ISDA Prepares for Digital Asset Derivatives Contracts

Digital assets have experienced enormous growth over the past decade to reach almost $3 trillion in market value, and this has been accompanied by an increase in the number and diversity of market participants. As has been the case with other markets, derivatives will play an important role in the digital asset market, facilitating price discovery, increasing liquidity and allowing market participants to hedge.

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Contractual standards have been a cornerstone in the growth of safe, efficient and liquid global derivatives markets. Over the past 35 years, ISDA has worked with a broad and diverse range of market participants to establish contractual standards across many different asset classes.

To this end, ISDA will bring together derivatives market participants, members of the crypto-asset community and other stakeholders to help develop common legal standards and definitions for digital asset derivatives, recognizing that crypto assets are a unique product class.

This paper:

• Identifies novel technology and market-driven events that could disrupt the operation of a digital asset derivatives transaction and provides a framework for dealing with these events;
• Explores how digital assets (and the derivatives that reference them) can be valued and what happens when a valuation cannot be obtained; and
• Analyzes how digital assets might interact with the existing ISDA documentation architecture, including the ISDA Master Agreement and industry standard collateral documentation.

ISDA has also produced a supplement to the paper that sets out a granular, technical analysis of different ISDA product definitions and their potential applicability to digital asset derivatives.

Source: ISDA

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