Restructuring, the crypto winter and the UK's regulatory response

In May 2022 the algorithmic stablecoin, TerraUSD and its sister coin, LUNA crashed after TerraUSD de-pegged from the US Dollar. This kicked off a wave of insolvencies and restructurings around the world including crypto hedge fund, Three Arrows Capital in the BVI, Voyager Digital (a Canadian crypto brokerage) Celsius Network (US), Zipmex (Singapore), Nuri (Germany), CoinFLEX (Seychelles), Vauld (Singapore), and Holdnaut (Singapore). The latest stunning collapse of international crypto exchange, FTX which has filed for Chapter 11 in the US has prompted renewed calls there for regulation of the sector.

UK’s regulatory response 

Meanwhile in the UK, following the former-Chancellor's (now Prime Minister) stated ambition for the UK to become a global crypto hub, a range of consultations have launched for English law to respond to technological and market developments in blockchain and crypto. We previously covered the Treasury consultation on a special administration regime for systemically important stablecoins, here. 

The Law Commission’s recent consultation on Digital Assets picks up on some questions raised by the UK Jurisdiction Taskforce's seminal Legal Statement published in 2019 and recent case law (see our alert). It proposes that English law recognise a third type of personal property, in order to more appropriately capture digital assets, to be known as 'data objects'. We wait to see whether this proposal will be supported.

Future developments

Next on the Law Commission's agenda is the legal status of DAOs (decentralised autonomous organisations); particularly pertinent given the Commodity Futures Trading Commission (CFTC) prosecution in the US of OokiDAO members individually, highlighting the absence of conventional protections afforded by limited liability companies.

So we are seeing the first shoots of crypto spring, at least so far as English law is concerned. 

Find out more 

To discuss the issues raised in this article in more detail, please contact a member of our Restructuring & Insolvency team.