Crypto’s arbitration trap
When crypto platforms make the headlines, it is usually for innovation, volatility, or regulatory battles. Far less attention is paid to the legal frameworks governing disputes between these platforms and their users—frameworks that, for millions worldwide, can determine outcomes long before any courtroom proceedings.
In light of the critical role these legal frameworks play in shaping user-platform disputes, the article explores the impact of mandatory arbitration clauses employed by major crypto exchanges such as Binance and Coinbase. Framed as a conversation between a curious crypto user and their lawyer, it reveals how these clauses work, why they matter, and what their growing ubiquity might mean for transparency, public justice, and the evolution of common law. These are the key insights highlighted by David McCoy, Partner and Head of ADG Legal Abu Dhabi office, in his article, offering a practical guide to understanding the unseen architecture that governs disputes in the crypto ecosystem.
Binance is now an ADGM-registered company. That’s a good thing, right?
Yes, it’s great for the ADGM and Abu Dhabi. It shows confidence in the ADGM regulatory and legal frameworks. Binance is the biggest crypto platform in the world, and it has chosen the ADGM.
It also means that Binance users can refer claims against Binance to the ADGM Courts?
No, Binance’s user agreement mandates ICC arbitration governed by ADGM law.
What’s arbitration?
Arbitration is an alternative to the court system, but unlike the court system, it is confidential and it requires both parties to have agreed in advance to arbitrate.
Ok, but I guess you can just not agree?
No, users do not get a choice when they sign up to Binance’s services, nor when the terms are updated periodically and deemed accepted by the user’s continued use of the platform. It is essentially a ‘take it or leave it’ scenario; if you want to use the platform, you must accept the platform’s terms, including its preferred dispute resolution clause, which in Binance’s case is arbitration.
Fine, but arbitration is quick and easy to use, isn’t it?
Arbitration is excellent if you have a big complex dispute and lawyers on your side who know what they are doing, but if it’s not and you don’t, it can be a daunting prospect.
Daunting how? Surely you submit your claim and away you go.
It’s not that straightforward. Take the arbitration agreement at clause 37 of Binance’s Terms of Use as an example. It mandates that the tribunal shall consist of three arbitrators, meaning each party shall nominate an arbitrator and the two party-nominated arbitrators shall then appoint a chairperson. When you file your claim – known in ICC arbitration as a Request for Arbitration – you must identify your nominated arbitrator. Without a lawyer to recommend an arbitrator, it is not always obvious who you should nominate. Further the Request for Arbitration must contain certain information and be set out in a particular format.
Why can’t we just have one arbitrator? Wouldn’t that be cheaper and easier?
Many arbitration agreements mandate or permit a one-person tribunal, but its three under Binance’s Terms of Use.
Seems like they want to make it hard for users to get a claim up and running.
It does seem that way.
Ok, and how much does all this cost?
Costs vary, but the ICC charges a non-refundable USD 5,000 administration fee, which is payable when you file your Request for Arbitration. It then charges a ‘provisional advance’, which is payable before the tribunal is formally constituted, and thereafter an ‘advance on costs’, both of which are calculated by reference to the value of the claim and counterclaim and are shared equally between the parties. Depending on the value of the claim, it can run to tens of thousands of dollars. If you are claimant and the defendant (in this case Binance) refuses to pay its share, you as claimant will have to pay the defendant’s share upfront too.
That doesn’t seem fair.
Well, you will get some of your costs back if you win, but it is a potentially large upfront payment, which some see as a barrier to justice.
What is the ICC? I thought you said this was an ADGM thing?
ICC stands for International Chamber of Commerce. It is one of several leading arbitral institutions that issues its own arbitration rules and administers the resolution of business disputes through arbitration. The ADGM has a separate set of arbitration rules, but they do not apply to Binance’s Terms of Use.
This is low-key hard to follow. Why were you talking about the ADGM then?
