ISDA Addresses Concerns Over Close-Out Netting and Collateralization of Digital Assets

In a white paper, ISDA examined credit risk and legal issues related to (i) netting of derivatives transactions involving digital assets and (ii) using digital assets as collateral.

ISDA focused on digital assets on distributed ledger technology platforms that are (i) highly decentralized and (ii) have no identifiable central entity maintaining records of ownership. ISDA emphasized that establishing operational and risk management frameworks was crucial for transactions in digital assets. ISDA recognized that due to the many relevant jurisdictions and legal regimes - as well as a wide range of digital asset types - it may be challenging to develop a universal approach.

That said, ISDA identified several common features and encouraged collaboration among technology developers, legal practitioners and other stakeholders to develop a framework that builds on existing laws. ISDA advocated for the creation of uniform laws that recognize digital assets as a form of property and to develop contractual standards that are flexible - whether investors are using fiat currency or digital assets as collateral.