Whose Keys?

In crypto, we often hear the phrase ‘not your keys, not your crypto.’ Leaving coins on an exchange or in a deposit account leaves us open to risk, but the possibility of high yields and outsized returns entices many to take these risks. Regardless of how badly we want to trust centralized companies, we continue to be subjected to the painful lesson behind this phrase.

• Last week, a judge in the bankruptcy proceedings ruled that assets in Celsius yield-bearing accounts no longer belonged to customers who deposited them, but to Celsius. The user agreement that Celsius Earn customers signed giving control of their assets to Celsius, is technically a legally binding contract. The judge admitted that this would make it difficult for individuals to recover deposits.
• Regulations govern the contractual obligations that banks may have with customers, but currently, there are no regulations like that in the digital asset space. This means the user agreement on centralized platforms becomes very important if a company files for bankruptcy, even if we know they mismanaged user funds.
• Earlier this year, Coinbase made headlines when they disclosed that (in the event of bankruptcy) a court might determine assets stored on the platform to be company property.

How can we use this information to navigate markets in the future? It is important to read the fine print of user agreements, even if we cannot anticipate who will change their user agreement or choose to ignore existing laws and ethical practices. Unfortunately, the ambiguity of regulators has led us down an unusual path where digital assets are treated differently depending on the scenario and it is the little guy who keeps paying the price.