As part of CoinDesk's State of Crypto 2023 event in Washington, D.C., Vanderbilt Law School Professor and Associate Dean Yesha Yadav discusses the string of bankruptcies the crypto industry has seen and how bankruptcy courts have effectively become "quasi-regulators in the mix."
It's made it very clear that the cost of not doing regulation is really extremely high. The bankruptcy courts have become the first front line effectively as Bob and I talk about kind of quasi regulators in the mix. So what the bankruptcy courts have had to do is deal with some super important crypto institutions. As you know, Jen Celsius Voyager FX, they have all gone bankrupt mega bankruptcies that have happened in very close succession and the bankruptcy courts are essentially going it alone. They haven't had the support that most other kind of financial institutions in more regulated markets would have. So for example, bankruptcy courts have had to do their own fact finding, produce their own information, determine what kind of rules to apply in this context and how to apply the bankruptcy code to these novels situations. So perhaps the clearest example here is Celsius, where the bankruptcy court had to decide whether average customers were unsecured creditors or whether the crypto that they put into Celsius was in fact their own property. And unfortunately, for the customers, they took the view that legally speaking under the bankruptcy code, the customers were unsecured creditors and regulated securities markets. This problem just wouldn't happen. Or commodities markets, this problem just wouldn't happen there. The assets are kept outside of bankruptcy, they're segregated, they're protected. In the case of crypto, we don't have these rules. And so it's really up to the bankruptcy court to decide the rules of the game in the context of bankruptcy. But this has had a more broad systemic impact within a larger impact within the crypto market generally.