Crypto glossary
Segregation of customer assets
Segregation of customer assets means keeping clients' crypto and cash separate from a provider's own funds, so they are protected if the provider fails.
A provider that segregates properly holds customer assets in accounts or wallets identified as belonging to clients, keeps records showing each client's entitlement and does not use them for its own trading, lending or expenses. If the provider becomes insolvent, segregated assets should be returned to customers rather than shared among creditors.
Crypto's biggest failures turned on this point. FTX's collapse in 2022 revealed that customer deposits had been moved to an affiliated trading firm, and in the Celsius bankruptcy a court ruled in 2023 that deposits in its interest-bearing accounts belonged to the company under its terms of use, making customers unsecured creditors. In the EU, MiCA requires CASPs holding client crypto or funds to keep them separate from their own, legally protected from their creditors and not used on their own account. US market structure proposals include similar requirements.
Segregation depends on law, contracts and honest operation. Users can check terms of service, the jurisdiction's insolvency rules and proof-of-reserves reports, though none of these is a full guarantee.
Example
After an exchange under MiCA supervision fails, its insolvency administrator returns customers' segregated bitcoin directly to them, while unsecured creditors wait for the remaining assets to be sold.