The International Swaps and Derivatives Association (ISDA) is developing two papers around fundamental legal concerns associated with crypto markets such as crypto exchanges firms’ bankruptcy, as reported by Cointelegraph.
According to Cointelegraph, the step started post FTX collapse and other insolvency cases which “prompted a cascade of liquidity and solvency concerns across the crypto ecosystem.” It is believed that the papers will help market investors with crypto ownership and intermediates’ responsibility during bankruptcy.
“The prospect of insolvency of a major market participant requires firms to consider how they manage counterparty credit risk, which intermediated or custodial structures are most appropriate, and whether the tools employed can be reliably enforced in a bankruptcy scenario. Applying existing bankruptcy rules to a new asset class inevitably raises legal characterization and other questions that must be tackled to provide the necessary certainty,” the announcement mentioned.
“The FTX collapse indicates that such norms are still evolving (or may not yet exist) in the cryptocurrency markets. 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 statement highlighted.
On the basis of information by Cointelegraph, the papers will provide data on close-out netting and collateral and address problems based on customers’ digital assets kept with intermediaries and how they can be tackled during liquidity drawbacks. Furthermore, the papers are expected to show legal and documentation for ownership of digital assets and their importance as collateral.
Moreover, Cointelegraph noted that in May, 2022, when USDA had its last annual meeting, Sam Bankman-Fried, former CEO, FTX, spoke on behalf of crypto market. Reportedly, Gary Gensler, chair, United States Securities and Exchange Commission, and Rostin Behnam, chair, Commodity Futures Trading Commission, were present as keynotes for the event.
(With insights from Cointelegraph)