Custody and cash · 19 / 86 · 2 min
How exchanges fail
Exchanges fail in ordinary ways. They freeze withdrawals, they lose keys, they lend out deposits, or they are robbed. The screen can still show your balance while the money is already gone.
The app can show a number the firm cannot pay.
A worked case
An exchange offers interest for leaving coins on the platform. The interest is paid from lending those coins out. The borrower fails. The screen still shows the deposit. The withdrawal does not arrive.
A run
If many people withdraw at once, a fractional reserve shows itself. The firm delays, limits, or closes the door. Your balance is a claim, and claims wait in a queue.
What you can do before that
Do not leave savings on an exchange you do not need for a trade that day. Withdraw to keys you hold when you are done.
A high interest rate for leaving coins on the platform is the firm using your deposit. Ask what they do with it.
Celsius: the account was a loan you did not call a loan
Exchanges and lenders fail in ordinary ways. They freeze withdrawals, they lend deposits out, they lose keys, they are robbed. Celsius Network told customers they could earn yield by depositing crypto. In June 2022 it paused withdrawals. In July it filed for bankruptcy in the United States. The examiner and the court record described a business that had taken customer coins and lent and traded with them. Customers who thought they had an account discovered they were in a line with other creditors. The app still had a number in it the week the door shut.
Quadriga, already mentioned, is the earlier version: a platform, a dead founder, a hole. Voyager and BlockFi failed in the same season as Celsius, after lending into a market that broke. The names change. The shape is a firm that showed you a balance while using the coins.
If you need the money on a date, do not leave that withdrawal for the night before. A high rate for doing nothing is the firm telling you what it plans to do with the deposit.
Read it yourself
These links are the record. They are not a recommendation, and they are not instructions. A news story or a court paper can still be wrong about a detail. The check does not change because a famous name is in the story.
Apply the check
Open a question. The line is about this topic. It is not a verdict that anything is safe.
Creditors, and whoever was paid interest from your deposit.
The firm, until a court does.
The firm, or the bankruptcy process.
Check yourself
If the app still shows your balance, is the money safe?
Not necessarily. The database can show a number the firm cannot pay out.
After this you can treat an exchange balance as a claim that can be delayed, not as cash in your hand.