Control Beats Filing: New York Adopts UCC Article 12 to Open a New Era in Digital Asset Lending

I. Overview and Key Takeaways

New York has enacted the 2022 amendments to the Uniform Commercial Code (the “UCC”), including the addition of a new Article 12 governing certain digital assets. These amendments become effective on June 3, 2026, and include a transitional period through June 2027 for existing transactions.

Introduction of a New Asset Class: Controllable Electronic Records

At a high level, the amendments modernize commercial law to account for the growing role of digital assets in financing and transactional activity. Most notably, they introduce a new category of property, “controllable electronic records” (CERs), and establish “control” as the central concept for determining rights in such assets.

For lenders and other market participants, this marks a meaningful shift. Under prior law, digital assets were typically analyzed under UCC Article 9 as general intangibles, with perfection achieved primarily through filing a UCC-1 financing statement. The new framework supplements that regime by enabling perfection through control and aligning priority rules with the practical reality of who can actually access and transfer a digital asset. Prior to Article 12, even with a UCC-1 financing statement, the holder was able to sell the asset away from the secured party with the recipient taking as a holder in due course. In other words, nothing prevented a lien-restricted token from being sold (apart from a breach of contract claim) unless the secured party had possession or control of the asset.

Why New York’s Adoption Matters

New York’s adoption is particularly significant given its role as a dominant governing law jurisdiction for U.S. financing transactions. By joining the more than 30 states that have adopted the 2022 UCC amendments, New York’s enactment reduces fragmentation and provides greater consistency for multistate transactions involving digital assets.

Taken together, the amendments signal a shift toward a more functional, technology-neutral approach to secured transactions. The framework is designed to better reflect how digital assets are actually used, transferred, and monetized in modern markets.

II. What Article 12 Does: A Framework for Digital Asset “Control”

Article 12 introduces a comprehensive legal framework for the ownership, transfer, and use of certain types of digital assets, defined as CERs. Broadly speaking, CERs include electronic records such as cryptocurrencies, non-fungible tokens (NFTs), and certain tokenized payment rights that are capable of being subject to “control,” and the definition specifically carves out other forms of electronic records already governed by other UCC provisions or regulations. These carve-outs include controllable accounts and controllable payment intangibles (the parallels of which are currently governed under Article 9 but newly applied to serve as an extension of the use of CERs as collateral, more on this below); deposit accounts (currently governed under UCC Article 9); electronic chattel paper (currently governed under UCC Article 9); electronic documents of title (currently governed under UCC Article 7); electronic money (currently governed under UCC Article 9); investment property (currently governed under UCC Article 8); and transferable records (currently governed under 15 U.S.C. §7021(a)(1)).

Control as the Digital Equivalent of Possession

The defining feature of Article 12 is its focus on the concept of control. Rather than relying on traditional notions of possession (which are difficult to apply to intangible, digital assets), Article 12 introduces control as the functional equivalent of possession in the digital context.

Under the statute, a person has control of a CER if the person has the ability to: (i) enjoy substantially all of the benefits of the asset, (ii) prevent others from enjoying those benefits, and (iii) transfer that ability to another party. In practical terms, control reflects who has the exclusive power to access, use, and transfer the digital asset, often implemented through technological mechanisms such as cryptographic keys, wallet access, or custodial arrangements.

Aligning Legal Rules With Economic Reality

This concept is intentionally designed to align legal rights with economic reality. Digital assets, particularly those built on blockchain or similar technologies, often function in a bearer-like manner, where control over access credentials effectively determines ownership. Article 12 recognizes this dynamic and builds a legal framework around it.

In addition to defining control, Article 12 establishes rules governing the transfer of CERs. Among other things, it provides that a transferee who acquires control of a CER in good faith and for value may take the asset free of competing property claims, a principle intended to promote the negotiability and marketability of digital assets.

Interaction With Article 9

Article 12 does not replace Article 9. Rather, it operates alongside it. It establishes the foundational property-rights framework for CERs, while amended Article 9 addresses how security interests in those assets can be created, perfected and prioritized. Together, the two provisions create a more cohesive legal regime for secured transactions involving digital assets, one that is better suited to their technological characteristics and commercial use. In the event of a conflict between Article 12 and Article 9, Article 9 prevails.

III. Article 12 Versus Article 9

Before New York’s adoption of the 2022 UCC amendments, most digital assets were typically analyzed under UCC Article 9 as general intangibles, which generally meant perfection by filing a UCC-1 financing statement (and little else) for a secured party that wanted a clear perfection story. However, this framing was an imperfect fit for bearer-like digital assets, which can be transferred quickly and globally without any practical way for a transferee to discover a prior secured party’s filing (creating the classic “secret lien” concern for market participants) and no way for the transferor or secured party to reverse the transfer, a hallmark of digital assets and blockchain technology.

