PHOEBUS L. ATHANASSIOU | Senior Lead Legal Counsel, European Central Bank

Although substantial in terms of market capitalization, the economic potential of digital assets remains locked, inter alia, on account of their still limited use as loan collateral. The wider use of digital assets as security for credit would both help their holders to capitalize on their digital asset holdings and contribute towards easing liquidity conditions in the market by allowing market actors at both ends of a lending agreement to tap into a substantial, but largely unutilized, repository of collateral. 

This article explores some of the legal parameters relevant to the use of digital assets as collateral, with an emphasis on how a security interest in digital assets can be created, the modalities for the realization of digital assets accepted as loan collateral, and the ways in which collateral takers (but also collateral givers) can be protected from fluctuations in the value of some of the more volatile types of digital assets tendered as loan collateral.