At a glance
- Crypto assets and traditional financial instruments, such as bonds and derivatives, fall under different ISO standards
- A joint task force has now aligned the two standards
- Alignment means greater trust and transparency, alongside boosting efficiencies
The Association for National Numbering Agencies (ANNA) and the Digital Token Identifier Foundation (DTIF) have, in the latest phase of their joint task force, announced a scalable identification solution aligning the ISO standards for both fungible digital tokens and traditional financial instruments.
This development is a vital step in boosting transparency, trust and efficiencies for those working with digital assets.
Traditional financial instruments, including equity, debt and derivatives, have been issued with international securities identification numbers (ISINs) for the past four decades. ISINs, which come under ISO 6166 standard, enable each instrument to be uniquely identified. Among other benefits, this greatly reduces the risk of error.
The scope of traditional ISINs does not include digital tokens such as stablecoins, cryptocurrencies and electronic money. Instead, these are issued with unique digital token identifiers (DTIs), which are based on verifiable data to give anyone trading them a clear and standardised method of differentiating them. Crucially, DTIs unambiguously link the token to the distributed ledger on which it is deployed. DTIs fall under a different ISO standard to ISINs, namely ISO 24165.
Two ISO standards working together
As traditional financial instruments move to incorporate distributed ledger technology (DLT), while digital tokens are increasingly being held, bought and sold as assets, there is a need to define how both standards can work to complement one another.
That is why, in 2021, a joint task force was set up between ISIN issuer ANNA, and DTI issuer DTIF, to identify potential synergies between the two systems.
“What we found when we set up the task force two years ago was that the two standards are indeed complementary,” says Denis Dounaev of the DTIF. He highlights that ISINs are very good at identifying the asset, whereas DTIs are more technical as they identify the token. But the ability to define the link between the token and the underlying asset was missing.
On the DTI side there were too many relationships. “You can have an asset that’s implemented on multiple blockchains and each one of those will have its own DTI. But overall it’s the same asset,” says Mr Dounaev. He uses the example of Tether USD. “It’s a stablecoin, but it has at least 14 different implementations across multiple different blockchains.”
A new ISIN for crypto assets
The task force has now announced its solution: an updated ISIN to identify and link digital tokens to their underlying asset. The first batch of new ISINs were the 50 tokens with the highest market capitalisation. Among these are familiar names such as bitcoin, Ethereum’s ether, Tether and, well, even meme cryptocurrency Dogecoin.
Sticking with the example of Tether, Mr Dounaev says it will still have 14 or so DTIs, identifying its relevant blockchains, but will be identified by just one new unique ISIN, issued by ANNA and containing a new “XT” prefix.
New DTI for traditional instruments
For traditional financial instruments with ISINs, until now there was nothing in the existing system that related the financial instrument to its ledger. So the task force has issued ISINs with an inbuilt link to the relevant DTIs.
“Here we have traditional finance, looking at DLT and blockchain for the purpose of creating efficiency, cost savings, for settlement time. So we’re taking those things that have already happened and doing it better and differently,” says Stephan Dreyer, managing director of ANNA.
Mr Dreyer describes an almost seamless process of readying traditional finance identification for the DLT age. “Fundamentally, the asset remains unchanged just the way that it’s being issued is extending. There, we worked together with the DTIF to create the mapping to DTI.”
In short: where they already had an ISIN, they assigned a DTI, and then where other tokens already had the DTI, ANNA created the new XT ISINs.
There are clear, almost unlimited benefits, according to Mr Dreyer. “Data management, risk management, compliance, regulatory reporting requirements (and future requirements) — these are all areas that aligned standards can help because you can aggregate everything against a common identifier. When you go across multiple platforms, organisations, everybody involved knows you’re talking about the same thing,” he says.
Scaling in size and scope
Right now both Mr Dounaev and Mr Dreyer characterise the new alignment as being in its “pilot phase”. The next steps will see both organisations working towards a fully operational model while getting feedback from market participants to confirm that their approach is correct. Mr Dreyer cites recent DLT bond issuances from the World Bank and expects these to increase.
And what about other sorts of digital tokens: artwork, property, carbon credits? “Oh, absolutely. It’s all on the table. As we get more and more feedback and build operational processes around this, it’s definitely in the remit of the DTIF,” says Mr Dounaev.
Regulation will be a key driver. As new regulation comes in with the need to collect and report certain data, the benefits of DTI and ISIN alignment will become increasingly apparent and vital.
Mr Dounaev points to the European Securities and Markets Authority’s preparation for the implementation of the Markets in Crypto-Assets Regulation (MiCA) — currently set for December 2024. “As new regulation comes in, I think that will then create more and more trust in the technology, and in turn more trust and more certainty around what companies can do with this.”
