An exchange balance looks like ownership. Structurally it is usually a claim — the company owes you an amount, and you are relying on it holding enough to pay. Most of the time that distinction is invisible. It becomes the only thing that matters when the company fails.
Pooled versus segregated
Operators generally hold customer assets pooled in shared wallets rather than one wallet per customer. Pooling is normal and not by itself a problem. The question is whether those pooled assets are held on trust for customers and kept apart from the company’s own — see segregation of client assets.
Where assets are properly segregated, they generally do not form part of the failed company’s estate. Where they are not, customers can rank as ordinary unsecured creditors, behind secured lenders and often behind employees and tax authorities. Same balance on screen; very different outcome.
Rehypothecation
Some terms of service permit the operator to lend, stake, or otherwise use customer assets. This is normally disclosed, in a clause few people read, and it is the mechanism by which an operator can be solvent on paper and unable to meet withdrawals in practice.
The relevant sentence is usually short and near the custody section. It is worth finding before you need it.
What proof of reserves does and does not show
A proof of reserves attestation shows assets at a moment in time. On its own it says nothing about liabilities, and nothing about whether the assets were borrowed for the snapshot. An exercise that includes liabilities, is repeated on a schedule, and is attested by a named firm is meaningfully different from a screenshot of a wallet balance.
The historical case
The Mt. Gox collapse remains the reference record for this, and its most instructive feature is duration: claims processes following a large failure are measured in years, not months, and recovery is partial. Our record documents what was established and when.
What this actually means for a reader
The useful takeaway is not a directive about where to keep assets — that depends on circumstances this guide cannot know. It is that the question has an answer you can look up in advance: read the custody and insolvency wording in the terms of service, and read the jurisdiction page for wherever the operator is authorised. Both are available before anything goes wrong, and neither is available in a hurry afterwards.
The other half of the distinction is custodial versus non-custodial holding, which changes who can move assets without your participation in the first place.
Not advice. Conisec reports for information only. Nothing in this article is financial, legal, tax or security advice. Verify against the primary sources linked above before acting on anything.
