Derivatives Body ISDA Hopes New Digital-Asset Norms Will Prevent FTX-Style Losses

The traditional-finance standard setter has given new digital-asset definitions as the sector is plagued by a wave of bankruptcies

AccessTimeIconJan 26, 2023 at 3:27 p.m. UTC
Updated Jan 26, 2023 at 3:58 p.m. UTC

New digital-asset standards could prevent legal messes such as those faced by collapsed crypto exchange FTX, the International Swaps and Derivatives Association said in a paper it published on Thursday.

ISDA, whose 1,000 members include major banks such as JPMorgan Chase (JPM) and HSBC (HSBC), set out new digital-asset standards and guidance for navigating crypto bankruptcies.

“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,” ISDA CEO Scott O’Malia said in a statement, adding that new definitions would help in bankruptcy cases.

Further guidance also seeks to prevent creditors from getting left in the lurch by yearslong bankruptcy cases. While many in the crypto industry 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 ISDA's 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 another paper due in the coming months will look at crypto assets stored with intermediaries, ISDA said.

Multiple crypto firms have filed for bankruptcy in the last year, including crypto lenders Celsius Network and BlockFi, broker Voyager Digital, exchange FTX and last week Genesis, a crypto lender that is owned by CoinDesk's parent company, 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 (BTC) are used to back loans.


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Jack Schickler

Jack Schickler was a CoinDesk reporter focused on crypto regulations, based in Brussels, Belgium. He doesn’t own any crypto.