Why the Financial Industry Requires Standardization for Digital Assets

In the financial sector, clarity and trust are indispensable. Traditional markets for stocks, bonds, and commodities have long benefited from well-established standards governing the flow of information and data [1]. These standards form the backbone of efficient trading, settlement processes, and regulatory compliance, ensuring that all participants—ranging from retail to institutional investors—operate within a reliable and consistent framework [2].

As the financial industry progresses into the era of decentralized finance (DeFi) and digital assets, such as crypto-assets and tokenized securities, the absence of comparable standards has emerged as a significant challenge [3]. While these assets offer transformative benefits, including greater accessibility, programmability, and efficiency in issuance and handling, their fragmented information landscape threatens to impede their adoption and integration into the broader financial ecosystem [4]. Divergent token definitions, inconsistent trade reporting, and discrepancies in ownership data create barriers to transparency, interoperability, and trust [5]. For example, independent platforms like CoinMarketCap and CoinGecko provide data on various tokens, yet significant discrepancies can be observed in key metrics such as market capitalization, total supply, and other relevant reference data. Despite global efforts by private foundations and associations to establish standards, these initiatives remain fragmented and incomplete [6].

To achieve mainstream acceptance, digital assets must learn from traditional markets. Just as established financial data standards—such as ISINs for securities or GAAP for accounting—have been crucial in fostering trust and facilitating growth, digital assets require their own set of global standards. A standard is a document that specifies requirements for products, services, and processes, aiming to support efficiency, quality assurance, and global harmonization [7]. Only with such standards can digital asset markets unlock their full potential and integrate seamlessly with legacy financial systems. Research highlights the economic impact of standards, with an estimated €17 billion in annual benefits generated in Germany alone [8].

Standards were typically maintained by national standards bodies, e.g. for Germany this is the DIN (Deutsches Institut für Normung). In 1946 the International Organization for Standardization (ISO) was founded, which evolved into what is today the first and foremost independent non-governmental organization for standardization [9]. Members are 172 national standards bodies, one per country, which delegate experts to share knowledge and develop voluntary, consensus-based, market-relevant international standards [10]. ISO maintains 25.625 international standards covering almost all aspects of technology, management, and manufacturing. Famous examples of standards are the standardised sizes of freight containers (ISO 668), of which more than 250 million are being moved around the world every year. Also paper formats like DIN A4, which originally published in Germany in 1922, today has been adopted everywhere in the world apart from North America (ISO 216).

For traditional assets there is a clear hierarchy of ISO Standards unambiguously categorising and identifying every asset [11]:

• The ISIN (ISO 6166: International Securities Identification Number) is the global standard for the unique identification of all types of financial instruments, including equities, debt, derivatives and indices.
• The CFI (ISO 10962: Classification of Financial Instruments) is the internationally recognised system for classifying financial instruments. It is defined when a financial or reference instrument is issued and remains unchanged throughout its life.
• The FISN (ISO 18774: Financial Instrument Short Name) is the consistent and uniform approach to the standardisation of short names and descriptions for financial instruments. Unlike ISIN and CFI, the FISN is not intended to be machine-readable, but to provide a short format for key information about a security for human use.

ISIN, CFI, and FISN are assigned by the designated National Numbering Agency (NNA). NNAs manage the registration process, including collecting data on the issuer, the type of instrument, its terms and conditions, and the countries where it will be traded. Additionally, they ensure that identifiers, associated data, and updates are added to the global database maintained by the Association of National Numbering Agencies (ANNA). For countries without an established NNA, four global Substitute Numbering Agencies (SNAs) are responsible for assigning identifiers [12].

In Germany, WM Datenservice serves as the NNA and is also one of the four SNAs, handling responsibilities for 56 countries in addition to Germany. ISINs issued by WM begin with the country code „DE“ for Germany. These ISINs are allocated to financial instruments irrespective of the technology used for their creation. This means they apply to both traditional paper-based instruments and electronic instruments, including tokenized securities like crypto securities, as regulated under the German Electronic Securities Act [13], [14], [15].

For tokens with a clear geographical reference—such as when the issuer of a security token is identifiable and based in Germany—the relevant NNA (in this case, WM Datenservice) assigns the ISIN. In cases where a token lacks a clear geographical reference, such as Bitcoin where the issuer’s location cannot be identified, the ISIN is allocated with the prefix “XT” by Etrading Software [16]. This identifier applies to the token level and includes additional data fields, such as the token type, hash function, and generation mechanism. At the instrument level, further data elements, such as the blockchain on which the token resides, are required. For this purpose, the Digital Token Identifier (DTI), standardized under ISO 24165, is provided by the Digital Token Identifier Foundation (DTIF), which is responsible for the allocation of this new identifier [17].

For the future, WM sees three working theses regarding the standardization efforts within the digital assets landscape:

1. Crypto identifiers could become mandatory: Just as traditional assets use systems like ISINs, digital assets will adopt unique identifiers for cryptocurrencies, tokenized securities, and other blockchain-based instruments. These identifiers will facilitate tracking, trading, and reporting across exchanges and custody providers, enabling seamless integration with legacy financial systems.
2. Data standards will enhance transparency and compliance: With increasing regulatory scrutiny, standardized data formats (e.g., for smart contract structures, transaction histories, and token classifications) will emerge as the backbone for compliance and risk management. These standards will align with frameworks like ISO 20022 to support cross-platform communication between traditional financial institutions and blockchain networks.
3. Global coordination will drive interoperability: The standardization of digital assets will increasingly rely on global collaboration among regulatory bodies, financial institutions, and technology providers. International organizations like the ISO will play pivotal roles in creating frameworks that ensure interoperability across jurisdictions and reduce market fragmentation and thus inconsistencies in handling information and data.

