As enacted

Commentary · As enacted

Not your keys, Not your coins: Pooled crypto funds and the limits of trust

The text

DISCLAIMER: This update is intended for your general information only. It is not intended to be, nor should it be, regarded as or relied upon as legal advice. Court decisions referred to herein may be subject to further appeal at the time of publication, and subsequent developments in the law, including new legislation, amendments, court decisions or practice directions, may affect the accuracy or relevance of the matters discussed. We are under no duty to update this publication to reflect any such changes in the law. You should consult a qualified legal professional before taking any action or omitting to take action in relation to matters discussed herein.

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Not Your Keys, Not Your Coins: Pooled Crypto

Funds and the Limits of Trust

In Parastate Labs, Inc v Wang Li and others [2026] SGHC 178, the General Division of the Singapore

High Court (High Court) dismissed an institutional investor’s claim against a co-founder of the collapsed Babel group of companies (Babel Group), holding that cryptocurrencies deposited into a pooled, actively traded sub-account on a third-party exchange were not held on express trust for the fund’s subscribers, and that the fund manager owed no fiduciary duties to an investor beyond its contractual obligations.

The governing principle is that a trust over part of a fungible and intangible asset, without splitting any specific part of it for the beneficiaries, does not fail because of uncertain subject matter as long as the mass is sufficiently defined and each beneficiary’s proportionate share is certain. On the facts of this case, neither limb was satisfied.

Separately, an undertaking to act “on behalf of” and “for the benefit” of a counterparty is not the same as an undertaking to act with single-minded loyalty. A contractual obligation to “always endeavour” to act in a client’s best interests is a non-absolute obligation, incompatible with the absolute and disinterested loyalty that equity demands of fiduciaries.

On accessory liability, assistance includes acts or omissions having a causative effect on the breach of fiduciary obligation. It is not a defence to state that the loss would have occurred anyway even without the accessory’s assistance. A claimant must, however, identify “some form of facilitative involvement” in the breach that is distinct from the breach itself.

The decision further clarifies what is required before the finding of an express trust over cryptocurrencies (see also Re Taylor, Joshua James and another (Official Receiver, non-party) [2025]

4 SLR 1207 (Re Joshua James Taylor)).

Background

Parastate Labs, Inc (Parastate) invested 5 million USDT with Babel Asia Asset Management Private

Limited (BAAMPL), a Singapore subsidiary of the Babel Group, under a Cryptocurrency Management

Agreement (CMA) dated 17 March 2022 governed by Singapore law. The CMA subscribed Parastate to the Babel Alpha USDT Fund (Alpha USDT Fund), a closed-end fund with a start date of 18 March 2022 and a three-month lock-up period.

Equity and Trusts | Cryptocurrency

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Recital 2 of the CMA stated that Parastate engaged BAAMPL to undertake cryptocurrency management activities in respect of the management asset “on behalf of” and “for the benefit” of

Parastate. Clause 2.11 provided that BAAMPL “shall always endeavor” [sic] to act in Parastate’s best interests. However, if BAAMPL became aware that its personal (or other clients’) interests conflicted with Parastate’s interests, then BAAMPL would “take appropriate steps to manage the conflict of interests fairly”. The slogan “We have your best interest in mind” also appeared on the top left of every page in the CMA.

Subscribers’ cryptocurrencies were first transferred into holding wallets of the Babel Group, where they were commingled, before being moved into a designated sub-account (Alpha Sub-Account)

held by Moonalpha Financial Service Limited (Moonalpha) on the Deribit cryptocurrency trading platform (Deribit) operated by third-party DRB Panama Inc. In June 2022, following margin calls on three of Moonalpha’s sub-accounts, Deribit consolidated all of Moonalpha’s positions in its main account and liquidated them, leaving a deficit of US$12,533,733 and completely wiping out the subscribers’ investments.

Parastate pursued Wang Li, a co-founder of the Babel Group, personally for dishonestly assisting

BAAMPL in its alleged breaches of trust and/or fiduciary duties, for fraudulent misrepresentation and unlawful means conspiracy. The claims against the other defendants were discontinued because of the Babel Group’s scheme of arrangement.

The High Court’s Decision

The High Court dismissed the claims in dishonest assistance, fraudulent misrepresentation and unlawful means conspiracy in their entirety — with the latter two claims failing for lack of legal submissions from Parastate.

The remainder of this update addresses the four aspects of wider interest, namely: (a) the application of the express trusts’ three certainties to a pooled and continuously traded cryptocurrency fund; (b) the effect of an “always endeavour” obligation on the existence of an ad hoc fiduciary relationship; (c) the causation threshold for a claim of dishonest assistance and the overlap between the alleged breach and assistance; and (d) the court’s observation on where title resides for assets deposited in an exchange.

