Exclusive: Coin Staking Company Goes Bankrupt... Court Rules "No Separate Return, Must Follow Bankruptcy Procedures"

A company that was acting as an intermediary for staking virtual assets (digital assets) has gone bankrupt, and in a lawsuit filed by a client seeking to retrieve their staked digital assets separately, the court concluded that separate returns are not possible and that bankruptcy procedures must be followed.

The court determined that digital assets are not considered physical objects, and the structure of the staking contract in this case should be viewed as a "similar non-standard contract to commingled deposit," making it subject to bankruptcy claims rather than the right to reclaim.

The right to reclaim refers to the right to recover third-party property that does not belong to the debtor during bankruptcy proceedings. This means that digital assets deposited through intermediary staking services cannot be returned separately and must be reclaimed through bankruptcy procedures.

On the 19th of last month, Judge Lee Baek-kyu of the Seoul Central District Court dismissed a lawsuit filed by Mr. B against the bankruptcy trustee of digital asset deposit company A, which sought the return of digital assets based on the right to reclaim.

A dismissal means that the lawsuit was deemed invalid due to a lack of formal requirements or procedural conditions.

In this case, Mr. B had staked 4,400 SOL (approximately 600 million KRW) with company A between February and March 2023, and after A went bankrupt, he claimed that the SOL he staked was not a bankruptcy claim and requested its return. Company A was subsequently declared bankrupt in November 2024.

Judge Lee ruled that the right to claim the return of the SOL arose before the bankruptcy declaration and is classified as a bankruptcy claim, stating that filing this lawsuit constitutes an attempt to exercise a bankruptcy claim outside of bankruptcy proceedings, which is not permitted and thus dismissed the case.

While the conclusion was simply a dismissal, the case provided an opportunity to reaffirm the legal status of the SOL in question and to explain the structure of the staking service in detail from a civil law perspective.

1. "Digital assets like SOL are neither objects nor securities"

Judge Lee first defined the legal nature of SOL. The Supreme Court ruled in 2021 that "BTC (Bitcoin) is a type of digital asset that represents economic value digitally and can be transferred, stored, and traded electronically, corresponding to property benefits that are the object of fraud" (2021Do9855), interpreting digital assets as property benefits rather than physical objects.

The judge stated, "In light of this legal principle, the SOL in question, being a digital asset, cannot be regarded as an object defined by civil law, and the plaintiff's (Mr. B's) claim that they are exercising rights based on ownership presupposing it as an object is unfounded."

The prevailing view is that digital assets do not meet the definition of an object under current civil law. An object is defined as "tangible property and other manageable natural forces." Digital assets are difficult to view as tangible property and are also not easily interpreted as natural forces such as light, heat, or electricity. Previous case law has also denied the object status of digital assets, and this case reached a similar conclusion.

The judge also examined the possibility of SOL being classified as a security. Securities are understood under criminal law as the exercise and disposal of property rights indicated on the security. The requirements for securities are that the property rights are embodied in the security and that possession of the security is necessary for exercising and disposing of those rights. Embodiment means that the rights to invisible property are integrated into an object in either paper or electronic form.

The judge concluded that digital assets do not meet these two requirements, thus SOL is not a security. Consequently, the right to claim based on property rights cannot be exercised.

Since SOL is neither an object nor a security, the judge determined that exercising rights in this lawsuit is not possible.

2. "Intermediary staking is a similar non-standard contract to commingled deposit"

The judge further determined that the staking structure in this case is a "similar non-standard contract to commingled deposit." Commingled deposit refers to a contract where multiple depositors' items are mixed and stored by the depositary and returned as items of the same kind and quantity.

However, since digital assets like SOL are not regarded as objects, it was expressed as a similar non-standard contract.

The structure is as follows: Company A enters into a staking contract with Mr. B and entrusts the staking to the company. Then, the digital assets that Mr. B purchased and held are entrusted to Company A for safekeeping.

The judge acknowledged that this contract has similarities to a civil law deposit contract. However, since deposit contracts are established for money, securities, or other objects, and SOL cannot be considered an object, this legal relationship cannot be viewed as a deposit contract itself. The judge defined this contract as a "similar non-standard contract to commingled deposit." Accordingly, the right to claim for return asserted by Mr. B corresponds to a "creditor's claim" arising from the termination of the similar non-standard contract.

An important point here is whether the creditor's claim serves as the basis for the right to reclaim. While it is true that a creditor's claim is recognized, it does not necessarily serve as the basis for the right to reclaim, indicating that further examination is needed to determine if a separate return is possible.

The judge explained that whether a creditor's claim serves as the basis for the right to reclaim depends on the nature of the right. If a property is presumed to belong to the bankruptcy estate when seeking performance, it constitutes a bankruptcy claim and does not serve as the basis for the right to reclaim. However, if it can be proven that the property does not belong to the bankruptcy estate, it can serve as the basis for the right to reclaim.

3. "Digital assets in 'intermediary staking' do not maintain specificity"

Mr. B argued that the specificity of SOL is maintained because the company separated customer transaction histories and the law mandates strict separation between user assets and business assets. He claimed that since the SOL he staked is distinguishable, he should be able to retrieve it separately.

However, the judge concluded, "The separation of customer transaction histories appears to be for the purpose of fulfilling the business's obligation to report illegal property and transactions, and thus it is difficult to view it as maintaining specificity." The asset custody regulations also suggest that the right to reclaim is based on the premise that it is similar to a claim for substitute or generic property, making it difficult to view it as a basis for exercising the right to reclaim.

Mr. B's argument that the traceability of digital asset transfer histories maintains specificity was also dismissed. The judge stated, "The value of one digital asset is completely identical to the value of another digital asset of the same kind, indicating a high degree of substitutability or generic property, but the individuality of individual digital assets of the same kind cannot be strongly asserted, thus it is reasonable to view that the digital assets entrusted to the business lose their individuality and are mixed with other entrusted digital assets." He also noted that the method of collecting customer-deposited digital assets during the staking process led to the loss of specificity.

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