Not your keys, not your coins
Anyone who doesn't hold the keys themselves doesn't own coins, they own a promise. Several major platform collapses have proven exactly that.
The phrase sounds like crypto slang, and it's a very concrete warning. If your coins sit on a platform, they don't legally belong to you. You have a claim against a company.
As long as everything goes fine, you don't notice the difference. You see your balance, can trade, can withdraw. The difference only shows up once the company runs into trouble.
That's happened more than once. Large platforms have collapsed, withdrawals were frozen, and customers ended up with a claim in bankruptcy proceedings instead of their balance.
The consequence is uncomfortable, because self-custody takes effort and punishes mistakes. But the choice isn't comfortable versus uncomfortable, it's counterparty risk versus personal responsibility. Both have a cost, and you should choose consciously.
Legally, everything hinges on whether the holdings are segregated as the customer's property or whether there's merely a contractual claim to have them returned. In the second case, the customer becomes an ordinary creditor in bankruptcy proceedings and receives a pro-rata share. In several well-known collapses, this classification led to substantial losses.
The risk is amplified by using customer holdings for the platform's own purposes, for instance as collateral for loans or for returns from lending programs. Offered interest on deposited coins always means the holdings are being put to further use. Risk-free interest with no further use is structurally impossible.
Self-custody shifts the risk from the counterparty onto your own diligence. Losses from lost keys, inadequate safeguards, and phishing are empirically significant. A sound assessment weighs both failure modes, which for many investors leads to a split: small amounts for use on a regulated platform, larger holdings in self-custody with verified safeguards.
Summary
- Coins on a platform are a claim, not ownership.
- Interest on deposited coins always means they're being put to further use.
- Self-custody trades counterparty risk for your own duty of care.
Did you get it?
What do you own when your coins sit on an exchange?
Usually a contractual claim against the company, not the coins themselves.
What does an interest offer on deposited coins imply?
That the holdings are being put to further use. Without that, there's no yield to generate.
What risk do you take on with self-custody?
Counterparty risk gets traded for the risk of your own mistakes, like losing a key or falling for phishing.
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