No express trust arose over the pooled cryptocurrencies in the sub-account

The creation of an express trust requires three certainties: certainty of intention, subject matter and objects. The burden of proving each lay on Parastate as the party alleging that a trust had been created.

The High Court found neither certainty of subject matter nor certainty of intention, even though it was common ground that cryptocurrencies are a species of intangible property, specifically a chose in action, capable of being held on trust.

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On certainty of subject matter, the High Court adopted the co-ownership analysis of the English High

Court in Pearson v Lehman Brothers Finance SA [2010] All ER (D) 232, where a trust over part of a fungible mass of intangible assets without splitting any specific parts of it for beneficiaries does not fail for uncertain subject matter as long as the mass is sufficiently defined and each beneficiary’s proportionate share is certain. Parastate proved neither. It only relied on allusions given by the defendant at trial that Babel Group kept internal records of customers and their investments. A vague allusion to internal records, the comprehensiveness and contents of which are unknown, is insufficient to prove certainty of subject matter. Where foreign courts have recognised cryptocurrencies being held in express trusts by cryptocurrency exchanges, it was because the courts could see internal ledgers setting out the precise quantities of the cryptocurrencies alleged to be held on trust and the relative entitlement of each accountholder.

On certainty of intention, the High Court observed that the CMA did not contain any language alluding to a trust structure. Recital 2 did not assist, since recitals are generally not regarded as the operative terms of a contract. Additionally, a contractual undertaking to manage assets “on behalf of” and “for the benefit” of a client does not automatically give rise to a fiduciary relationship. In other words, not every undertaking for a contractual duty gives rise to a fiduciary relationship.

Segregation is a factor towards the finding of certainty of intention because it can suggest that the recipient was not intended to have free disposal of the assets. Here, the segregation of cryptocurrencies was an administrative arrangement to ensure that clients with the same investment strategy were put into the same sub-account. Therefore, the segregation into the Alpha Sub-Account did not evince BAAMPL’s intention to create a trust. Further, before the administrative segregation, the cryptocurrencies invested into the Alpha USDT Fund were all commingled in Babel

Group’s holding wallets.

The High Court also found it commercially unrealistic and artificial to find a trust intended for assets which were authorised to be traded continuously. Otherwise, every trade would require the counterparties to receive title to the cryptocurrencies clear of the subscribers’ beneficial interest and the subscribers would then acquire beneficial interest in the substituted assets Moonalpha received in the trade, as trustee. The simpler analysis, which the High Court found more likely to have been intended, is that the subscribers transfer absolute title to BAAMPL, which then had a contractual obligation to return a sum of cryptocurrencies with the promised returns on redemption.

The third element, certainty of objects, was satisfied. The objects were definable by a conceptually certain criterion, namely the subscribers to the Alpha USDT Fund at the start date. The evidential uncertainty in identifying them did not defeat the alleged trust.

Since two of the three certainties were absent, the High Court held that BAAMPL did not hold the assets in the Alpha Sub-Account on an express trust for the subscribers of the Alpha USDT Fund.

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A contractual promise to “always endeavour” to act in a client’s best interests does not create a fiduciary relationship

The High Court held that BAAMPL was not Parastate’s fiduciary. The crucial indicator of an ad hoc fiduciary relationship is an express or implied agreement to act with single-minded loyalty to the putative principal and to forsake the interests of all others (including one’s own), in relation to the specific interest at stake. The mere fact that a contracting party has undertaken contractual duties does not suffice.

Clause 2.11 of the CMA, promising to “always endeavour” to act in Parastate’s best interests, was only an obligation by BAAMPL to “try [its] best to act in a client’s best interests”. The High Court commented that while “always endeavour” was more onerous than “reasonable endeavours”, it was less onerous than “all reasonable endeavours” or “best endeavours”. The obligation was non-absolute in nature. It did not rise to the level of the absolute and disinterested loyalty required from fiduciaries.

For example, the rest of clause 2.11 explained that if there was any conflict between Parastate’s interests and the interests of BAAMPL or its other clients, these conflicts would not always be resolved in Parastate’s favour. Instead, these conflicts would only be managed “fairly”. Lastly, the statement

“We have your best interest in mind” found at the top-left of every page of the CMA was merely a slogan, not a commitment or promise. Thus, the CMA did not support the finding of a fiduciary relationship between Parastate and BAAMPL. In fact, the High Court found that since the parties policed and defined in the CMA what should happen when conflicts arise — the defining characteristic of a fiduciary — it is even more unlikely that BAAMPL had voluntarily accepted a position as fiduciary of Parastate.

