A balance shown on a trading platform looks like a bank balance. Legally it is a claim on a company, and the difference becomes decisive if that company fails.
Custody and ownership are separate questions
Assets held on a platform are generally held in accounts the platform controls. The user has a contractual entitlement rather than direct control of the assets themselves.
Holding assets in a wallet whose keys the user controls is a different arrangement entirely, with no intermediary between the holder and the asset.
The convenience of a platform comes precisely from delegating that control, which is also what creates the exposure.
Deposit protection generally does not apply
Bank deposit schemes cover money held at licensed banks up to a stated limit. They are tied to the banking licence rather than to the appearance of an account.
Trading platforms typically hold different authorisations, and their crypto balances usually sit outside such schemes even where cash balances may be handled differently.
Coverage arrangements vary by jurisdiction and by platform, and they are set out in terms rather than displayed in the interface.
Segregation determines what happens in insolvency
Where client assets are properly segregated from the company's own, they may be returned to clients rather than forming part of the estate available to creditors.
Where they are commingled, clients may rank as unsecured creditors, which changes both the amount recoverable and the time taken to recover it.
Whether segregation is required depends on the platform's regulatory status, which differs substantially between jurisdictions.
Banks are constrained in ways platforms may not be
Licensed banks operate under capital requirements, liquidity rules, supervision and reporting obligations designed to make failure less likely and more orderly.
Platforms operating under narrower authorisations face fewer such constraints, and requirements have been developing rapidly and unevenly across regions.
The comparison is not that platforms are careless but that the surrounding structure is different, and that structure is what depositors implicitly rely on at a bank.
Proof of reserves is a partial answer
Some platforms publish evidence of holdings to demonstrate that client assets exist. This addresses assets but not liabilities, which are the other half of solvency.
An attestation covering both, produced independently and repeated regularly, is more informative than a single snapshot of holdings.
Understanding what a given disclosure actually verifies is the practical step, since the terminology is used loosely across the sector.