15th July 2025 , New Delhi

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 In the absence of a functional classification system, regulators are forced to fit these assets into outdated legal categories.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.

This lack of clarity has triggered a spate of high-stakes legal disputes, turning courtrooms into makeshift classification labs. In the SEC v. Ripple Labs Inc. (2023) case, a federal judge ruled that Ripple’s XRP token was not necessarily a security in all circumstances, particularly in retail transactions. This reflects how the classification of digital assets often hinges on context: how the token was sold, who the buyer was, and the expectations embedded in the transaction.

Recent developments from international authorities indicate an increasing realization of this issue. The Financial Stability Board (FSB) and International Organization of Securities Commissions (IOSCO) have published consultations suggesting taxonomy frameworks based on economic function and embedded rights. Meanwhile, the Financial Action Task Force (FATF) is enforcing Travel Rule compliance based on whether a digital service provider qualifies as a “virtual asset service provider” (VASP), a classification that itself varies by jurisdiction. The World Bank and IMF have also advocated for common standards, particularly to support cross-border financial infrastructure in developing economies.

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.

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.