SINGAPORE COURT HOLDS THAT USDT IS PROPERTY CAPABLE OF BEING HELD ON TRUST

In a pioneering decision in the common law, the Singapore High Court has held that Tether (a type of cryptocurrency known as fiat-backed stablecoin, pegged to the US dollar and also known as USDT) is property – specifically a chose in action. In ByBit Fintech Limited v Ho Kai Xin [2023] SGHC 199, Philip Jeyaretnam J held that a trust could be created over misappropriated USDT and this would be enforceable in court.

The High Court therefore granted the claimant, ByBit Fintech Limited ("ByBit"), tracing remedies and declared a trust over 4,209,720 USDT. It also ordered that the defendant make payment in an equivalent sum in USD.

The ruling that USDT is property could have far reaching consequences across not just the asset tracing and enforcement space but also into the realms of its treatment under various insolvency laws. It is likely to also impact other forms of fiat-backed stablecoins, and may potentially extend to other forms of cryptocurrencies.

Why was ByBit seeking a declaration of trust over USDT?

ByBit is the owner of a cryptocurrency exchange and pays its employees in the form of fiat money and/or cryptocurrency. WeChain Fintech Pte Ltd ("WeChain") provides payroll services for ByBit. The defendant, Ms Ho Kai Xin, was an employee of WeChain and handled the payroll processing for ByBit's employees.

ByBit claimed that Ms Ho fraudulently transferred 4,209,720 USDT to addresses associated with wallets that she did or was likely to own and control. ByBit therefore sought a declaration that Ms Ho held the 4,209,720 USDT on trust for ByBit.

What was the nature of the crypto assets in question?

The High Court found that USDT is a type of personal property known as chose in action, which gives their owners a right to sue to enforce their rights over the property:

• USDT can be identified and segregated, as reflected in the balance sheets of companies and proposed regulations to implement custody requirements for digital payment tokens.
• USDT can be traded and valued as holdings.
• USDT manifest physically—the "private key" grants the right to have the unspent transaction output of the USDT locked to the holder's public address on a blockchain.

The High Court's finding in respect of USDT would very likely be applicable to other forms of fiat-backed stablecoins. It remains an open question whether other forms of cryptocurrencies would also be treated so clearly as property.

Key takeaways for parties dealing with crypto assets in Singapore

It is the first time that the Singapore High Court has expressed a conclusive view on the nature of a fiat-backed stablecoin like USDT. This is significant as it recognises that such crypto assets are recognised as property – with the attendant consequences being:

• It is capable of supporting a declaration of constructive trust;
• USDT is capable of being quantified – in this case, Ms Ho was ordered to pay the sum of USD 647,880 and USD 3,561,840 being the values of the USDT in various wallets to ByBit; and
• It can be the subject of equitable remedies like tracing and accounts – in this case, Ms Ho was ordered to give an account of the remaining USDT and a tracing order was given for ByBit to trade and recover the assets or proceeds into which the remaining USDT had been converted into.

This decision strengthens protections for owners of USDT against nefarious parties and follows on the heels of the new requirements recently announced by the Monetary Authority of Singapore ("MAS") to reduce risks to consumers from crypto asset trading and to enhance the standards of stablecoin-related activities.

The MAS expects to implement rules requiring digital payment token (another name for cryptocurrencies) service providers to inter alia segregate customers' assets, conduct daily reconciliation of customers' assets and ensure that the custody function is operationally independent from other business units. Look out for the next Herbert Smith Freehills Prolegis post about the MAS' new rules.

How we can help you in matters involving crypto assets

We have significant experience in disputes and regulatory matters relating to crypto assets. If you want to find out more, please contact one of our Singapore disputes partners or your usual Herbert Smith Freehills Prolegis contact.