If I store stablecoins on an exchange (e.g., Binance) and the exchange goes bankrupt (referencing the FTX incident), are my stablecoins still safe?

Hey, about the risks of keeping stablecoins on exchanges

Honestly, I've struggled with this question too, especially after the FTX incident spooked everyone. I'm no expert, but having played around with crypto for years and seen plenty of pitfalls, I'll share my thoughts. Simply put: your stablecoins stored on exchanges (like Binance) aren’t necessarily safe, especially if the exchange goes bankrupt. Let’s break it down step by step in plain language.

First, why it’s risky

• Exchanges aren’t banks: When you deposit stablecoins (like USDT or USDC), you’re essentially lending your money to the exchange. They use your assets for investments, lending, etc., but unlike banks, there’s no government insurance. FTX is a prime example—they misused user funds for high-risk bets, collapsed, and users lost everything.
• Stablecoins are "stable," but location matters: Stablecoins are pegged 1:1 to the US dollar, so they’re theoretically redeemable for cash. But if held on an exchange, they control your coins. In a bankruptcy, your coins could be used to pay debts or simply vanish. Binance looks solid now, but who knows? History is full of "solid" exchanges that failed.
• Weak legal protection: Crypto lacks safeguards like traditional finance’s FDIC deposit insurance. Most exchanges’ terms state "your assets aren’t our liability." If they go bankrupt, you’re last in line as a creditor—chances of recovery are slim.

What did we learn from FTX? Users thought their funds were safe, but the exchange secretly gambled with them. After the collapse, people lined up for scraps, and many lost it all.

So, can my stablecoins be safe?

Not absolutely—the risk is high. Some exchanges like Binance have a "SAFU Fund" (an emergency reserve) claiming to protect users. But it’s not ironclad—FTX made similar promises, and look how that turned out. If you’re lucky, an exchange with Proof of Reserves (audits proving they hold your assets) might be better. Still, these aren’t foolproof; loopholes exist.

What do I recommend? (Based on my experience)

For peace of mind, I no longer keep everything on exchanges. Try these:

• Self-custody wallets: Move stablecoins to your own hardware wallet (e.g., Ledger or Trezor). You control the private keys—no one can touch them. Downside: you’re responsible for security (don’t lose your seed phrase!).
• Diversify: Don’t put all eggs in one basket. Keep some on exchanges (only for short-term trading), some in DeFi wallets or decentralized platforms (e.g., MetaMask connected to Uniswap).
• Choose reputable exchanges: Check their audit reports and user reviews. Binance has third-party audits now, but stay updated on news. Or try regulated platforms like Coinbase (licensed in the US, relatively safer).
• Test with small amounts: Newbies should start with small deposits—don’t go all in.
• Have an exit plan: Regularly withdraw some funds to your bank or cash out. Crypto is volatile; never go all-in.

Bottom line: Exchanges are convenient but risky, especially during bankruptcies. FTX taught me a lesson—I now prefer self-custody. Your situation may differ, so do your research. Feel free to ask more questions!