Lending, rehypothecation and the end of custody

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Custody ends where lending begins. A custodian that may use client tokens for its own account, lend them to third parties or pledge them, holds a debt to the client and not the client's asset. This is the lesson of Celsius, Voyager and, in Singapore, Hodlnaut and Vauld, whose customers discovered in 2022 that "earn" accounts were unsecured loans to a failing company. Part J, Chapter V and Part N, Chapter IV analyse the Singapore proceedings. The technical point for this chapter is simple. If the terms permit the custodian to move the tokens for its own purposes, no key-management architecture restores the client's position. The chain will show the tokens leaving the custodian's address, and insolvency law will treat the client as a creditor.

Swiss law states this directly. Art. 242a DEBA protects only assets the custodian has undertaken to hold "at all times" for the client. A right of use destroys the protection and converts the arrangement into a deposit, which requires a banking or fintech licence under Art. 1 or 1b BankA.¹ Singapore reaches a similar result through contract and trust law. A term permitting use is inconsistent with a trust and leaves the customer with a contractual claim.

Notes

Banking Act, SR 952.0, Art. 1b para. 1 (acceptance of public deposits up to CHF 100 million without interest or investment); Banking Ordinance, SR 952.02, Art. 5a (crypto-based assets as deposits where the custodian may dispose of them). Part E, Chapter II. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of October 2026.

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Dr Alexander Ressos, TEP

Of Counsel, KGP Legal LLC

I am Of Counsel with KGP Legal LLC in Singapore, where I work with a global client base of successful entrepreneurs and their families, independent asset managers, commodity trading houses and other commercial clients. I am a German and Swiss attorney-at-law, also admitted as a solicitor in England & Wales and in Hong Kong. I divide my time between Zug in Switzerland, Singapore and Hong Kong. Since 2017 I have advised international clients on more than 700 crypto and digital asset projects. I also have extensive experience in cross-border litigation and arbitration in Singapore, Hong Kong and other markets in South-East Asia and Greater China.

I operate across the key financial centres in South-East Asia, the Middle East and Switzerland, with a particular focus on asset protection, international tax and estate planning, as well as trusts, company administration and other fiduciary services. My philosophy is to serve as a trusted advisor working closely with my clients and to help them achieve their commercial objectives.

All Singapore law advice is provided through KGP Legal LLC, an established and duly licensed firm of Singapore advocates and solicitors.

KGP Legal LLC is a medium-sized law firm in Singapore that is capable of providing the full range of legal services and corporate administration work. Please contact me directly at [email protected] if you need any further information.

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SingaporeIQ is edited by Dr Alexander Ressos, an international business lawyer with more than 15 years of local experience in Singapore as a permanent resident, a Singapore registered foreign lawyer and managing partner of a Singapore foreign law practice. In addition to significant experience in cross-border investments and transactions, UHNWI private client work and sanctions/export controls, Dr Ressos has extensive experience in cross-border business and in crypto and digital-asset projects in Singapore, drawn from more than 700 projects since 2017.

If you are planning a company incorporation, an investment, a holding structure or a market entry through Singapore, you can reach Dr Ressos directly at [email protected]. Singapore law advice is provided by KGP Legal LLC, a licensed firm of Singapore advocates and solicitors. As a Singapore law practice, KGP Legal LLC is authorised under the Legal Profession Act 1966 to advise on Singapore law and to represent clients before the Singapore courts; foreign law practices with an office in Singapore are, as a rule, not permitted to do either. Dr Ressos and his team facilitate the full range of Singapore legal, compliance and company administration services, including company incorporation, corporate transactions, commercial contracts, crypto and digital assets, financial regulatory work and dispute resolution, including litigation in the Singapore courts. For legal, tax and fiduciary services in Switzerland, see helveticaregister.com.