sit on top of a base blockchain. The base or layer one blockchain secures the second layer protocol by its underlying consensus algorithm.

 

Purpose Classifications (asset class)


 

Value Description
General Payment Asset The General Taxonomy defines Payment Cryptographic Assets as general form of money with the potential to capture global M1 and M2 money supply. That is, monies that are very liquid such as coins and notes in circulation and other money equivalents that are easily convertible into cash (M1), in addition to short-term bank deposits and 24-hour money market funds.
Stable Value Asset A Stable Value Asset is either Asset-backed or Algorithmically pegging its price to the value of another FIAT, Crypto Asset or commodity.
General Platform Asset A General Platform Asset Platform Cryptographic Assets, these are distributed protocols that integrate high-level programming capabilities and are not limited to peer-to-peer electronic transfer of value. While their main economic activity is not capturing global M1 and M2 money supply, their breadth and depth in the ecosystem makes these assets an attractive store of value.
Utility Asset Utility Assets are defined by the General Taxonomy as tokens that are native to decentralized applications and have a cryptographic asset associated with their use or monetization, without locking value in its parent protocol.
Financial Investment Asset /
Tokenised Security
A "Financial Investment Asset" or "Tokenised Security" is a tokenized digital form of traditional securities.
Hybrid Asset A Hybrid Asset can act or behave simultaneously but with different purposes. An example is a Token that has been issued with the potential to enable a user to use a product or service but at the same time provides a return or dividend. This is also known as a "Purple Security".

 

Regulatory Agencies Asset Class


The BNC Taxonomy aligns itself with other regulatory agencies around the world but also offers a deeper expanded classification system.

 

Value Description
FINMA This classification is based on the ICO guidelines published by the Swiss Financial Market Supervisory Authority FINMA. FINMA focuses on the economic function and purpose of the tokens in regards to ICO’s and IEO’s. The key factors are the underlying purpose of the tokens and whether they are already tradeable or transferable. FINMA categorises tokens into three types, but hybrid forms are possible:

a) Payment tokens are synonymous with cryptocurrencies and have no further functions or links to other development projects. Tokens may in some cases only develop the necessary functionality and become accepted as a means of payment over a period of time.

b) Utility tokens are tokens which are intended to provide digital access to an application or service.

c) Asset tokens represent assets such as participations in real physical underlyings, companies, or earnings streams, or an entitlement to dividends or interest payments. In terms of their economic function, the tokens are analogous to equities, bonds or derivatives.

Reference: https://www.finma.ch/en/news/2018/02/20180216-mm-ico-wegleitung/
Wyoming Law An act relating to property; classifying digital assets within existing laws; and specifying that digital assets are property within the Uniform Commercial Code from the U.S. state of Wyoming. This act establishes the legal nature of digital assets within existing law, dividing these assets into three categories of intangible personal property and classifying these assets within the Uniform Commercial Code (UCC) as follows:

a) Digital consumer assets (UCC: general intangibles);

b) Digital securities (UCC: securities and investment property); and

c) Virtual currency (UCC: money).

Reference: https://wyoleg.gov/Legislation/2019/sf0125
PWC The characteristics that were observed being most relevant for classifying cryptographic assets for accounting purposes are: the primary purpose of the cryptographic asset; and how the cryptographic asset derives its inherent value. PWC defined four specific subsets of cryptographic assets:

a) Cryptocurrency

b) Asset-backed token

c) Utility token

d) Security token

Reference: https://www.pwc.com/gx/en/audit-services/ifrs/publications/ifrs-16/cryptographic-assets-related-transactions-accounting-considerations-ifrs-pwc-in-depth.pdf
HM Treasury Taskforce The Taskforce considers there to be three broad types of cryptoassets:

a) Exchange tokens – which are often referred to as ‘cryptocurrencies’ such as Bitcoin, Litecoin and equivalents. They utilise a DLT platform and are not issued or backed by a central bank or other central body. They do not provide the types of rights or access provided by security or utility tokens, but are used as a means of exchange or for investment.

b) Security tokens – which amount to a ‘specified investment’ as set out in the Financial Services and Markets Act (2000) (Regulated Activities) Order (RAO).10 These may provide rights such as ownership, repayment of a specific sum of money, or entitlement to a share in future profits. They may also be transferable securities or financial instruments under the EU’s Markets in Financial Instruments Directive II (MiFID II).

c) Utility tokens – which can be redeemed for access to a specific product or service that is typically provided using a DLT platform.