On vulnerability, the High Court adopted the reasoning of the United Kingdom’s Supreme Court in

Hopcraft v Close Brothers Ltd [2025] 3 WLR 423 that vulnerability is the consequence, and not the cause, of a fiduciary relationship. In any case, the features Parastate cited to show vulnerability, being

BAAMPL’s absolute discretion to manage the Alpha USDT Fund, the three-month lock-up period, and information asymmetry, were unhelpful. The High Court stated that these features were exactly what

Parastate had bargained for by entering into the CMA, as a seasoned cryptocurrency investor with external legal advice. In this case, neither the terms of the CMA nor the context was sufficient to allow the court to discern such an undertaking of a fiduciary on BAAMPL.

The same omission cannot constitute both the breach and the assistance

Even assuming that BAAMPL was a trustee and fiduciary of Parastate, the High Court did not find any dishonest assistance from Wang Li to BAAMPL’s breach(es).

On the alleged assistance by Wang Li, the High Court endorsed the principle in the English Court of

Appeal in Group Seven Ltd v Nasir [2019] 3 WLR 1011, that a claimant must at least show the defendant’s actions made the fiduciary’s breach easier than it would otherwise have been. However, it is no defence to state that the loss would have occurred regardless of the accessory’s assistance.

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A fundamental problem with Parastate’s case was that the alleged assistance rendered by Wang Li

(being the “conscious failure” to discharge his “duty to speak”) was the same as its case against

BAAMPL on its alleged breach of fiduciary duty. Parastate argued that BAAMPL breached its fiduciary duty to act in good faith and honestly in the best interests of Parastate by failing to tell Deribit that the assets in the Alpha Sub-Account belonged to the investors of the Alpha USDT Fund, not Babel Group.

Given the overlap, the element of assistance would not have been satisfied.

Obiter observations and the undecided issues

The High Court commented, without deciding the point, that there was an unrecognised preliminary issue to Parastate’s claim that BAAMPL held the assets on trust for the subscribers of the Alpha

USDT Fund. Since the cryptocurrencies were deposited with Deribit for the use of its exchange platform, it was likely that Deribit would have title to the cryptocurrencies, not BAAMPL. Neither party recognised this preliminary issue.

Similarly, the High Court commented that it did not need to deal with the question whether issue estoppel arose. Wang Li had argued that Parastate must be taken to have accepted all the findings in the earlier scheme of arrangement proceedings, including the judge’s finding that there was no certainty of intention from Babel Holding Ltd to create a trust. Regardless, the High Court reached its conclusions in the present case without relying on the findings from the earlier scheme of arrangement proceedings.

Key Takeaways

The present case further reinforces the findings in Re Joshua James Taylor. Courts will and should be slow in finding that fiduciary obligations are established in a purely commercial relationship because it is normally inappropriate to expect a commercial party to subordinate its own interests to the interests of another commercial party. Therefore, parties with contractual relationships should re-examine any contract regulating their basic rights and liabilities, before asserting the existence of a fiduciary relationship.

Nonetheless, even if there is no express trust over the assets, this does not mean that the customer assets necessarily belong to the cryptocurrency fund, exchange or platform. In the Re Joshua James

Taylor case, the liquidators of a digital asset exchange platform applied to the High Court to deal with the unclaimed cryptocurrencies and moneys as if they were held on trust for customers. While the

High Court rejected the asserted express, resulting or Quistclose trust, it held that the legal and beneficial title over the unclaimed cryptocurrencies and moneys vested with the customers. Thus, these assets must still be returned to the customers entitled to them. Therefore, in a liquidation scenario, it may still be possible for customers’ assets to be ringfenced even if no express trust is established — although much will turn on the provisions in the contract and how the assets are dealt with. For example, in Re Joshua James Taylor, the contract provided that title to the digital assets would at all times remain with the customer, and that they could only be handled by the company pursuant to express customer instructions (and the company did handle the assets in such manner).

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Further, it should be noted that Parastate claimed that Babel Group used its 5 million USDT to finance, underwrite and/or guarantee its own and/or its other clients’ investment positions. The High

Court rejected this, partly on hearsay grounds. However, if the High Court had accepted Parastate’s claim and imposed a constructive trust in relation to Babel Group on the basis of misappropriation of customer assets, this might have provided another route for Parastate to claim dishonest assistance against Wang Li.

If you would like information and/or assistance on the above or any other area of law, you may wish to contact the Partner at WongPartnership whom you normally work with or any of the following Partners:

Wendy LIN

Head – Asset Recovery & International

Enforcement

Deputy Head – Commercial & Corporate

Disputes

Partner – Fintech, Blockchain & Digital

Assets and International Arbitration

TIAN Sion Yoong

Partner – Fintech, Blockchain & Digital

Assets and Financial Services Regulatory

Daniel LIU

Partner – Fintech, Blockchain & Digital

Assets, Restructuring & Insolvency and Special Situations Advisory

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