Can Crypto Assets Serve as Collateral? Rethinking Security through Control

Introduction

A lender holding private keys to a borrower’s crypto assets still faces legal uncertainty over whether technological control constitutes an enforceable security right. For collateral to perform its commercial function, a creditor needs more than an interest in the underlying asset; the security right must achieve third-party effectiveness, predictable priority, resilience in insolvency, and efficient default enforcement. Traditional secured-transactions law relies on physical possession, public registration, or intermediated accounts – mechanisms poorly suited for assets transferred directly across distributed ledgers. The central legal challenge is connecting technical control with the proprietary functions of collateral. This article argues that crypto assets can function effectively as collateral if legal systems recognise control as a primary method for establishing third-party effectiveness and priority, supplemented by clear rules on custody, insolvency, and enforcement. Singapore and the European Union highlight the limitations of relying exclusively on judicial recognition or financial regulation. This article examines these jurisdictions before evaluating the control-based model framed by the UNIDROIT Principles on Digital Assets and Private Law (“UNIDROIT Principles”).

1. From Property to Enforceable Security

1.1. Property Status Is Necessary, but Not Sufficient

The first legal issue is whether a crypto asset can be the object of proprietary rights. Academic analysis increasingly recognises that the absence of physical form should not, by itself, prevent property treatment. Allen argues that digital coins expose limitations in traditional distinctions between tangible and intangible property and supports a more direct legal recognition of digital objects[2]. Aksoy similarly demonstrates that the legal classification of crypto assets affects the operation of property, insolvency and secured-transactions law[3]. Singapore provides a particularly clear illustration. In ByBit Fintech Ltd v Ho Kai Xin, the High Court held that the holder of a crypto asset has, in principle, an incorporeal right of property recognisable by the common law as a thing in action[4]. The court further held that USDT could constitute property capable of being held on trust. Importantly, the court concluded that the contractual right of redemption against Tether was not necessary for USDT to qualify as a thing in action[5]. The significance of ByBit therefore lies not merely in recognising USDT as “property”, but in demonstrating that existing common-law concepts can accommodate natively digital assets.

Nevertheless, property recognition does not create a security interest. A secured transaction requires a further set of legal consequences: the security right must be created under applicable law, made effective against third parties, ranked against competing interests, and capable of enforcement after default[6]. A crypto asset can therefore be property while the law remains uncertain about how a charge or security interest over it acquires proprietary effect against other creditors. The property question asks whether the asset is legally capable of being owned or otherwise subject to proprietary rights. Conflating these questions risks overstating the legal significance of cases such as ByBit.

1.2. Possession, Registration and the Problem of Control

Traditional secured-transactions systems use different mechanisms to give security rights effect against third parties. Possession can provide a visible signal that an asset has been encumbered; registration can provide public notice through a searchable record. Neither mechanism necessarily captures the realities of crypto-assets.

The private key is not identical to the asset itself; rather, it provides the practical ability to transact with the asset. Control can also be shared or structured through multi-signature arrangements, delegated to a custodian, or divided between several participants[7]. Registration has the opposite limitation. It can publicise a security right without preventing the debtor from technically transferring the crypto asset.

The distinction between technical control and legal control is therefore critical. Technical control describes who can exercise the relevant cryptographic abilities. Legal control asks whether those abilities have the legal consequence of making a security right effective against non-parties. A creditor may control a wallet yet lose against an insolvency representative if domestic law requires another method of third-party effectiveness. Conversely, a registered creditor may possess a legally documented interest while lacking the practical ability to prevent an unauthorised transfer. The UNIDROIT Principles directly address this problem. Principle 15 provides that a security right in a digital asset may be made effective against third parties by control where the secured creditor controls the asset or a custodian maintains it for the secured creditor[8]. The accompanying commentary recognises that crypto-lending practices commonly use creditor-controlled wallets and multi-signature arrangements precisely because they prevent the borrower from accessing the encumbered asset[9].

1.3. Enforcement and Insolvency

Collateral becomes valuable when the debtor defaults. For crypto assets, enforcement may be technically rapid because control of the relevant private key can permit immediate transfer. Rules concerning default, good faith, commercial reasonableness, notice and the protection of custodians are therefore necessary. Insolvency presents an even more fundamental test. A security arrangement may operate effectively between debtor and creditor but fail against the insolvency estate if it has not been made effective against third parties. The method of third-party effectiveness is consequently not a technical issue: it determines whether the creditor’s collateral survives precisely when its protection matters most.

