What Happens If a Crypto Exchange Goes Bust? Spot vs Earn
The risk lands hardest on the coins you moved into an earn product. On January 4, 2023, Chief US Bankruptcy Judge Martin Glenn ruled in the Celsius case that, based on Celsius's "unambiguous Terms of Use," crypto deposited in Earn accounts "became Celsius's property." That turned Earn customers into unsecured creditors, paid from whatever a confirmed chapter 11 plan distributes. The opinion does not soften it: "There simply will not be enough value available to repay all Account Holders in full."
So the short answer comes in two parts. Coins in an earn product are only as much yours as the product terms say; if those terms let the platform lend or re-pledge them, a court may treat them as the platform's. Coins you left untouched may get handled separately, which is still a long way from getting them back as they were. And even a promise of "payment in full" can mean dollars: in FTX, full payment was pegged to values on the November 2022 petition date.
This piece covers what happens after the fact, and what you can check while the platform is still running normally. We don't predict whether any exchange will fail, and none of this is legal advice.
Which bucket your coins sit in
A single portfolio total makes everything look like one pile of money. Underneath there are at least two kinds: coins you bought and left alone, and coins you subscribed into a flexible or locked product. Under some platforms' terms, that second kind can be lent out or pledged.
Celsius put all of these in front of a judge at once. Alongside Earn, it ran a Custody program, a Withhold program and a Borrow program. The January ruling turned on one central question, who owns the assets in Earn accounts, and it records the debtors' statement that they had "reserved sufficient stablecoins" so that creditors of the Custody, Withhold and Borrow programs would not be prejudiced while ownership of those assets was still pending.
The Celsius ruling: one clause, and the coins changed hands
The numbers in the opinion give a sense of scale. On the petition date Celsius had about 600,000 accounts in its Earn program, holding crypto with a market value of roughly $4.2 billion as of July 10, 2022.
The reasoning is short. The terms users accepted said that once crypto went into an Earn account it belonged to Celsius, and whatever was still there on the petition date became part of the bankruptcy estate. The clause that let Celsius use the coins is quoted in the opinion; it allowed the company "to pledge, re-pledge, hypothecate, rehypothecate, sell, lend, or otherwise transfer or use any amount of such Digital Assets."
Once ownership went to the company, the customer's position changed with it: no longer the owner of a number of coins, but one of many people the company owes, without security, waiting on how a plan divides what is left. Judge Glenn added a line that is hard to read past: "The Court does not take lightly the consequences of this decision on ordinary individuals, many of whom deposited significant savings into the Celsius platform."
What stays with us is where the court looked. It went to the document users clicked to accept. The advertised yield and the label on the button play no part in the reasoning.
Custody accounts came back at a discount too
On March 21, 2023, The Block reported that the judge approved a settlement for Celsius custody account holders: they "can receive 72.5% of the cryptocurrency in their custody accounts," paid over time and excluding transaction fees. Individual holders had to opt into the settlement. The same report notes the settlement did not release any rights tied to assets in the Earn program, which the January ruling had already assigned to the company.
That 72.5% was negotiated. No rule says custody customers get that much back, and on another platform, in another case, both the share and the conditions could be completely different.
"Paid in full" can mean paid in dollars
FTX filed for bankruptcy in November 2022. In a January 31, 2024 report by The Block, FTX lawyer Andrew Dietderich said the estate expected to have enough to pay allowed customer and creditor claims in full. A lawyer for the official committee of unsecured creditors added the catch: "That payment in full is based on the petition date values of those claims," and "the petition date is the date that needs to be used."
For a coin holder, that means your claim was fixed as a dollar amount on that date, and whatever the coin did afterwards has nothing to do with it. The same committee lawyer acknowledged that customers and creditors "won't feel like that's true payment in full from where they started." We don't have the court's per-coin conversion table, so we don't quote a price for any coin here.
Put the two cases side by side and an earn customer can face two separate haircuts: first the coins are ruled company property and you hold a claim; then the claim is valued on the petition date and stops following the market.
Four things to check while nothing is wrong
- Find the sentence that defines your relationship with the platform. In the general terms it is usually the line on whether or not the platform holds your assets as a custodian. Know where it sits. If you are reading a translation, check which language version the terms say prevails.
- Read the product terms, not just the general ones. The Earn product you subscribed to has its own terms; that is where to look for the paragraphs on how your assets may be used and who owns them. We have not reviewed any platform's Earn product terms for this piece, so we don't summarize them.
- Know which coins are inside a product. Coins sitting in a Flexible product on Binance have to be redeemed before you can withdraw them, as covered in our piece on moving idle spot coins to Flexible. Look past the total and list which amounts are in Flexible, which are in Locked, and which are plain spot.
- Keep a record outside the platform. A monthly screenshot of your balances and a periodic export of spot and earn history, stored somewhere other than the exchange. If you ever have to file a claim, your own copy is at least something to reconcile against. What to export and how: yield income records worth keeping.
The extra yield on an earn product may come with a quiet change of status, from owning an asset to holding a claim against the platform. So we flip the order of questions for spare money. First: if this ever comes back as a dollar IOU valued on some fixed date, can I live with that? Only then look at the rate. Keeping the rest in spot saves you one haircut, not the risk.
Questions readers ask
What happens to my Earn balance if an exchange becomes insolvent?
It depends on the terms you accepted for that product. In the Celsius case, the court held that coins deposited in Earn accounts became the company's property, which left Earn customers as unsecured creditors paid under a chapter 11 plan. If a platform you use is already in bankruptcy, follow the official notices, decide on any opt-in settlement before its deadline, and keep your own screenshots and exported history.
Do spot or custody balances come back in full?
Not necessarily. Celsius custody holders who opted in to a 2023 settlement could receive 72.5% of the crypto in their custody accounts, paid over time and excluding transaction fees. That figure came out of a negotiated settlement, not a legal rule, and another case could look very different.
Will I get coins back or dollars?
Both have happened. The Celsius custody settlement returned a share of the crypto itself. In FTX, the promised payment in full was based on the value of claims on the petition date in November 2022, so later price gains were not included.
This page draws on two bankruptcies that have already happened, Celsius and FTX. The figures are historical and dated, and the outcomes do not carry over to any other platform. We make no call on whether any exchange will fail, and this is not legal advice. Crypto assets are not covered by deposit insurance, and you can lose everything you put in.
