Option C is correct because the textbook explicitly states 'Classification based on differentiation potency of stem cells' and mentions that 'On the basis of the potency, the stem cells can be classified into totipotent, pluripotent, multipotent or unipotent cells.' The differentiation potential of stem cells directly refers to their potency, which determines how many different types of cells they can produce. Totipotent stem cells can differentiate into all cell types, pluripotent into almost all cell types, multipotent into a closely related family of cells, and unipotent into only one cell type. Options A and B are not discussed in the context, and Option D (Self-renewal) is a separate characteristic of stem cells, not what differentiation potential specifies.