What Segregation Means for Someone Holding a Position
The provision that decides whether assets come back, and how to confirm which arrangement applies to you.
Of everything in the regulatory framework, one provision does the work: client assets must be kept separate from the firm’s own and cannot be used by it. For anyone holding rather than trading, a crypto custody provider with segregated client assets publishes the figures that actually matter.
When it matters
At exactly one moment, and only that moment: if the firm fails.
Segregated client assets are not part of the estate. They are identified and returned.
Commingled assets are not distinguishable, and clients become unsecured creditors in a process measured in years.
Every large failure that destroyed customer funds involved exactly that commingling.
The arrangements
Commingled with the firm’s own. Should disqualify a provider for any amount you care about.
Omnibus segregated. Client assets pooled together, separate from the firm’s own, with internal records attributing holdings. The standard arrangement and sound, provided the records are accurate and independently verified.
Individually segregated. Wallets attributable to a single client. Cleanest, most expensive, usually above a size threshold.
How the pooled version works
The blockchain shows one combined balance. Your claim to a share lives in the firm’s records.
The same model as securities custody, and it works for the same reasons: audited records, frequent reconciliation against the on-chain balance, and supervisory inspection. On the receiving side the equivalent is a provider serving law firms and corporate services, with settlement already handled.
So the question is how often that reconciliation runs and who provides assurance over it. Daily with an independent report is what good looks like.
The shortfall case
If the pooled wallets hold less than the records say clients are owed, the shortfall is shared proportionally.
That is why reconciliation frequency matters. It is the control preventing an undetected shortfall.
The clause to read
Whether the firm may use client assets for any purpose.
The answer should be an explicit and unqualified no. Silence is not prohibition, and use of client assets is how several failures became client losses rather than corporate insolvencies.
What to confirm in writing
Which arrangement applies to your account specifically. Where assets are held legally. Reconciliation frequency and assurance provider. Shortfall treatment. And whether the firm may use client assets at all. The thing that only matters once is whether the list of countries covered exists as a reachable contact, and it is worth establishing early.
This is a personal account of holding through market cycles. It describes what one person did and why. It is not a recommendation, and past cycles do not predict future ones.