2. Singapore: Property Recognition without a Unified Digital Security Regime

2.1. Recognition of Crypto Assets as Property

Singapore demonstrates the ability of judicial reasoning to adapt established property concepts to digital assets. ByBit arose from the wrongful transfer of USDT by an employee. The High Court held that cryptocurrency was property capable of being held on trust and that a holder had an incorporeal right of property enforceable as a thing in action[10].

The reasoning is significant because the court did not make recognition dependent upon a physical object or a conventional documentary right. Instead, it considered the economic and legal characteristics of the digital asset and concluded that common-law property concepts were sufficiently flexible to accommodate it[11]. This approach reduces one barrier to crypto-backed lending: the underlying asset can be the subject of proprietary protection.

Yet ByBit also illustrates the limits of judicial recognition. The dispute concerned trust and proprietary remedies, not the priority of competing security interests. It therefore cannot be read as establishing a complete regime for taking security over crypto assets. The case answers the preliminary question – whether the asset can be property – but not the subsequent question – how a creditor perfects or otherwise makes effective its security interest against third parties.

2.2. Custody and Regulatory Control

Singapore’s Payment Services Regulations 2019 provide an additional regulatory layer. The current framework requires a licensee providing digital payment token services to safeguard customer assets, including by placing such assets in a trust account, and imposes associated record-keeping and safeguarding requirements[12]. These provisions are important for collateral arrangements involving custodians because they facilitate identification and segregation of customer assets. They should not, however, be characterised as a secured-transactions regime. Safeguarding rules regulate how customer assets are held by a service provider; they do not determine priority between competing secured creditors. Singaporean regulation demonstrates that the law already accommodates legally relevant forms of digital-asset control, but it does not establish when such control makes a security interest effective against third parties.

2.3. Registration of Charges under the Companies Act

For corporate borrowers, section 131 of the Companies Act 1967 requires specified charges created by a company to be lodged for registration within 30 days. An applicable charge that is not registered may be void against the company’s liquidator and creditors[13]. The difficulty is that registration and operational control perform different functions. A registered charge may disclose that an asset is encumbered, but it does not necessarily prevent the company from transferring a crypto asset on-chain. Conversely, moving an asset into a creditor-controlled wallet may provide strong practical protection without necessarily satisfying a statutory registration requirement. Singapore therefore illustrates a fragmented framework: judicial decisions establish property status, regulation addresses custody, and company law addresses registration, but these elements do not form a unified digital-security regime.

3. The EU: Strong Regulation, Fragmented Private Law

3.1. MiCA and Custodial Control

The EU has adopted a comprehensive regulatory framework through the Markets in Crypto-Assets Regulation (“MiCA”). Article 75 requires crypto-asset service providers offering custody and administration to maintain records of clients’ positions, establish custody policies, segregate client crypto-assets from their own holdings, and provide procedures for returning crypto-assets or the means of access[14]. These measures are relevant to collateral transactions because segregation and custody can reinforce the practical identification and control of an asset. Nevertheless, MiCA is principally a regulatory instrument for crypto-asset markets and service providers. It does not comprehensively harmonise property rights, security interests, priority or insolvency treatment. Zetzsche and Woxholth accordingly emphasise that private-law issues concerning crypto-assets remain substantially dependent upon Member State law[15].

3.2. The Limits of the Financial Collateral Framework

The Financial Collateral Arrangements Directive provides accelerated rules for qualifying financial collateral arrangements. Its framework is built around specified categories, principally cash and financial instruments[16]. At the same time, EU law distinguishes crypto-assets that qualify as financial instruments from other crypto-assets. MiCA excludes crypto-assets that qualify as financial instruments from its own scope, while the DLT Pilot Regime recognises that tokenised financial instruments remain subject to existing financial-services legislation[17]. A crypto asset’s classification under EU financial regulation does not automatically determine whether it benefits from the legal treatment accorded to traditional financial collateral. This distinction prevents an overly simple conclusion that MiCA has “solved” the collateral problem.

3.3. The Private-Law Gap

The gap becomes clearest at the point of enforcement. A lender may have contractual documentation and practical control through a custodian, but whether that arrangement gives the lender a proprietary security right depends on the applicable private law. Cross-border transactions therefore require parties to examine not only regulatory requirements but also domestic rules governing property, security, priority and insolvency. This produces an important comparative finding. Singapore and the EU use different legal techniques, but both reveal the same structural problem: recognition and regulation of crypto assets do not automatically establish a predictable security-interest regime.

