What Happens to Client Funds When a Crypto Platform Collapses?

Investors get their funds back

For those lucky, a crypto exchange may try to recoup its losses and return funds to investors. This can be done in whole or in part, depending on the situation. For example, when Poly Network lost over $600 million in crypto in 2021, the hacker(s) returned all stolen crypto saying they always planned to. In other cases, the hacker keeps some of the loot to himself as a bounty for identifying a flaw.

After several days of negotiations, the Poly Network platform convinced a certain MrWhiteHat to return the stolen $600 million “That was always the plan. I’m not very interested in money,” he explains https://t.co/aQt2Avt3Nh

Either way, investors don’t lose a penny, as the platform absorbs the loss to maintain investor confidence. Most of the time, however, investigators only recover part of the stolen loot by tracing the cryptocurrency wallets where the cryptos were sent. The ” cryptocurrency hunters » may find stolen cryptocurrency and charge a fee, but at least you don’t lose your entire investment.

Accept his losses!

Although cryptocurrencies cannot yet be regulated directly, companies involved in these sectors can. In countries like the United States, cryptocurrency companies need a license to operate as legitimate businesses. This means companies can file for bankruptcy, which Celsius and Voyager Digital did in 2022.

Declaring bankruptcy relieves a company of its debt repayment responsibilities, but investors are not covered. Institutions like the Federal Deposit Insurance Corporation (FDIC) insure customer deposits, but there are no such protections for cryptocurrencies.

Therefore, investors have no recourse but to count their losses and hope for the best.

The reason for the crash since December was discovered by people from the community > MT.GOX would have sold $40,000 BTC since December (400 million dollars); https://t.co/V4cWZlh2N3 Rumor: In an effort to refund former users. https://t.co/h4Osfm7uIM

To date, for example, the investors who lost cryptocurrencies during the collapse of Mt. Gox have still not received compensation, which speaks to the deplorable state of the sector in this regard.