Crypto Exchange Insolvency: Who Owns Your Holdings?

The insolvency of a crypto exchange can raise questions about who owns the customers' holdings. The answer depends on whether a right of segregation exists, which is determined by the structure and actual performance of the contractual relationship between the custodian and customer.

According to the German Insolvency Code (InsO), if a person has a right to segregate their assets, they are not considered an insolvency creditor and do not join the queue of those who lost out. This means that if segregation is available, customers can recover their full holdings, whereas without it, they will only receive a pro rata dividend.

The regulation on markets in crypto-assets (MiCAR) requires authorized providers to make adequate arrangements to safeguard the ownership rights of clients, especially in the event of insolvency. Article 75(7) MiCAR specifies that customer holdings must be separated from the provider's own holdings and clearly identified.