The first steps for the unambiguous identification of digital assets with generally accepted ISO identifiers have been done. Together with an EU-wide regulation such as the Regulation on Markets in Crypto Assets (MiCAR), the foundation is layed for more significant adoption by the industry [18]. It remains to be seen how investors and the digital assets players will further progress towards more standardization and which roadblocks may arise to be solved.

Bibliography:

[1] Hedera (2024): TradFi and DeFi: Key Differences, https://hedera.com/learning/decentralized-finance/tradfi.

[2] Lorenz, G. (2024): Regulating Decentralized Financial Technology: A Qualitative Study on the Challenges of Regulating DeFi with a Focus on Embedded Supervision, https://stanford-jblp.pubpub.org/pub/regulating-defi/release/1.

[3] Cumming, D., Dombrowski, N., Drobetz, W. & Momtaz, P. P. (2023): Decentralized Finance, Crypto Funds, and Value Creation in Tokenized Firms, in: SSRN Electronic Journal, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4102295.

[4] Deutsche Bank (2024): Bitcoin could potentially become the 21st century gold, https://www.db.com/what-next/digital-disruption/dossier-payments/i-could-potentially-see-bitcoin-to-become-the-21st-century-gold.

[5] Dreyer, S. (2020): Digital Assets Deliberations: The Role of ISINs in Relation to Digital Assets, https://cointelegraph.com/news/digital-assets-deliberations-the-role-of-isins-in-relation-to-digital-assets.

[6] DIN (2024): A Brief Introduction about Standards, https://www.din.de/en/about-standards/a-brief-introduction-to-standards.

[7] Blind et al. (2000): Der gesamtwirtschaftliche Nutzen der Normung – Eine Aktualisierung der DIN-Studie aus dem Jahr 2000, https://www.din.de/resource/blob/79542/946e70a818ebdaacce9705652a052b25/gesamtwirtschaftlicher-nutzen-der-normung-data.pdf.

[8] ISO (2024): About ISO – Practical Solutions for Real-World Problems, https://www.iso.org/about, 2024.

[9] ISO (2024): About Members – The International Organization for Standardization is a network of 172 national standards bodies, https://www.iso.org/about/members, 2024

[10] Association of National Numbering Agencies (2024): About ANNA – By adopting global industry standards, organisations can meet regulatory requirements and help improve transparency, stability and efficiency, https://anna-web.org/, 2024.

[11] Association of National Numbering Agencies (2024): About ANNA Members, https://anna-web.org/anna-members/, 2024.

[12] Association of National Numbering Agencies (2023): ISIN Uniform Guidelines Relating to ISO 6166, https://anna-web.org/wp-content/uploads/2024/01/ISIN-Guidelines-Version-22-Dec-2023.pdf, 2024.

[13] BaFin (2021): Now also in electronic form: securities, https://www.bafin.de/SharedDocs/Veroeffentlichungen/EN/Fachartikel/2021/fa_bj_2107_eWpG_en.html.

[14] NYALA (2024): Crypto Securities Registry, https://www.nyala.de/en/electronic-securities/.

[15] Normanton, T. & Gould, H. G. (2023): New crypto Isins seen as ‘really important’ step for TradFi adoption, https://www.waterstechnology.com/data-management/7951409/new-crypto-isins-seen-as-really-important-step-for-tradfi-adoption.

[16] Announcement on the General Meeting of ANNA, Warsaw, Poland on December 3, 2024.

[17] Etradingsoftware (2024): Digital Assets – ISO Standard Digital Token Identification, https://etradingsoftware.com/digital-assets/.

[18] Maume, Philipp (2023): The Regulation on Markets in Crypto-Assets (MiCAR): Landmark Codification, or First Step of Many, or Both?, in: European Company and Financial Law Review, https://www.degruyter.com/document/doi/10.1515/ecfr-2023-0014/html.

Author description:

Axel Schorn (WM Head of Standardization):

Axel Schorn is the Head of Standardisation at WM Datenservice, which is the National Numbering Agency (NNA) for Germany as well as one of the largest global issuers of Legal Entity Identifiers (LEIs). He also serves on the Board of Directors of The Derivatives Service Bureau (DSB Ltd.), which is the designated Numbering Agency for the OTC Derivatives markets. Before joining WM Datenservice in 2019, Axel worked for almost 20 years in product development, sales and management of market data, financial news and regulatory reporting services at Deutsche Börse in Frankfurt and Market News International in New York and London.

Dr. Duc Au (WM Head of InnoLab):

Dr. Duc Au is Head of Innovation Lab, which is the R&D Unit of WM Datenservice. Duc and his team focus on researching application opportunities of AI and blockchain-technology in the financial industry. In doing so, the ambition is to contribute to existing discussions, thereby sharing knowledge about the traditional finance world to build bridges with the new digital world. Before joining WM Datenservice in 2024, Duc worked for over 15 years in sales, project management and digital strategy at Commerzbank. Moreover, he is lecturer at the FOM University of Applied Sciences for Economics and Management in Frankfurt, Düsseldorf and Essen for almost 5 years.