Crypto Insolvencies and the Limits of a Contract and Contract Law

Abstract

This article examines contracts between crypto-asset service providers (CASPs) and their customers. The recent collapses of major crypto-platforms, like Celsius and FTX, highlight both the importance and limitations of such contracts. In this article, I examine the role of digital contracts or ‘crypto-contracts’ in the resolution of conflicts in crypto insolvencies, and question whether (exclusive) reliance on these contracts is optimal from the perspective of foreseeability, fairness and protection of customer rights. I demonstrate that contracts with crypto-platforms tend to be long, complex, ambiguous and subject to frequent unilateral modifications. They often create uncertainty about the rights of customers in deposited crypto-assets (personal v. proprietary). This is their first limitation. The second limitation relates to potential interference of property law. Even if a contract grants certain proprietary rights to customers, property law may attach additional requirements for their creation and protection, such as asset segregation, and lead to the loss or transfer of ownership in a situation of commingling. Finally, the third limitation comes from the fact that the promises of contract and property law may be of little help where a CASP breaches the contract and reuses (disposes of) customer assets without consent. Together, these limitations constitute compelling policy justifications for interference with contractual relations. Insolvency of cryptoplatforms brings to light complex legal problems, which require a balanced and multi-dimensional approach. This approach should complement contractual arrangements with relevant rules from different areas of law, including consumer, property and administrative (regulatory) law.