Primer on legal risks in crypto and DeFi
The development of cryptocurrencies and their widespread adoption has been one of the defining features of the last decade in digital finance. The rise of crypto adoption, both retail and institutional, has been rapid; and one of the most significant developments in cryptoassets markets in the past two years has been the growth in DeFi. Whilst digitising financial markets herald great promise, there are also novel and material risks to understand. The Crypto Winter of 2022 and the collapse a number of high profile crypto exchanges have complicated the risk landscape. There are key legal risks and uncertainties associated with crypto and the DeFi markets in which they operate; which relate to the functioning of the core technology, and there are also legal issues to be addressed in the insolvency of a cryptoasset related business.
There are myriad of different participants in these markets with exposure to digital assets and DeFi. For example, those who develop and “mine” cryptoassets; those who promote or provide access or “gateways” to crypto; those who invest in digital assets; those who provide banking services to digital native players; those who lend digital assets or related products; and others who can influence the market dynamics. One thing they have in common, however, is exposure to legal risks, many of which are not extensively analysed or well understood, and a need to manage those risks effectively.