One of the most significant missing pieces to the regulatory puzzle in the crypto ecosystem is the lack of a standardized and universally accepted taxonomy. As digital assets are building blocks of programmable finance, the lack of definitional clarity is creating systemic frictions. Without a common vocabulary akin to how traditional finance distinguishes between equities, bonds, and derivatives, governments, investors, and institutions are speaking past one another. The result is regulatory ambiguity, investor confusion, and the growing risk of jurisdictional arbitrage.
At the core of this problem is the diversity of the crypto asset ecosystem itself. Tokens can serve a wide array of purposes: store of value (like Bitcoin), medium of exchange (like stablecoins), access or governance rights (like DAO tokens), or ownership of real-world assets (such as tokenized real estate or bonds). In the absence of a functional classification system, regulators are forced to fit these assets into outdated legal categories. The European Union’s Markets in Crypto-Assets (MiCA) regulation has made efforts by distinguishing between asset-referenced tokens, e-money tokens, and utility tokens. Meanwhile, in the United States, the battle between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) over whether certain tokens are securities or commodities continues to sow legal uncertainty.
Without consistent classification, even cross-border partnerships and innovation are at risk. A startup launching a new tokenized product in one country might find it labeled a security, while in another it could be taxed or regulated entirely differently. This lack of cohesion discourages international investment, burdens innovators with compliance complexities, and leaves consumers underprotected or confused. A common taxonomy would simplify entry into new markets and enable global standards for investor protection and risk disclosure.
Moreover, the absence of a global taxonomy impacts data standardization, reporting, and market surveillance. Regulatory agencies struggle to collect meaningful, comparable data across jurisdictions, which makes it harder to detect manipulation, enforce compliance, or develop forward-looking policy. For institutional players considering large-scale entry into digital assets, this lack of consistency is not just a nuisance — it's a dealbreaker. A globally aligned taxonomy would allow for better transparency, interoperability, and trust across the ecosystem.
A unified taxonomy would also benefit education and adoption. For the average user or retail investor, the crypto space remains confusing and fragmented. If assets were consistently labeled and categorized, individuals could make more informed decisions about what they’re buying, holding, or using. Clear definitions would reduce misinformation and scams, create a more inclusive environment for new entrants, and accelerate mass adoption — especially in emerging economies where digital assets offer real financial inclusion potential.
The answer is probably in a functional, risk-based taxonomy, not a rigid, form-based taxonomy! Rather than asking only how a token is classified (stablecoin, governance token), regulators should focus on asking what the asset actually does: is it used to make payments? does it signify an investment in a common venture? does it confer voting rights or ownership claims? A function-based taxonomy can help harmonize divergent legal traditions, just as IFRS has harmonized practice in global accounting approaches.
There is a historical parallel here. Before the Basel Accords, banks operated under radically different risk definitions and reserve norms. It took the coordination of multiple sovereign regulators to agree on common principles for capital and risk. The crypto world is at a similar inflection point. Without global alignment, we risk a fragmented system where the same asset is regulated as a security in Germany, as a commodity in the U.S., and as a gambling chip in another jurisdiction.
The time to act is now. As more countries advance their own digital currency frameworks and central bank digital currencies (CBDCs) gain momentum, the lack of harmony in how we define and regulate crypto assets will only widen. A proactive approach to taxonomy can future-proof the system — allowing innovation to flourish without compromising compliance, oversight, or investor safety.
To move forward, an international body, perhaps under the G20’s FSB, can establish a shared language across jurisdictions. Such a taxonomy could include core categories like payment tokens, e-money tokens, asset-referenced tokens, utility tokens, governance tokens, and investment tokens, each with sub-classifications depending on rights and use-cases.
The need for a global taxonomy for crypto assets is no longer optional; it is foundational. If crypto is to deliver on its promise of democratized, efficient, and programmable capital, it must first ensure we are all speaking the same language.
Disclaimer: Cryptocurrency investments are risky and highly volatile. This is not financial advice; always do your research. Our editors are not involved, and we do not take responsibility for any losses.
