The International Swaps and Derivatives Association (ISDA) Takes a Step Forward in Crypto Market Stability
In a move aimed at providing clarity and stability to the rapidly growing crypto market, the International Swaps and Derivatives Association (ISDA) has published a global framework for trading derivatives linked to crypto assets.
This development comes after the collapse of the FTX crypto exchange which led to billions of dollars in customer losses and raised concerns about the ownership of assets held by crypto exchanges and intermediaries.
The framework, which is the first standard documentation by ISDA for trading digital asset derivatives covers non-deliverable forwards and options on Bitcoin and Ether.
It outlines the rights and obligations of both parties in a derivatives trade in the event of market disruption such as the collapse of a crypto exchange The framework is expected to provide a clear and consistent contractual framework that spells out the rights and obligations of both parties in the event of a default.
ISDA is already responsible for overseeing the 'master agreement' template used by banks to trade trillions of dollars in derivatives globally The new framework is expected to expand in the future to cover additional product type including tokenized securities and other digital assets executed on distributed ledger technology (DLT).
The publication of the framework is accompanied by a series of discussion papers exploring the legal questions raised by the bankruptcy of FTX.
The collapse of FTX highlighted the importance of having a clear consistent contractual framework that protects customer assets and rights in the event of a default.
"Recent failures in the crypto market have emphasized the importance of having a clear, consistent contractual framework that spells out the rights and obligations of both parties following a default" said ISDA CEO Scott O'Malia. "All customers, whether retail or institutional, should know their assets are protected and understand their rights in the event of a default.”
The ISDA's move to provide clarity and stability to the crypto market is expected to be a major step forward for the industry. The publication of the framework will provide investors and market participants with greater confidence in the crypto market and help to prevent similar disruptions from happening in the future