According to clause 38 of Binance’s Terms of Use, the contract shall be exclusively governed by the law of the ADGM. The ICC Rules of Arbitration govern the procedure of the arbitration, but ADGM law governs the substance of the dispute.
This all sounds very complicated and long-winded. Doesn’t the ICC have some sort of expedited process?
Yes, the ICC has the Expedited Procedure Provisions, which provide for a streamlined process and reduced arbitrators’ fees.
Ok, so I’ll do the expedited thing.
Unfortunately, it’s expressly excluded under clause 37.5 of Binance’s Terms of Use.
So, Binance has purposely excluded an ICC procedure that would otherwise make life easier for its users?
Yes.
Wow, ok. But isn’t appointing arbitrators and waiting for the tribunal to be appointed a bit slow? What happens if I need something urgently? Isn’t there an emergency arbitrator process?
The ICC rules provide for the appointment of an emergency arbitrator prior who can hear applications for relief prior to the tribunal being constituted, which means you can get urgent relief if necessary.
Phew. I’ll just appoint an emergency arbitrator then.
Unfortunately, it’s expressly excluded under clause 37.4 of Binance’s Terms of Use.
Wow, they have excluded this as well. They really want to make life difficult for users to being a claim. Are all crypto platforms like this?
Yes. All the big crypto platforms now have arbitration agreements within their user agreements.
What if you ignore the arbitration agreement and file a claim in court?
Typically, the crypto platform will apply immediately to have the case referred to arbitration meaning the court will not hear the claim and you must arbitrate.
Coinbase too?
Yes, Coinbase too. Coinbase frequently files motions to compel arbitration in U.S. District Courts.
Why go to all this effort though? What’s so good about arbitration?
Arbitrations are confidential in nature by default meaning neither party can talk about the dispute.
So, if a crypto platform does something wrong and you want to sue them, no one else will find out?
Exactly.
Does that mean other users and would-be users remain in the dark about the platforms’ wrongdoings? Is that not cause for concern from a public policy point of view? Does it not allow crypto platforms to cover up their wrongdoings and pretend to the world at large that everything is fine when there could be serious failings afoot?
Well, yes.
But we are talking here about companies in volatile markets handling hundreds of billions of dollars’ worth of trades often using systems set up long ago that are ill-equipped to deal with current day trading volumes. Should the public at large not know what the platforms are doing wrong, so would-be users can make informed decisions about which platform to use?
Some people think so.
It all seems so opaque. Where is the transparency? Who holds them to account?
Pass.
Ok, but is the law keeping pace with all these decisions? The ADGM is a common law jurisdiction meaning previous decisions are used as precedents, right? They must be all over this.
Arbitration awards– are generally confidential, which means they are not published and cannot later be used as precedent.
Wait, what? How is common law developing?
Unfortunately, arbitration does not contribute to the development of common law, so it is not developing in the way it normally would.
So, what does that mean in practice?
It means lawyers cannot cite and rely upon previous judgments to argue their clients’ cases against the crypto platforms, which causes problems for arbitrators tasked with weighing the merits of a claim because they too have limited legal authorities to consider.
But loads of companies use arbitration, this is nothing new.
True, but these companies have tens if not hundreds of millions of users and are sometimes unregulated. Some people are concerned that the platforms are hiding behind confidentiality provisions in arbitration agreements to cover up their wrongdoing and, in the case of publicly listed crypto platforms, protect their share price.
Exactly how many users are we talking about here? Presumably millions.
Binance has 300 million users globally. Coinbase has 120 million. OKX has 60 million.
And all those users are being kept in the dark about the platforms’ wrongdoings?
Yes.
That’s terrifying, isn’t it?
Some would say.
How do I check what I have signed up to in my user agreement?
Dig out your user agreement in your inbox and word search “arbitration” or “court”.
And if I want to start a claim?
Please email us at drm@adglegal.com for David McCoy, Partner, aan@adglegal.com for Aulia Anwar, Associate, or fma@adglegal.com for Fatimah Assaggaf, Paralegal.