While some states have moved to adopt model Uniform Commercial Code (UCC) provisions to provide a clear legal framework for commercial and secured transactions involving crypto assets, Oregon has yet to take action. This is a source of significant uncertainty in Oregon law for transactions with digital assets like cryptocurrencies and non-fungible tokens (NFTs), and in bankruptcy cases trying to determine the status and priority of creditors where Oregon law applies.
The model UCC provisions establish rules for determining when a crypto asset is legally transferred or pledged as collateral in a commercial transaction. The provisions allow for crypto assets to be “possessed” by establishing control, similar to physical possession of tangible goods. They also set out take-free rules so certain purchasers can acquire crypto assets free of competing ownership claims. In addition, the model UCC provisions establish two methods for perfecting a security interest in a crypto asset – filing a financing statement or taking control.
These model code sections provide important clarity and certainty for using crypto assets in business deals and secured lending, and eventually for bankruptcy courts trying to sort through secured creditors interests. However, Oregon has not enacted any version of the model UCC provisions for digital assets. Instead, parties and courts in Oregon are left without statutory guidance and must rely on common law concepts or analogize to other UCC articles, which are imperfect at best and do not fully address the nuances of dealing with intangible digital assets.
The unclear legal framework creates risk and uncertainty for businesses and consumers in Oregon looking to transact in the world of Web3 and crypto assets. Issues like whether a purchaser takes free of competing ownership claims or whether a security interest is properly perfected in a crypto asset remain unsettled. This uncertainty will likely stifle innovation and broader adoption of crypto asset technologies, as well as create confusion and unintended consequences for debtors and creditors.
Other states have recognized the need to address these issues. As of August 2023, 28 states had introduced the model UCC crypto provisions and 10 states had enacted them. Oregon’s western neighbors Washington, Nevada and Colorado are among the states that have adopted the updated model UCC provisions.
To promote business development and innovation with crypto assets, Oregon should join these other states and adopt the model UCC provisions for digital assets. Enacting these uniform provisions would provide Oregon courts and businesses with a clear framework for resolving commercial disputes and facilitating transactions involving cryptocurrency, NFTs and other digital assets. The Oregon legislature should take up consideration of the model UCC crypto provisions to bring certainty to this emerging area of commercial activity.
Questions on how to deal with the crypto assets in your transaction or bankruptcy? Contact the team at Tonkon Torp to get clarity.
Danny Newman is a partner in Tonkon Torp’s litigation department, where he focuses his work in bankruptcy and reorganization, serves as co-chair of the government law and disputes group, and has a subspecialty in matters relating to crypto assets. Michael Fletcher’s practice emphasizes general corporate counseling, debtor-creditor matters and mergers and acquisitions. He has extensive experience representing private and public companies, shareholders, receivers, borrowers, lenders, debtors and creditors.