Last week the International Securities Lending Association (ISLA) published a whitepaper highlighting the legal issues of digital assets used in securities lending.
When we reported that ISLA contracted lawyers Ashurst to work on the topic, crypto lender Celsius had recently entered into bankruptcy. Shortly before its bankruptcy, Celsius agreed to let stablecoin issuer Tether liquidate collateral against a loan it could not repay. But there are legal question marks over whether Tether had the right to the collateral. In legal lingo, did Tether ‘perfect its security interest’ in the collateral?
That usually involves one or two formalities. In the United States, many of these transactions are legally governed by the Uniform Commercial Code (UCC), which is adopted by all states, at least in part. In May, new UCC rules covering digital assets were agreed. However, until each state adopts the new rules, perfecting a security of interest in the digital assets is not straight forward.
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