Digital Token Identifier continues to gain traction, supports growth of digital asset ecosystem

The adoption of distributed ledger technology (DLT) in the traditional financial markets and the rapid growth of decentralised crypto ecosystems increased demand from public authorities and market participants to be able to identify where digital tokens are issued, traded, settled and stored.

 

Regulatory and market developments

 

Authorities in jurisdictions including France, Germany, Italy, Luxembourg, Liechtenstein and Switzerland have introduced legislative initiatives to dismantle tech-neutrality barriers impeding the adoption of DLT in capital markets. Other jurisdictions such as Australia, Thailand and the UK have published guidance on DLT adoption in financial services. Regulatory certainty across such jurisdictions has helped to alleviate market concerns and DLT-based pilot security transactions continue to grow in size and complexity. The notional outstanding amount of publicly traded tokenised bonds, for example, has grown from around $100 million in 2018 to around $800 million (European Securities and Markets Authority (ESMA) TRV Risk Monitor No. 2, 2023).

 

The EU DLT Pilot Regime commenced in March 2023 to support testing DLT-based financial market infrastructures, whilst the UK is consulting on its equivalent Digital Securities Sandbox. The two initiatives are expected to lead to further growth in the volume of both tokenised and native digital securities issuance and trading.

 

The EU Markets in Crypto-Assets (MiCA) Regulation, which was published in the Official Journal in June 2023, aims to provide a framework for cryptoassets not covered by existing EU rules. As part of the new framework, ESMA is expected to establish a register of cryptoasset whitepapers, cryptoasset service providers, and issuers of asset-referenced and e-money tokens. ESMA has started consulting on technical standards development before the application of the Regulation by the end of 2024.

 

Standard-setting bodies such as the Financial Stability Board (FSB) and the International Organisation of Securities Commissions (IOSCO) have also accelerated consultation work on the functioning of cryptoasset markets, with a strong focus on market integrity and investor protection.

 

Challenges remain

 

Despite these developments, several challenges continued to impede the growth of the digital asset ecosystem, including:

 

  • inconsistent identification of digital tokens, blockchains and other distributed ledgers;
  • unclear link between tokens and underlying assets;
  • unknown legal, governance, technical, operational and security risks of a token’s ledger
Enter the Digital Token Identifier

 

The Digital Token Identifier (DTI) standard (ISO 24165 DTI) was developed to address these barriers. The standard offers market participants and regulators a consistent reference. It unambiguously identifies tokens and links them to the distributed ledger on which they are deployed, regardless of platforms, systems or jurisdictions.

 

More than 1,600 unique DTIs have been allocated to crypto and digital assets since the launch of the ISO standard. The DTI is also steadily gaining recognition as the international standard for identifying digital tokens across regulatory authorities and standard-setting bodies.

 

In January 2023, ESMA recommended the use of DTIs alongside traditional security identifiers such as the International Securities Identifier Number (ISIN) for the DLT Pilot Regime.

 

In April 2023, the FIX protocol was expanded to incorporate DTI information, whilst SWIFT announced the technical alignment of digital asset identification with ISO 24165 for its Standards MT November 2023 release.

 

Milestone
 

The evolution of digital asset markets and the integration of distributed ledger technology in traditional finance have created opportunities and challenges. The adoption of the DTI standard represents a critical milestone in addressing remaining challenges. The standard continues to gain traction worldwide, building transparency and enhancing market integrity across the digital asset ecosystem.

 

About the DTI Foundation

 

The author is Associate Director of the DTI Foundation (DTIF) — the Registration Authority for the International Organisation for Standardisation (ISO) 24165 Digital Token Identifier (DTI) standard. The DTIF’s mission is to provide the golden source reference data for the unique identification of digital tokens. As its mandate, the DTIF issues and maintains DTIs on a non-profit basis to increase transparency in the digital asset arena by creating a core reference data set based on open data principles made available as a public good.

 

The DTI Foundation is a non-profit division of Etrading Software, a financial technology firm with a mission of solving market-wide problems by building market infrastructures for the new digital economy.

 

(Rowan Varrall, Digital Token Identifier Foundation)

 

First published by Thomson Reuters Regulatory Intelligence 02-Oct-2023