Home Business Dai or Die: Why Crypto Taxonomy Matters

Dai or Die: Why Crypto Taxonomy Matters

Dai or Die: Why Crypto Taxonomy Matters

With a market capitalization of nearly $7.5 billion, the Maker’s Dai token is the 12th largest cryptocurrency overall and the fourth largest stablecoin behind Tether’s USDT, Circle’s USD Coin and Binance USD.

But if the cryptocurrency regulation bill introduced by a pair of US senators in June – the “Responsible Financial Innovation Act” – eventually enacted, Dai will not be a “payment stablecoin”.

See also: Senate Crypto Bill Debuts, Crypto Industry Takes Big Wins

So what? Well, when it comes to the taxonomy of financial assets, including digital assets like cryptocurrencies and stablecoins, a rose by any other name might not even be a flower.

And, by the way, the bill defines a payout stablecoin, Dai may not even be legal in the US anymore.

Indeed, “payment stablecoins” are defined as digital assets that are:

A) Redeemable, on demand, on a one-for-one basis for instruments denominated in US dollars;

B) Defined as legal tender under [U.S. law] or under the laws of a foreign country (excluding digital assets);

C) Issued by a commercial entity;

D) Accompanied by a statement from the issuer that the asset is redeemable … from the issuer or other identified person;

E) backed by one or more financial assets (excluding other digital assets), in accordance with subparagraph A); and

F) Intended for use as a medium of exchange.

Dai, however, is backed by other digital assets – Ether and USD Coin among them – which are locked into a smart contract that uses them as collateral to maintain Dai’s individual peg to the US dollar.

Related: DeFi Series: What is an Algorithmic Stablecoin? DAI and the Fiat-Free Dollar Peg

It is, in other words, an algorithmic stablecoin. Not much different than TerraUSD, the algorithmic stablecoin that wiped $48 billion from the crypto economy when it and the partner token it used to maintain its peg, LUNA, crashed after a week of operation in May.

Read more: Stablecoin’s $45 Billion Rout Confirms Worst Fears About Crypto’s Need for Reserves

What it won’t be, if you take note of sections A and E, is a payout stablecoin.

These, the bill specifies, must be issued by “a depository institution [which] must maintain high-quality liquid assets…equal to at least 100% of the nominal amount of the institution’s commitments on the payment stablecoins issued by the institution.


It may or may not happen this year, but soon enough the US will follow the European Union, which has finalized the terms of its sweeping Crypto-Asset Markets Regulatory Framework (MiCA) bill and is expected to enact it. . soon.

Mica defines a “crypto-asset” as a “digital representation of value or rights that can be transferred and stored electronically, using distributed ledger technology or similar technology”.

Which is not much different from the way the Financial Action Task Force (FATF), an international body responsible for establishing financial regulation, defines a “virtual asset”, which is a “digital representation of value that can be exchanged or transferred digitally and which can be used for payment or investment purposes”.

Again, so what? Well, MiCA’s definition of a “crypto-asset service provider”, or CASP, is different than the FATF’s “virtual asset service provider” or VASP.

The MiCA CASP definition is broader than the FATF VASP, according to the anti-money laundering provider Sygna. The company said this was “to ensure that MiCA applies to most crypto companies and future-proofs it against market niches that don’t yet exist.”

The thing is, being a VASP comes with a lot of legal and due diligence requirements and responsibilities. Where are the PSAPs located? And who wants to find out the hard way?

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