4. From Possession to Control

4.1. Control as Third-Party Effectiveness

The UNIDROIT Principles provide a more direct solution. Principle 6 defines control through the ability to obtain substantially all of the benefit of a digital asset, prevent another person from doing so, and transfer those abilities[18]. Principle 15 then recognises control as a method by which a security right may become effective against third parties. In traditional secured transactions, possession can serve as a mechanism of publicity and practical exclusivity. For natively digital assets, control can perform comparable functions. The 2026 commentary on Principle 15 describes control as a means of achieving effectiveness “erga omnes” and emphasises its particular relevance to security interests over natively digital assets[19]. This does not mean that “private key possession” should automatically equal legal control. Principle 15 permits direct control by the secured creditor, control exercised through a custodian, and certain shared-control arrangements such as multi-signature structures[20]. The legal test should therefore focus on the creditor’s legally protected ability to exercise the relevant control functions rather than on possession of a particular cryptographic object.

4.2. Priority and Insolvency

Principle 16 goes beyond third-party effectiveness by giving priority to a security right made effective by control over a security right made effective only by another method[21]. This rule reflects the idea that the creditor with control has taken additional steps that place it in a superior position to preserve and enforce the collateral. Registration supplies public notice and protects third parties who search a registry before extending credit. A system that simply replaces registration with control could therefore create hidden security interests. The better solution is not to abolish registration but to treat control and registration as complementary methods. Control should receive particular legal significance for natively digital assets because it provides operational exclusivity. Registration may continue to provide publicity, while control can provide the mechanism that prevents the debtor from freely disposing of the collateral. A creditor that has obtained legally recognised control should therefore receive predictable priority, while registration remains available where it performs a useful complementary function. The same logic applies to insolvency. Principle 19 provides that a proprietary right in a digital asset that has become effective against third parties remains effective against the insolvency representative and creditors, subject to applicable insolvency rules such as claim ranking, avoidance and enforcement stays[22]. It determines whether the secured creditor enters insolvency proceedings with an effective proprietary position.

4.3. Enforcement and the Role of Custodians

Control must also be linked to enforceability. Principle 17 subjects enforcement to other applicable law, including requirements of good faith or commercial reasonableness[23]. Where a custodian maintains an asset and the security right is not effective through control, enforcement may require a court or public-authority order unless the custodian agrees otherwise. A custodian should not be forced to determine contested proprietary rights merely because a creditor claims default. At the same time, where the creditor has acquired recognised control under a valid security arrangement, the law can facilitate faster realisation without sacrificing procedural safeguards. The preferred model should therefore recognise direct creditor control, agreed custodial control and appropriate multi-signature arrangements. Each mechanism should be connected to rules governing identification of collateral, priority, insolvency and enforcement. Such an approach preserves the functional objectives of secured transactions while adapting them to the architecture of digital assets.

5. Why Control Should Complement, Not Replace, Registration

The comparison between Singapore and the EU supports a precise conclusion. Singapore demonstrates that judicial recognition can overcome the conceptual problem of treating crypto assets as property, while company law and financial regulation provide separate mechanisms for registration and custody. The EU demonstrates that comprehensive regulation of crypto-asset markets and custodial services can improve legal certainty without fully harmonising private law[24].

The missing element is a method that connects technological exclusivity with proprietary third-party effects. Control fills that gap more effectively than a purely registration-based approach for natively digital assets.

Four elements should follow from this analysis. First, legally recognised digital assets should be expressly capable of serving as collateral. Secondly, control should be recognised as a method of third-party effectiveness, including through agreed custodians and multi-signature structures. Thirdly, priority rules should provide predictable consequences for control while preserving a role for registration and protections for innocent acquirers. Fourthly, enforcement should be efficient but subject to good faith, commercial reasonableness and appropriate safeguards for debtors and custodians.

The UNIDROIT Principles themselves adopt a technology-neutral and jurisdiction-neutral approach and are designed to fill gaps in domestic private law rather than replace it[25]. The more sustainable legislative strategy is therefore to adapt existing secured-transactions law by adding a clearly defined concept of legal control.

Conclusion

Crypto assets can serve as collateral, but recognition as property is only the beginning. The decisive legal questions concern third-party effectiveness, priority, insolvency and enforcement. Singapore’s regulatory framework strengthens custody and segregation, while its registration regime provides publicity, yet these mechanisms remain institutionally separate. MiCA provides detailed rules for custody and client protection, but regulatory classification does not by itself determine the private-law treatment of security rights. The result in both jurisdictions is that legal recognition of digital assets does not necessarily produce predictable collateral rights. The comparative analysis therefore supports a control-based model that complements rather than abolishes registration. Control is particularly suitable for natively digital assets because it corresponds to the creditor’s practical ability to prevent unauthorised transfer and preserve the collateral. It should nevertheless operate within a legal framework governing priority, custodial arrangements, insolvency and enforcement. The future of crypto collateral does not require abandoning traditional secured-transactions law. It requires adapting its core functions of publicity, priority and enforcement to a technology in which control is exercised through cryptographic means rather than physical possession.

