Holding crypto on a centralized exchange means trusting that institution to give it back. When you deposit on an exchange, you are exposed to inherent business risk, from insolvency and mismanagement to fraud, commingled customer funds, or a hack that blows a hole in the balance sheet.

There are two main ways this can impact depositors. The first is halted withdrawals, where the exchange freezes exits without warning and assets are stuck for months or lost altogether in bankruptcy. The second is an exchange-wide haircut, where the platform survives a hack or other crime but socializes the loss across every account, so everyone takes a percentage cut to fill the gap.