Stuart Davis

An analysis of the application of property and insolvency laws to DeFi lending structures

DeFi lending protocols now hold billions of dollars in digital assets, yet important questions remain about the legal architecture underpinning them. This article interrogates a deceptively simple question: when digital assets are deposited into a DeFi vault or market governed by autonomous smart contracts, who owns them and what are the depositor’s rights in respect of them? In a genuinely decentralised structure, there may be no insolvency process through which to distribute assets to creditors, leaving lenders to bear the full risk of a protocol’s collapse. Insolvency practitioners appointed over borrowers are also likely to face issues applying insolvency law to collateral deposited within markets. The practicalities of these structures and the way they interface with the law are still untested in England and are likely to continue to develop in line with the industry.