UCC Amendments for Cryptocurrencies, NFTs, Linked Electronic Payment Rights, and Other Digital Assets

In 2019, a joint committee of the American Law Institute and the Uniform Law Commission, the sponsoring organizations of the UCC, began considering certain amendments to the UCC regarding the treatment of digital assets and other emerging technologies. These amendments were approved in July 2022. A new Article 12 and its related code amendments are now making their way through state legislatures for enactment. The amendments are already the law in a majority of the states and legislation is pending in several other states. The amendments concern a category of digital assets, defined as CERs.

Under the amendments, a security interest in a CER and certain linked payment rights embodied in the CER, if applicable, can be perfected by filing a financing statement. However, a security interest can also be perfected by "control." A security interest perfected by "control" would have priority over an interest perfected by the filing of a financing statement. A CER would be negotiable, i.e., capable of being transferred (including sales) in such a way as to cut off competing property claims to the CER.

Listen as our panel comprised of members from the ALI/ULC drafting committee discusses the nuances of the UCC amendments relating to secured lending on CERs and the negotiability of virtual currency and electronic payment rights.

I. Background on ALI/ULC project: the need for clarity regarding secured lending and transfer of digital assets

II. Types of digital assets

III. Scope of amendments

A. Focus is on perfection and priority under the UCC

B. Taxation, securities, money transmission, and anti-money laundering laws are not addressed

IV. Controllable electronic records

A. Elements of control

B. Qualifying purchaser

C. Tethering: rights that are evidenced by a CER

V. Perfection of a security interest in a CER

A. Financing statement

B. Control

VI. Status of adoption by the states

The panel will review these and other vital issues:

• What are the conceptual problems with digital assets that the ALI/ULC committee addressed in the proposed UCC amendments?
• What is a "controllable electronic record," and what constitutes "control"?
• What is a "qualifying purchaser," and how does the acquisition of a CER cut off competing property claims?
• What rights are embodied in a CER?
• How is fiat electronic money, such as a central bank digital currency, treated in contrast to virtual currencies that are not fiat currencies?
• What are the relevant choice of law rules?
• Status of state enactments
• How will the transition rules work?