How risks manifest: increased litigation
Even where there is no statutory or regulatory route that allows for consumers and professional crypto investors to be compensated for their losses, there may be the possibility of pursuing private litigation. Since digital assets do not fit neatly into existing legal and regulatory regimes and often therefore do not generally benefit from existing investor protections (for example around securities or consumer compensation), that creates a market which at risk of fraud, scams and financial crime.
Generally speaking, when people lose money, they often look for someone to blame. This is also true in the digital asset space, where the occurrence of fraud and theft is nothing new. What is different now, other than that owning digital assets increasingly has become more mainstream? Some believe that the trend of increased crypto litigation is, in part, being fuelled by the availability to would-be plaintiffs of litigation funding in instances where potential defendants with deep pockets exist. The ensuing losses can give rise to various forms of litigation including criminal enforcement by state authorities, civil action arising from regulatory enforcement and private litigation. We examine these in turn and in a series of case studies explore how litigation is playing out in practice in the crypto and DeFi space.