From Tokens to Turmoil: Rethinking Insolvency in the Age of Decentralized Finance

The crypto landscape, still in its adolescence, is swinging between innovation and instability. At the recent INSOL BVI panel session “Not Your Average Crypto Panel,” we pulled back the curtain on insolvency and regulatory hurdles that continue to challenge this space. For those of us navigating insolvencies in the crypto arena, a big question emerges: How do we unwind complex crypto failures when the traditional playbook doesn’t apply?

Having worked on some of Asia’s most prominent digital asset collapses, I’ve seen one recurring pattern: crypto creditors don’t behave like traditional ones. In more conventional restructurings, stakeholder categories are clearly defined—banks, corporations, funds — each with broadly aligned expectations. In contrast, crypto restructurings tend to be populated by a broad spectrum of retail investors, emotionally invested communities and wildly varying levels of financial understanding.

I emphasized in the panel that these cases demand empathy, creativity and a highly strategic approach to communication. Many investors are laser-focused on recovering the exact token they deposited— “I put in bitcoin, I want bitcoin back”—even when pooled wallets and exchange terms say otherwise. This disconnect between what creditors believe they own, and the legal reality often becomes the central pressure point in the process that needs to be addressed head-on with a strong, simple and persuasive narrative.

The influence of social platforms is another defining feature. Reddit, Telegram, WhatsApp and X all shape sentiment in real time—creating feedback loops that can fuel unrealistic expectations or spread misinformation. It often feels less like we’re restructuring a company and more like we’re navigating a digital town square. That’s why communication needs to be built into the strategy from the start. Leveraging a platform’s existing app infrastructure to deliver push notifications and ‘calls to action’ with detailed Application Programming Interface (API) and engagement tracking lend themselves well to an approach aimed at understanding the creditor base and optimizing for content that resonates most with the audience. In some recent cases, we’ve even turned to blockchain-native solutions like a Non-Fungible Token (NFT) to deliver personalized, auditable updates directly to wallets—a solution uniquely suited to this kind of audience.

But creditor dynamics are only part of the story. As the panel rightly identified, crypto’s security and regulatory foundations remain fragmented. That presents real challenges for those of us trying to map recovery strategies. What do you do when an asset’s private key is lost—or worse, stolen under duress in extreme “crypto torture” cases? How can the crypto community protect itself against sophisticated, highly organized, state-sponsored teams of hackers set up to steal from high profile cryptocurrency businesses like WazirX, Radiant Capital and Bybit? How do you anticipate outcomes in jurisdictions where enforcement drives policy, rather than clear legislation?

The discussion around Decentralized Finance (DeFi) took this a step further. In DeFi, the question isn’t just how to restructure — it’s whom to hold accountable. When protocols are run by Decentralized Autonomous Organization (DAO) with no clear operational leads, legal authority becomes blurry. Responsibility often floats between on-chain interfaces, decentralized governance and off-chain engines — the place where trades are actually executed. Without clear lines of control, it’s difficult to impose guardrails or enforce outcomes when things go wrong.

And yet, I remain optimistic. Our profession has always evolved in step with financial innovation. We adapted to structured credit crises, cross-border bank failures and complex frauds. Now, we must develop tools specific to crypto.

To move forward, we need to push for:

• Clarity and consistency in regulation, especially around asset definitions and custody expectations
• Improved security standards and transparency from crypto service providers
• Digital-native communication tools that meet creditors where they are
• And above all, a human-centered mindset that reflects what crypto investors think — and hope for

These restructurings aren’t just about numbers. Some crypto investors go “all in,” even borrowing to fund crypto positions they barely understand. In these cases, we’re not just restoring balance sheets—we’re restoring trust.

Crypto’s future will be turbulent. Projects will rise and fall. But with the right legal scaffolding, smart use of technology and a genuine understanding of how stakeholders think, we can help bring order to the chaos—and maybe even build something better in the process.