Dai or Die: Why the Taxonomy of Crypto Matters

With a market capitalization of almost $7.5 billion, 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 a pair of U.S. senators introduced in June — the “Responsible Financial Innovation Act” — ends up being signed into law, Dai will not be a “payment stablecoin.”

See also: Senate Crypto Bill Debuts, and Crypto Industry Gets 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 may not even be a flower.

And, going by the way the bill defines a payment stablecoin, Dai may not even be legal in the U.S. anymore.

That is because “payment stablecoins” are defined as digital assets that are:

A) Redeemable, on demand, on a one-to-one basis for instruments denominated in United States 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 business entity;

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

E) Backed by one or more financial assets (excluding other digital assets), consistent with subparagraph A); and

F) Intended to be used as a medium of exchange.

Dai, however, is backed by other digital assets — ether and USD Coin among them — that are locked into a smart contract that uses them as collateral to maintain Dai’s one-to-one peg to the U.S. 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 too dissimilar from TerraUSD, the algorithmic stablecoin that wiped $48 billion off of the crypto economy when it and the partner token it used to maintain its peg, LUNA, collapsed after a week-long run in May.

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

What it will not be, if you take note of section A and E, is a payment stablecoin.

Those, the bill says, must be issued by “a depository institution [which] shall maintain high-quality liquid assets … equal to not less than 100 percent of the face amount of the liabilities of the institution on payment stablecoins issued by the institution.”


It may or may not happen this year, but soon enough, the U.S. will follow the European Union, which has finalized the terms of its wide-ranging Markets in Crypto-Assets (MiCA) regulatory framework bill and is expected to pass it into law soon.

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

Which isn’t too different from how the Financial Action Task Force (FATF), an international body responsible for setting financial regulations, defines a “virtual asset,” which is a “digital representation of value that can be digitally traded or transferred and 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 that the FATF’s “virtual asset service provider,” or VASP.

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

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

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About: The findings in PYMNTS’ new study, “The Super App Shift: How Consumers Want To Save, Shop And Spend In The Connected Economy,” a collaboration with PayPal, analyzed the responses from 9,904 consumers in Australia, Germany, the U.K. and the U.S. and showed strong demand for a single multifunctional super apps rather than using dozens of individuals ones.

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