Classifying Polkadot According to the International Token Classification (ITC) Framework

As of today, the Polkadot network is ranked at 6th position on coinmarketcap, being the sixth-largest blockchain in terms of market capitalization. ITSA has fully classified the DOT token according to the International Token Classification (ITC) framework and assigned a unique identifier. Polkadot is a multi-chain blockchain with unique chain architecture including a relay chain, parachains, and bridges. The network’s native utility token DOT is used for multiple purposes, including governance and staking. Using the ITC framework, ITSA classified DOT according to technological, economic, legal, and regulatory dimensions.

Author: Hissan Usmani

What is Polkadot?

Polkadot’s unique chain architecture

Figure 1: Polkadot’s architecture (https://polkadot.network/Polkadot-lightpaper.pdf)

The relay chain is the heart of Polkadot, it acts as a master ledger and bookkeeper which overlooks all the network transactions and security. The second layer in the Polkadot network consists of the parachains, also known as parallel blockchains. These are customizable chains that can be used by individual companies. Multiple chains run simultaneously in a parachain network to avoid bottleneck situations and allow greater transaction speeds. The bridges are then used to connect and communicate to already existing and established blockchains like Bitcoin and Ethereum. It is similar to signing in for www.medium.com using your Google account; you use one account for multiple purposes.

Polkadot’s native token: DOT

  • Governance: Token holders have complete control and privileges over the entire Polkadot protocol. DOT holders can vote for new upgrades, changed transaction fees, overall governance, and much more. The weighted value for the votes is calculated based on the amount of tokens held and the time that those tokens have spent locked in the vote.
  • Staking: DOT holders can stake their tokens to the Polkadot network to help secure the network. You can stake the tokens as validators or nominators. Validators mint the blocks and nominators then back these validators to provide security functions and in return receive DOT tokens as a reward. This ensures the network stays secure.
  • Parachain slot acquisition: In the Polkadot network, parachain slots can be leased via auction. To lease a slot, the user first has to lock DOT tokens for a certain duration. Tokens will remain locked during the parachain slot lease, and are released after the duration of the lease has elapsed and the parachain is removed[1].

The classification of DOT according to the ITC:

Figure 2: The DOT Token is fully classified (Source: https://itin.itsa.global/1W6K64H12)

Economic Purpose (EEP): Provides the economic purpose of the token and the information on the reason for a token’s creation as well as its intended use and functionality. DOT is listed as a settlement and governance token (EEP22TU03) due to its design as a means of transaction settlement combined with governance functionality.

Industry Type (EIN): The dimension “Issuer Industry” forms part of the economic dimensions, and provides information on the industry in which the issuer of a token is active. The issuer of DOT is active in the field of cloud computing, distributed systems, and decentralized applications (EIN05DA03).

Technological Setup (TTS): This dimension describes how a token is implemented and deployed. DOT is the native token of the Polkadot network, which has its own native blockchain. DOT is classified as a Blockchain-Native Token (TTS41BC)

Legal Claim (LLC): The dimension “Legal Claim” provides information on the rights that a Token provides its holder with. DOT does not entitle its holder to any legal claim or rights against the issuing organization, so it is listed as a No-Claim Token (LLC31)

Issuer Type (LIT): The dimension “Issuer Type” provides information on the nature of the issuer of a token. DOT is issued by the Polkadot network, which is run by the Web3 Foundation and developed by Parity Technologies, so its Issuer Type is a Private Sector Legal Entity (LIT61PV).

Regulatory Framework (EU) (REU): The dimension “Regulatory Status EU” provides information on the potential classification of a token according to the European Commission’s proposal for a Regulation on Markets in Crypto Assets (MiCA, Regulation Proposal COM/2020/593 final). DOT qualifies as a Utility Token according to the definition provided in Article 3 (5) of Regulation Proposal COM/2020/593 final.

The International Token Standardization Association (ITSA):

  • The International Token Identification Number (ITIN) is a 9-digit alphanumeric technical identifier for both fungible and non-fungible DLT-based tokens. Thanks to its underlying Uniform Token Locator (UTL), ITIN presents a unique and fork-resilient identification of tokens. The ITIN also allows for the connecting and matching of other media and data to the token, such as legal contracts or price data, and increases safety and operational transparency when handling these tokens.
  • The International Token Classification (ITC) is a multi-dimensional, expandable framework for the classification of tokens. Current dimensions include technological, economic, legal, and regulatory dimensions with multiple sub-dimensions. By mid-2021, there will be at least two new dimensions added, including a tax dimension. So far, our classification framework has been applied to 99% of the token market according to the market capitalization of classified tokens.
  • ITSA’s Tokenbase currently holds data on over 4000 tokens. Tokenbase is a holistic database for the analysis of tokens and combines our identification and classification data with market and blockchain data from external providers. Third-party data of several partners is already integrated, and API access is also in development.

References

Remarks

Hissan Usmani is currently writing his master thesis with ITSA and TU München on the topic “Bridging the Gap Between Financial Institutions and Blockchain Startups: The Overview, Challenges, and Recommendations Based on Expert Interviews From The Banking, Startup, Consulting and Organization Ecosystem”. He has a strong international background with significant time spent in Pakistan, the United States, and currently Germany. He is working in corporate finance and pursuing his master's degree in management at the Technische Universität München (TUM). You can contact him via hissanusmani@gmail.com and connect on LinkedIn if you would like to further discuss ITSA e.V. or have any other open questions.

The International Token Standardization Association (ITSA) is a not for profit organization working on holistic market standards for the global token economy.