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New digital asset standards could avoid legal problems like those encountered by the collapse of crypto ftx trading, the international association swaps and derivatives (isda) said.
ISDA, whose 1,000 members include major banks such as JPMorgan Chase and HSBC, set out new digital asset standardsguidance for navigating crypto bankruptcies on Thursday.
'recent failures in the crypto market have highlighted the importance of clarity, a coherent contractual framework that outlines the rights and obligations of both parties as a result of a breach," said Scott O'malia, Chief Executive Officer of ISDA, by way of a declaration, The addition of new definitions would be conducive to legal certainty.
Other directives also aim to prevent creditors from being left behind in bankruptcy cases that have been going on for years, such as ftx. While many in crypto space believe that ownership is only determined by passwords – "not your keys, not your exhibits," as the proverb says – judges may need persuasion.
“The collapse of the FTX indicates that these [ownership] standards are still evolving (or perhaps still do not exist) in cryptocurrency markets,' states the paper. "When these issues are not well understood by market participants or risks are not well managed, large and unexpected capital losses may occur."
The paper looks at how assets and liabilities can be offset and how guarantees can be applied in the event of bankruptcy, and another document expected in the next few months will examine the crypto-assets stored with intermediaries, ISDA said.
Multiple crypto firms have filed for bankruptcy in the last year, including crypto lenders CelsiusVoyager, Sam Bankman-Fried’s , and most recently Genesis. Coindesk and genesis are two branches in a digital money 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.
