On January 26, 2023, ISDA® published new definitions (Digital Asset Derivatives Definitions) to document privately negotiated non-deliverable forwards and options referencing Bitcoin and Ether. The Digital Asset Derivatives Definitions are available for purchase on MyLibrary, ISDA’s digital documentation platform.

ISDA also published a whitepaper, titled "Navigating Bankruptcy in Digital Asset Markets: Netting and Collateral Enforceability," which addresses legal issues raised by the recent bankruptcies of major crypto exchanges and other market participants.

ISDA began the process of establishing contractual standards for the growing digital asset derivatives market in 2021 (see Legal Update, ISDA® Presses for Standardization of Digital Asset Derivatives) and these definitions are intended to:

The Digital Asset Derivatives Definitions are designed to address unique issues related to the markets underlying crypto derivatives that differ from other markets underlying derivatives contracts such as commodities markets and financial markets, which operate mostly during business hours in certain major cities. Crypto spot markets, on the other hand, operate around the clock, 365 days a year, globally. This complicates traditional derivatives contract mechanics, such as cutoff times for delivery of notices and margin calls, as concepts such as local business days have less relevance.

ISDA notes that the Digital Asset Derivatives Definitions could be expanded in future to cover additional product types, including tokenized securities and other digital assets executed on distributed ledger technology (DLT), including digitized forms of equity and debt instruments. Importantly, the definitions have been drafted using a controlled language structure to define the processes contained in the document, facilitating integration with the ISDA Common Domain Model (see Legal Update, ISDA Releases Initial Digital Representation of Common Domain Model™ (CDM)) and automation within smart contracts. Among other things, the Digital Asset Derivatives Definitions cover disruption events, forks, and various aspects of valuation of digital assets derivatives transactions including valuation sources and methodology.

ISDA has also published a whitepaper on close-out netting and collateral arrangements for derivatives referencing digital assets. The paper identifies several areas of focus for policymakers and market participants to ensure greater certainty in the wake of the FTX collapse, which drew attention to legal risk in the cryptocurrency markets. The paper also highlights areas where more legal clarity may be needed from national authorities including on the property status of digital assets and how to create valid, enforceable security interests over them. ISDA plans to publish a second whitepaper addressing issues relating to customer digital assets held with intermediaries later in the first quarter of 2023.