New York’s enactment adds UCC Article 12 and updates Article 9 to modernize secured transactions for CERs, namely electronic records that are susceptible to “control.” Article 12’s central move is to introduce the notion of “control” as the functional equivalent of possession for qualifying digital assets, an approach deliberately analogous to possession in the tangible world but adapted to the realities of electronic records.

Perfection and Priority: Control Beats Filing

Under the amended Article 9, a secured party may perfect a security interest in a CER (and certain related “controllable” payment rights) in two ways:

• Control (the new, preferred route); or
• Filing a financing statement (still valid, but no longer definitive).

A security interest perfected by control under the amended Article 9 has priority over a security interest perfected only by filing, even if the filing occurred first. Further, newly amended Article 9 ensures the enforceability of such security interests (in CERs) is also extended to rights to payment tied to CERs through concepts such as “controllable accounts” and “controllable payment intangibles.” Practically, this means that if a secured party, pursuant to Article 12, establishes control over a CER that reflects a right to payment, that secured party has also perfected its interest in the underlying right to payment (e.g., the controllable account or payment intangible, as applicable) included therein. This is designed to mitigate circumstances in which such CERs are pledged as collateral but the right to payment under the CER remains with the pledgor. Overall, these changes are designed to better protect lenders by aligning legal priority with real-world risk. If a lender’s underwriting and collateral protection depend on who can actually move the asset (or prevent it from being moved), a “control” regime, with proper extensions to the economic rights in the assets controlled, is more faithful to how CERs function than a registry filing alone.

Key takeaway: Article 12 introduces a possession-like framework for a subset of intangible digital assets. Control becomes the gold standard, and the priority rules follow it.

IV. Practical Impacts on Lending

How to Perfect Going Forward: Plan for Control

For transactions governed by New York law after the amendments become effective, lenders taking digital assets within the CER category as collateral should treat obtaining control as the default perfection strategy. Filing a UCC-1 remains available and may serve as belt-and-suspenders, but a filing-only approach now risks a later creditor (or transferee) obtaining control and leapfrogging priority. As a practice point, expect loan documents and closing checklists to include explicit deliverables going forward around establishing and evidencing “control” (and ongoing covenants that preserve it), alongside conventional UCC filing packages.

What “Control” Means in Practice

“Control” does not entail literal possession. It is achieved through custody and key control mechanics, or any equivalent arrangement in which one party has the exclusive technological ability to:

• enjoy the benefits of the CER;
• prevent others from doing so; and
• transfer that ability.

As Paul Atreides puts it in Frank Herbert’s Dune: “He who can destroy a thing, controls a thing.” Article 12 applies a related logic to digital assets, defining control by reference to the practical ability to use the asset, exclude others, and transfer it, rather than by reference to any particular technology.

What Changes for Lenders

For lenders, the operational center of gravity shifts from “did we file?” to “do we (or our agent) have control, and can we keep it?” As a result, diligence and deal structuring will increasingly focus on:

• Custody arrangements (including whether a third-party custodian can hold or control the asset in a way that satisfies Article 12’s legal test);
• Control mechanics (how control is established, how it can be transferred, and how the secured party can be identified as the controller); and
• Priority risk management (ensuring the lender’s control position cannot be displaced by another party obtaining control).

The net effect is greater confidence in using qualifying digital assets as collateral, because the statutory framework is more explicit about how to perfect and how priority will be resolved when there are competing claims.

Article 12 inverts the secret lien problem. Under the prior framework, the concern was that a transferee of a digital asset could not practically discover a prior secured party’s UCC-1 filing. Under the new framework, a transferee acquiring control in good faith takes free of competing claims, which is the right outcome for negotiability, but a subsequent lender’s UCC-1 search will not reveal a senior secured party who perfected by control alone. The diligence burden shifts from the transferee to the second-in lender, who now needs an off-record way to confirm that no other party already has control. As a practical matter, lenders perfecting by control may continue to file UCC-1s for signaling purposes, and a market practice of dual perfection is likely to develop until the statute and the search infrastructure catch up to each other.

Multi-Sig, MPC, and Threshold Control

How multi-signature wallets will be treated under Article 12 has been one of the open questions from the blockchain community since the 2022 amendments were drafted. The control test turns on three powers: enjoy the benefits, exclude others, and transfer. Multi-signature and threshold signing schemes distribute those powers across multiple holders, which is precisely why they are common in institutional digital asset arrangements and precisely why Article 12 leaves room for interpretation.

