The Law Governing Secured Transactions in Digital Assets

As the value of digital assets continues to soar inexorably, their use as collateral becomes increasingly interesting, including in the context of decentralised finance (DeFi). However, the lack of legal certainty restrains the further use and creates considerable risks. This paper takes stock of the practice of secured transactions in digital assets and addresses the fundamental question which law applies to them. To this end, it develops a waterfall of cascading connecting factors that may be used to identify the law governing such transactions and the security rights that they may create. It distinguishes, for instance, whether the network is permissioned and centralised, whether digital assets are 'held' by a custodian (broadly conceived), and whether a choice of law has been made or not. The paper also stresses the need for a uniform global requirement of 'control' over digital assets as a precondition for any security right in digital assets. In this way, it combines a conflict rule with a substantive standard.