Recently, the ELI Principles on the Use of Digital Assets as Security have been published. While the principles are non-binding, they provide useful guidance for disputes involving such securities. They can be of particular use to commercial arbitrators faced with issues relating to access to digital assets.
The Principles address the use, by private parties, whether natural or legal persons, of digital assets as security for credit. In particular, the Principles focus on situations where security providers secure the performance of their obligations vis-à-vis security takers by using digital assets as collateral under the terms of a security agreement.
The Principles treat the creation of a security interest in a digital asset as the creation, by contract, of a limited right in that asset, entitling the secured creditor to satisfaction of its claims vis-à-vis the security provider or another debtor. The right so created is to be construed as a right in rem or a functionally equivalent right, insofar as it entitles the secured creditor to enjoy priority over the security provider’s other creditors.
Further, the Principles propose ways to identify the law applicable to the creation of security interests in digital assets, and address issues of relevance to the effectiveness of security interests in digital assets against third parties, as well as the enforcement and extinction of security interests in digital assets. In those cases where a clear, readily identifiable connection exists between the digital asset under consideration and one particular jurisdiction, on account of the characteristics of that asset and the environment of its creation and holding, the Principles propose that the law governing the creation of a valid security interest in that digital asset should be the law of that jurisdiction, ie, the law of the digital asset itself.
Overall, the Principles provide a source of inspiration and guidance for the further development of case law, legislation and soft law instruments in the field of digital assets by courts, national legislatures and international organisations. The Principles can be of particular use to commercial arbitrators faced with issues relating to access to digital assets.