Bibliography

Table of Cases

1. ByBit Fintech Ltd v Ho Kai Xin and others [2023] SGHC 199

Table of Legislation

2. Companies Act 1967 (Singapore)

3. Payment Services Regulations 2019 (Singapore)

4. Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on financial collateral arrangements [2002] OJ L168/43

5. Regulation (EU) 2022/858 of the European Parliament and of the Council of 30 May 2022 on a pilot regime for market infrastructures based on distributed ledger technology [2022] OJ L151/1

6. Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on Markets in Crypto-assets [2023] OJ L150/40

7. Allen JG, ‘Property in Digital Coins’ (2019) 8(1) European Property Law Journal 64

8. Aksoy PÇ, ‘The Applicability of Property Law Rules for Crypto Assets: Considerations from Civil Law and Common Law Perspectives’ (2023) 15(1) Law, Innovation and Technology 185

9. Touriñán Morandeira MT and Arnáez Fernández L, ‘Principle 15 Control as a Method of Achieving Third-Party Effectiveness’ in Cristina Pastor Sempere and Diego A Morán Bovio (eds), UNIDROIT Principles on Digital Assets and Private Law (Springer 2026) 545

10. UNIDROIT, Principles on Digital Assets and Private Law (2023)

11. Zetzsche D and Woxholth J, ‘Private Law of Cryptoassets’ in The EU Law on Crypto-Assets: A Guide to European FinTech Regulation (Cambridge University Press 2025) 203

[1] Ho Chi Minh City University of Law, Ho Chi Minh City, Vietnam.

[2] JG Allen, ‘Property in Digital Coins’ (2019) 8(1) European Property Law Journal 64, 64 – 65.

[3] Pınar Çağlayan Aksoy, ‘The Applicability of Property Law Rules for Crypto Assets: Considerations from Civil Law and Common Law Perspectives’ (2023) 15(1) Law, Innovation and Technology 185, 185 – 187.

[4] ByBit Fintech Ltd v Ho Kai Xin and others [2023] SGHC 199, [36].

[5] ByBit Fintech Ltd v Ho Kai Xin and others [2023] SGHC 199, [39].

[6] UNIDROIT (n 1) Principles 14 – 17.

[7] ibid Principles 6; see also ibid Principle 10 on custody.

[8] ibid Principle 15.

[9] ibid Principle 15, commentary 15.1 – 15.3.

[10] ByBit Fintech Ltd v Ho Kai Xin and others [2023] SGHC 199, [29] – [36].

[11] ibid [34] – [36].

[12] Payment Services Regulations 2019 (Singapore), rr 18A – 18H.

[13] Companies Act 1967 (Singapore), s 131(1), (3).

[14] Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on Markets in Crypto-assets [2023] OJ L150/40, art 75.

[15] Dirk Zetzsche and Jannik Woxholth, ‘Private Law of Cryptoassets’ in The EU Law on Crypto-Assets: A Guide to European FinTech Regulation (Cambridge University Press 2025) 203, 203 – 216.

[16] Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on financial collateral arrangements [2002] OJ L168/43, art 2(1)(d) – (f), art 4.

[17] Regulation (EU) 2023/1114 (n 14) art 2(4); Regulation (EU) 2022/858 of the European Parliament and of the Council of 30 May 2022 on a pilot regime for market infrastructures based on distributed ledger technology [2022] OJ L151/1, recitals 2, 6 – 10.

[18] UNIDROIT (n 1) Principle 6.

[19] María Teresa Touriñán Morandeira and Luis Arnáez Fernández, ‘Principle 15 Control as a Method of Achieving Third-Party Effectiveness’ in Cristina Pastor Sempere and Diego A Morán Bovio (eds), UNIDROIT Principles on Digital Assets and Private Law (Springer 2026) 545, 545 – 547.

[20] UNIDROIT (n 1) Principle 15, commentary 15.6 – 15.14.

[21] ibid Principle 16.

[22] ibid Principle 19.

[23] ibid Principle 17.

[24] Zetzsche and Woxholth (n 15) 203 – 216.

[25] UNIDROIT (n 1) Introduction 0.5 – 0.10.