What happens to your coins if an exchange goes bankrupt

When an exchange fails, the question that decides whether customers are paid is not how much crypto was in the wallets. It is whether the law treats those balances as customer property held in trust, or as assets of the failed company that creditors can claim.

Most customers assume the first. The disclosures say the answer is less settled than that, and it varies by venue, by jurisdiction and by legal structure.

General unsecured creditor: what the phrase means

If custodial balances form part of the bankruptcy estate, customers become general unsecured creditors. They rank behind secured lenders and administrative costs, they are paid a proportion rather than a balance, and payment arrives years later — in the currency the court decides, which historically has not been the coin that was deposited.

That is not a hypothetical framing. It is the language public filings use. Coinbase discloses precisely this risk, and does so because a listed company must disclose material risks, not because it is worse-run than the private venues that say nothing.

The structures that change the answer

• A trust charter. Gemini operates as a New York trust company chartered by the state's Department of Financial Services, examined like a bank. A trust structure is designed so that customer assets are held for customers rather than owned by the institution — the strongest legal form in our rating.
• Segregated custody with an attestation. Kraken publishes a liability-inclusive proof of reserves attested by a named accounting firm, which at minimum establishes the assets exist and match what is owed at a point in time.
• Terms of service alone. Most of the market. Whether balances are customer property rests on contract language and the insolvency law of a jurisdiction you may never have heard of.

What insurance does and does not cover

Exchange "insurance funds" are frequently misunderstood. Most exist to absorb losses on liquidated futures positions, not to compensate customers for theft or insolvency, and several are self-declared with no independent verification that the money is there.

Fiat balances are different and better: at US venues, customer cash held in custodial accounts at FDIC-insured banks is generally covered for the cash, per depositor, if the bank fails. It does not cover crypto, and it does not cover the exchange failing.

The pattern from every failure so far

The recoveries that happened were driven by who ultimately paid, not by how the exchange described its security. Where a solvent parent or a genuine reserve absorbed the loss, customers were made whole quickly. Where the failed entity was the only source of funds, recovery took years and was partial.

That is the reason our exchange rating weights custody evidence at 40% and records, per venue, what happened after every incident — the aftermath is more informative than the incident.

What to actually do about it

• Keep on an exchange only what you are actively trading. Everything else belongs in a wallet you control.
• Prefer venues that publish a liability-inclusive proof of reserves, or that operate under a legal structure — a trust charter, a licensed entity — designed to keep customer assets separate.
• Read what the venue says about its own insolvency. If it says nothing, that is information too.
• Spread large balances across more than one venue. Custodial failure is total for the venue it happens to, and uncorrelated across venues.

In an insolvency, the question is not how much crypto the exchange held. It is whose it legally was.

The short version

A custodial balance is a claim, and its strength depends on legal structure rather than on branding. Gemini's trust charter and Kraken's attested reserves are the strongest positions in our table; almost everywhere else, the answer rests on terms of service and an insolvency regime you did not choose. Hold what you can yourself.