Confronting the Defi Revolution: A Comparative Analysis of the Application of New Zealand's Personal Property Securities Act 1999 to Crytoassets

Abstract

The financial sector is being upended. The major disruptor is decentralised finance (DeFi), which eliminates the need for centralised intermediaries by empowering individuals with peer-to-peer digital exchanges. DeFi has experienced rapid growth over the past few years and its proliferation is likely to continue. DeFi, which uses emerging blockchain technology, is underpinned by cryptoassets such as bitcoin, ether, and Non-Fungible Tokens (NFTs). As DeFi offerings have become increasingly sophisticated, important legal issues have arisen. One such issue is whether the law is appropriately positioned to recognise and give effect to cryptoasset-collateralised lending arrangements. Presently, legal uncertainty poses a substantial risk to market participants, who are for the most part transacting blindly. This paper, therefore, addresses the applicability and comparative suitability of New Zealand’s Personal Property Securities Act 1999 (the PPSA) to cryptoasset collateral arrangements. It argues, using the recent Singaporean case of Chefpierre as a test case, that the PPSA is generally preferable — as regards upholding DeFi parties’ intentions by providing due legal recognition to their arrangements — to the English (and thus Singaporean) approach to secured credit law. Although determining that the PPSA is better positioned than English law to respond to novel cryptoasset collateral arrangements, the author illustrates how the challenges posed by cryptoassets still necessitate a degree of legislative change — in particular, to the PPSA’s perfection requirements and priority rules. Consequently, the author undertakes a thorough review of potential routes to legislative change, including a comparative analysis of legal principles and developments in the United Kingdom and the United States of America. The author subsequently recommends that a number of bespoke rules and concepts designed to respond to cryptoassets be introduced into the PPSA, concluding that such reform is a crucial step in New Zealand’s journey to confront the DeFi revolution.