What Happens to User Assets If a Custodial Exchange Goes Bankrupt?

If a custodial exchange goes bankrupt, the treatment of user assets depends heavily on the exchange's terms of service and the legal jurisdiction. In some cases, user assets may be considered the property of the bankruptcy estate and used to pay off creditors, meaning users might not recover their funds in full.

Other exchanges may hold user assets in a way that segregates them from the company's own funds, offering better protection. The legal proceedings can be lengthy and complex, with no guarantee of a full recovery for users.