Reference: Cryptoassets Taskforce: Final Report
IMF The IMF draws on a set of key characteristics of crypto assets (issuer and transfer mechanism) using the money flower presentation discussed in a Bank of International Settlements’ paper (Morten and Rodney, 2017). Digital tokens can be classified into four types depending on their underlying economic function, as follows:

a) Payment tokens: those intended to become BLCAs and to be used universally (i.e., not restricted to a specific platform) as units of account, store of value, and means of payment (e.g., Litecoin).

b) Utility tokens: those designed to provide the holders future access to services by means of a DLT-based application. Examples of such applications are those for file storage, social messaging, and trading (e.g., Ether, Binance coin, and Filecoin12)

c) Asset tokens: those representing debt or equity claims on the issuer. They generate interest to the holder or promise a share in the future earnings of the company, respectively.

d) Hybrid tokens: those that are part utility and part asset or payment token.

Reference: https://www.imf.org/external/pubs/ft/bop/2018/pdf/18-11.pdf

 

Transaction Identity


Degree of transparency and traceability of transactions in the protocol’s network. A value of "Anonymous" is assigned if transactions cannot be traced nor identified by anyone, "Pseudonymous" when transactions and users can be identified only by specialized analysis, "Private" when transactions and users identities are only known to the organization running the protocol, "Transparent" when transactions and users identities are public, and "Selective Transparency" when is possible to optionally send transactions anonymously or transparently.

 

Value Description
Anonymous Transactions cannot be traced nor identified by anyone.
Pseudonymous Transactions and users can be identified only by specialized analysis.
Private Transactions and users identities are only known to the organization running the protocol.
Transparent Transactions and users identities are public.
Selective Transparency It is possible to optionally send transactions anonymously or transparently.

 

Industry Classification


 

Value Description
Entertainment The Entertainment sector comprises projects that provide products and services to meet the recreational interests of their users.
Professional Services The Professional Services sector comprises projects that specialize in providing professional, scientific, and technical expertise for individuals and enterprises.
Blockchain Infrastructure The Blockchain Infrastructure sector covers projects focused on building the basic physical structures and protocol systems needed to advance the usability, scale, and adoption of distributed ledger technology.
Retail Trade The Retail Trade sector includes projects mainly engaged in the use of distributed ledger technology to purchase and/or sell goods and services, without significant transformation of a cryptographic asset or protocol.
Financial Services The Financial Services sector covers projects which are primarily focused on facilitating financial transactions, which involves reference data, retail payments, consumer lending, crypto asset management, trade finance, corporate lending, mortgages, deposit taking, international payments, as well as the creation, liquidation, or change in ownership of cryptographic assets.
Health The Health Care and Social Assistance sector is comprised of projects building technological infrastructure for the health care industry.
Energy and Utilities The Energy and Utilities industry sector involves the implementation of distributed ledger technology for wholesale distribution, peer to peer markets, records management activities, documenting provenance, traceability and voting rights for electricity, oil, gas, water, sewage, and public transportation.
Real Estate The Real Estate industry sector is comprised of projects focused on improving property search processes, the leasing and subsequent property and cash flow management, and property title management.
Telecommunications The Telecommunications industry sector includes protocols mainly engaged in providing distributed infrastructure and protocols for accessing, using, or participating in the Internet; delivering wireless communications services to an end user; as well as operating and/or providing access to distrubuted infrastructure.

 


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