Why custody and segregation matter more than most crypto users think

• Custody refers to who controls the assets and keys.
• Segregation is about keeping client assets identifiable and separate from creditor claims.
• When platforms fail, these details can matter more than the interface.
• Users should read a platform’s custody disclosure and understand who holds assets, how they are segregated, and how reconciliation works.

Key takeaways: Custody determines how crypto assets are held and controlled, while segregation determines whether client assets are easily identifiable and better protected during insolvency scenarios or market stress. A common misunderstanding is assuming that a platform balance is automatically the same thing as clean, recoverable ownership. The most useful step is to read a platform’s custody disclosure and understand who holds assets, how much is offline, how reconciliation works, and whether assets are held in trust or segregated accounts. CIRO’s custody framework highlights that these details are a key investor-vulnerability point when platforms experience stress or failure.

• Custody: The safekeeping and control of digital assets, including key governance, transaction authorization, reconciliation, and recovery.
• Segregation: A structure intended to keep client assets identifiable, traceable, and unavailable to satisfy any claim from creditors.
• Cold storage: Offline storage used to reduce exposure to online compromise.
• Hot wallet: Online wallet infrastructure used mostly for operational activity such as deposits, withdrawals, or settlement.
• Third-party custodian: An external custodian that holds assets on behalf of a platform or its clients.
• Reconciliation: The process of matching custody holdings to the platform’s books and records.

According to the Canadian Investment Regulatory Organization, digital custody includes the creation, storage, and governance of private keys, controls over transaction authorization and execution, and reconciliation. It also addresses governance, cybersecurity, monitoring, incident response, and recovery.

Segregation is a separate but related concept. CIRO says it is a core investor-protection concept because it is meant to keep client assets identifiable and traceable, unavailable to general creditors, and easily recoverable in an insolvency scenario.

CIRO’s framework notes historical failures in crypto have shown that custody arrangements are a critical point of investor vulnerability. It highlights insolvency risk, cyberattacks, key mismanagement, third-party dependencies, and legal uncertainty as reasons custody deserves more attention than many users give it.

This highlights the importance of reviewing custody and segregation details alongside broader platform disclosures. If something goes wrong, users should focus on four questions: (1) who controls the assets and keys, (2) how client assets are segregated, (3) what legal structure applies (for example, whether assets are held in trust), and (4) how quickly the platform can reconcile and process withdrawals.

Crypto assets are not covered by deposit insurance, and CIPF does not cover crypto assets held by a member firm on behalf of a client. Canadians can verify whether a crypto platform is authorised to do business with Canadians and use the National Registration Search to check registration information. Those steps do not remove market risk but can support more informed platform comparisons. 

Ndax provides custody disclosures outlining its approach. Ndax is registered as an investment dealer, approved to operate an alternative trading system, and is a member of CIRO.

Ndax states that virtual assets held with third‑party custodians are held in segregated omnibus accounts in Ndax’s name in trust for or for the benefit of clients, and are held separate from the assets of Ndax, its affiliates, and the custodians’ other clients. Ndax also confirms that it reconciles, on a monthly basis, virtual assets held with custodians against Ndax’s books and records to ensure client assets are accounted for. Under the custody arrangement, not less than 80% of client virtual assets are held with acceptable third‑party custodians in cold/warm storage, with up to 20% held by Ndax in hot wallets to support deposits/withdrawals, settlement, and certain staked assets.

For full details on asset storage practices and custodial insurance coverage, please refer to our Custody Disclosure Statement. 

Is custody the same as storage?
No. Storage is part of custody, but custody also includes key governance, transaction authorization, reconciliation, monitoring, and recovery.

Why is segregation important?
CIRO says segregation is meant to keep client assets identifiable, traceable, protected from creditor claims, and recoverable in an insolvency scenario.

Does cold storage fully reduce risk?
No. Cold storage reduces most online risks, but governance, authorization controls, reconciliation, and legal structure still matter.

What does Ndax disclose about its client-asset mix?
Ndax says at least 80% of client virtual assets are held in cold and warm storage with acceptable third-party custodians regulated as trust companies. The remainder is held temporarily in hot wallets for operations.

Does segregation mean zero risk?
No. It can reduce important legal and operational risks, but it does not remove market risk or every custody risk.