It is well established how to perfect a security interest on general intangibles under Article 9 of the Uniform Commercial Code: filing a financing statement. But is there a better way for a secured party who wants to stay in first position on assets like cryptocurrency and nonfungible tokens? New Article 12 of the UCC provides the alternative of perfection by control of those assets, which has priority over perfection by filing.
General Intangibles
- Cryptocurrency and NFTs are considered “general intangibles” under the UCC. This asset category includes any personal property other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment property, letter-of-credit rights, letters of credit, money, and oil, gas, or other minerals before extraction.
- New Article 12 of the UCC (effective January 1, 2024) defined a new subset of general intangibles: the “controllable electronic record” (“CER”)
- A CER is a record stored in an electronic medium that can be subjected to control.
- Article 12 provides for (1) perfection by control of CERs, even though they are still a kind of general intangible, and (2) good faith purchasers to take CERs free of competing property claims.
- CERs are meant to include cryptocurrency and NFTs, among other things, although crypto currency and NFTs are not mentioned by name in Article 12.
- The definition of general intangibles in Article 9 has been amended to specifically include CERs.
Perfection of a Security Interest in General Intangibles
Until the adoption of Article 12, the only option for a secured creditor to perfect its security interests in general intangibles was to file a financing statement. This includes CERs, even though CERs are particularly difficult to corral. Article 12 now allows perfection in CERs by control in the states where it has been enacted.
Control of a CER
A person has control of a CER if the electronic record, a record attached to or logically associated with the electronic record, or a system in which the electronic record is recorded:
- (1) gives the person
- (A) power to avail itself of substantially all the benefit from the electronic record; and
- (B) exclusive power, to
- (i) prevent others from availing themselves of substantially all the benefit from the electronic record, and
- (ii) transfer control of the electronic record to another person or cause another person to obtain control of another CER as a result of the transfer of the electronic record; and
- (2) enables the person readily to identify itself in any way, including by name, identifying number, cryptographic key, office, or account number, as having the powers specified above.
Priority for Control of CERs
In states where Article 12 has been enacted, a secured party with control of a CER will have priority over creditors who only file a financing statement, even if that secured party obtains control after the financing statement was filed. Furthermore, where multiple secured parties obtain control of a CER, they will rank according to the time of obtaining control.
Taking CERs Free of a Property Right
Article 12 doesn’t just cover perfection of security interests in CERs. It also makes clear that CERs can be sold free of third parties’ interests, which is intended to promote their trade. A “qualifying purchaser” is a purchaser of a CER or an interest in a CER that obtains control of the CER for value, in good faith, and without notice of a claim of a property right in the CER. A filed financing statement does not give notice of a property right in a CER. A qualifying purchaser acquires its rights in the CER free of a claim of a property right in the CER. This rule applies only to the CER, not any payment right or property right evidenced by the CER, unless other law provides.
Note to Lenders and Creditors
As of March 5, 2025, 24 states (including Washington and California) and the District of Columbia have enacted Article 12. Another 10 states (including Oregon) have introduced the bill, but not yet passed it into law. In this new landscape, before accepting cryptocurrency, NFTs or other CERs as collateral, lenders and creditors should consider how to best maintain priority, because control beats filing. While there is a transition period for secured parties who only have perfection by filing, it is not unlimited. That period will end on the later of (1) one year after the effective date of Article 12 in the state or (2) July 1, 2025. Because Washington’s effective date was January 1, 2024, secured parties who have control as of and after July 1, 2025, will have priority over filing secured parties. A secured party who has filed a financing statement risks losing priority if it does not obtain control of its CER collateral before July 1, 2025.
This article is provided for informational purposes only—it does not constitute legal advice and does not create an attorney-client relationship between the firm and the reader. Readers should consult legal counsel before taking action relating to the subject matter of this article.
