Will digital assets replace TradFi’s familiar corporate structures?

Why is it that we have yet to adopt a digital twin corporate/partnership/trust form for private debt transactions?

DeFi Limitations

One of the reasons is that most banking jurisdictions have yet to recognize digital assets as enforceable collateral. How can we fix this?

PPSA Law

Most common law jurisdictions have a Personal Property Securities Act (PPSA) modelled on the USA’s UCC that governs collateral enforcement but unfortunately most jurisdictions have yet to amend their PPSA to reflect our nascent digital capabilities.

Digital structures can only become mainstream once DeFi arrangements are as good as TradFi at protecting lender interests.

Are there alternative to protect lender interests?

Globally we observe that secured finance devices become less important as private debt markets mature and become more liquid.

For instance:

(1) Specialist relationship lending

Our private debt lender clients are experts in APAC markets and very familiar with borrower business models.

(2) Big Data / AI

We also observe emergent digital solutions that provide lenders with predictive insights into borrower credit risk. As AI combines with Big Data, Lenders leverage powerful tools to price credit.

Legislative Recognition

Recent US legislative developments in the UCC provide that ‘control’ of ‘digital money’ is sufficient to demonstrate 'attachment' and 'perfection'.

DeFI innovators may soon find ways for ‘digital tokens’ to represent transactional activities (as a replacement for traditional corporate structures) generating deal and liquidity opportunities.

What is missing?

Australia has yet to amend the PPSA to recognize digital assets. Jurisdictions that move the quickest to leverage private markets digitization will reap the rewards.