The treatment of digital assets in insolvency

Abstract

This article provides a comprehensive analysis of the treatment of digital assets in insolvency. Given that cryptoassets can be the subject of various transactions—including purchase, sale, custody, and lending—understanding their nature and implications in insolvency is relevant for any firm, not just cryptoexchanges. The article begins by offering a general overview of the world of cryptoassets. It then examines the nature of cryptoassets from accounting, financial, and legal perspectives. While much of the literature on insolvency and cryptoassets has primarily focused on the analysis of whether cryptocurrencies constitute property of the estate, this article explores additional issues, such as the treatment, role and rights of tokenholders in insolvency, the initiation of insolvency proceedings by cryptolenders, and the valuation, recovery, and realization of digital assets in bankruptcy. Such analysis is conducted from a comparative perspective, examining how jurisdictions around the world have addressed some of those issues and how cryptoassets have been used to engineer innovative solutions in restructuring agreements.