Derivatives Body ISDA Hopes New Digital Asset Norms Will Avoid FTX-Style Losses
New digital asset standards could avoid legal messes such as those faced by collapsed crypto exchange FTX, the International Swaps and Derivatives Association (ISDA) has said.
ISDA, whose 1,000 members include major banks such as JPMorgan Chase and HSBC, set out new digital asset standards and guidance for navigating crypto bankruptcies on Thursday.
“Recent failures in the crypto market have emphasized the importance of having a clear, consistent contractual framework that spells out the rights and obligations of both parties following a default,” said Scott O’Malia, ISDA’s chief executive, in a statement, adding that new definitions would aid legal certainty.
Further guidance also seeks to avoid creditors getting left in the lurch by years-long bankruptcy cases such as FTX. While many in the crypto space believe ownership is determined only by passwords – “not your keys, not your coins,” as the saying goes – judges may take some convincing.
“The FTX collapse indicates that such [ownership] norms are still evolving (or may not yet exist) in the cryptocurrency markets,” the document said. “When these issues are not well understood by market participants or the risks are not properly managed, unanticipated and significant loss of capital can emerge.”
The document examines how assets and liabilities can be netted off and how collateral can be enforced when bankruptcies occur, and a further paper due in the coming months will look at cryptoassets stored with intermediaries, ISDA said.
Multiple crypto firms have filed for bankruptcy in the last year, including crypto lenders Celsius and Voyager, BlockFi, Sam Bankman-Fried’s FTX, and most recently Genesis. CoinDesk and Genesis are both subsidiaries of Digital Currency Group.
In August, the International Securities Lending Association started looking at the parallel issue of the legal risks when crypto assets such as bitcoin are used to back loans.
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