A working framework for practitioners:

• A 2-of-3 multi-sig in which the secured party holds both a veto key and an active signing key is the cleanest case. The lender can block transfers and effect them in concert with another signer, and the three statutory prongs are likely satisfied.
• A 2-of-3 in which the lender holds a single non-veto key is the weakest case. The other two signers can transact without it and the lender cannot unilaterally move the asset. That looks more like a contractual covenant right than control under the statute.
• Threshold signing schemes and multi-party computation produce a single signature from distributed key shares, so the analysis depends on the contractual and technological design of the scheme rather than on counting wallet signers. Diligence should focus on the policy layer: who can initiate, who must approve, who can override, who can recover.

The drafting implication is that control mechanics belong in the operative documents, not in a generic “Lender shall have control” representation. Loan documents should describe the specific signer roles, approval policies, and override rights so that the legal conclusion of control rests on a real evidentiary record.

The Non-Custodial Question: Where the Framework Gets Harder

Article 12’s control framework maps cleanly onto bilateral custody arrangements in which a centralized custodian holds the asset and contracts allocate the relevant rights to the secured party. It maps less cleanly onto on-chain lending and collateral arrangements in which the asset is deposited into a smart contract rather than held by an identifiable custodian.

When a borrower posts collateral into a lending protocol’s smart contract, the question of who has control does not have a tidy answer. The protocol has no will or legal identity. The pledgor retains the practical ability to withdraw subject to the protocol’s repayment logic. A traditional lender holding the loan position has no direct technological ability to access or transfer the underlying assets.

This creates two issues. First, if the collateral is itself a position in an on-chain protocol (a wrapped receipt token representing a deposit, a tokenized lending position, a liquidity provider token), the receipt token may itself be a CER susceptible to control, but the underlying assets are not held by the lender or any custodian acting for it. Second, structures that intermediate between on-chain protocols and traditional credit (a custodian holding the receipt token, an SPV taking the on-chain position on behalf of the lender) introduce control questions at each layer.

Article 12 does not resolve any of this. Early commentary will likely focus on whether protocol-mediated control by the secured party (through governance rights, parameter access, or contract-level controls) can satisfy the statutory test, or whether the regime will require a custodial wrapper at the perimeter to function. For now, lenders should assume that on-chain collateral requires custodial intermediation to be perfected by control.

Collateral Types in Practice

Three patterns are showing up in active financing transactions, each raising a distinct control question:

• Locked tokens and unvested SAFT positions. A vesting contract holds the asset until release, the pledgor holds the future right, and the lender wants to attach the future delivery. Treat the future delivery as a contract right and the post-unlock token as a separate CER, with separate perfection mechanics for each, and a closing deliverable that controls the unlock destination wallet.
• Liquid staking and restaking tokens (LSTs and LRTs). Tokens such as stETH and weETH are typically CERs in their own right, but the underlying staked assets and the slashing risk attached to them sit with a validator operator outside the holder’s control. Loan documents should treat the LST or LRT as the controlled asset and address slashing, de-pegging, or protocol risk through covenants and margin mechanics rather than the control framework.
• Wrapped and bridged assets. Wrapped tokens (wETH, wBTC) and bridged representations involve a custodian or smart contract holding the underlying and issuing a representation on a different chain. Control of the wrapped asset does not give control of the underlying. For multi-chain collateral packages, lenders should confirm that the asset being valued and margin-tested is the one over which control is established, not the upstream original.

Each pattern is live in financing transactions today. Lenders that work the control mechanics into documentation up front will avoid amendments and waivers later.

Market Significance of New York’s Adoption

As New York law is a dominant governing law choice for many financing transactions, alignment of New York’s UCC with the 2022 amendments removes an important source of friction for multistate and national deals. This adoption also comes against a backdrop of adoption by more than 30 other states as of this article, supporting a trend toward a more uniform commercial law baseline for digital asset transactions.

The question Article 12 leaves open is whether the legal definition of control converges with the technological reality of control as the infrastructure evolves. Multi-sig is mature, MPC is maturing, account abstraction and smart wallets are changing what it means to hold a key, and non-custodial lending is moving from edge case to mainstream. Article 12 is the framework. The doctrine will be written in the closings and the workouts.

If you or your business have any questions about how to navigate the above changes to New York lending law, please contact the Manatt professional with whom you work or any of the authors of this article.

The text of New York UCC Article 12 can be found at https://www.nysenate.gov/legislation/laws/UCC/A12.

CERs means a record stored in an electronic medium that can be subjected to control under Section 12-105. The term does not include a controllable account, a controllable payment intangible, a deposit account, an electronic copy of a record evidencing chattel paper, an electronic document of title, electronic money, investment property, or a transferable record.

See N.Y. U.C.C. §12-102(a)(1).

N.Y. U.C.C. §12-103(a) (“Article 9 governs in case of conflict. If there is conflict between this article and Article 9, Article 9 governs.”).