Bailee agreements and common law

Who this is for: issuers whose asset requires a third party to physically or legally hold the underlying asset on their behalf.

This page describes a general legal concept, not legal advice and not a statement of how any specific jurisdiction treats it. Resolve the specifics with your own counsel.

What a bailment is

A bailment is the general legal relationship created when one party (the bailor, here typically the issuer or the asset's owner) transfers possession of a physical or legal asset to another party (the bailee, a custodian, warehouse, trustee, or similar) for safekeeping, without transferring ownership. The bailee agreement is the contract that sets the terms: what the bailee must do to hold the asset properly, when and how it must be returned, and what happens if it's lost, damaged, or misused.

This matters for tokenized RWA because the token itself is only a claim. It represents an interest in an asset that, for anything physical (real estate, a commodity, a vault of collateral), still has to be held by someone in the real world. The bailee agreement is the document that makes the token's claim enforceable against that real-world holder.

What it typically covers

• Scope of custody: exactly what asset is held, and any conditions on its storage or maintenance.

• Standard of care: what level of diligence the bailee owes (this varies significantly by jurisdiction and by the type of bailment, and is not stated here as a fixed rule).

• Release conditions: what triggers the bailee to release the asset, which is the mechanism behind Stage 5: Redeem when the underlying real-world claim needs to be settled.

• Liability and insurance: who bears the risk of loss while the asset is held.

Why jurisdiction matters

Bailment law is a common-law concept with meaningfully different rules across jurisdictions, and some legal systems don't use the same framework at all. Which rules apply to a given issuer's bailee agreement, and whether "bailment" is even the right legal characterization for a specific asset and structure, are questions for the issuer's counsel. This page does not answer them.

Lumia does not maintain or recommend a list of vetted bailees or custodians. Sourcing one, and diligencing it, is entirely the issuer's responsibility.