Understanding Exchange Custody Models
Cold storage, MPC, multi-signature, insurance and Proof-of-Reserves — how exchanges keep custody of client crypto assets.
Hot wallets, cold wallets and the middle
Exchanges typically keep the majority of client assets in cold storage — offline systems that never touch the internet. A small fraction lives in hot wallets to service withdrawals. The exact split is published in disclosures for exchanges such as Coinbase, Kraken and Crypto.com.
Warm wallets or MPC-signed hot systems sit between the two, letting exchanges process withdrawals quickly without exposing the full reserve to online risk.
Multi-signature and MPC
Multi-signature (multisig) requires several keys held by different parties to authorize a transaction. Multi-party computation (MPC) achieves a similar effect cryptographically without ever assembling a single private key.
Both models are widely used at scale — Coinbase, Kraken, OKX and Crypto.com all use variations of MPC and multisig for institutional and hot-wallet flows.
Insurance and audit
Insurance policies underwritten by Lloyd's syndicates and specialized brokers protect a portion of client assets. Gemini publishes insurance on hot wallet balances; Crypto.com publicly discloses a $750M policy.
Third-party audits — SOC 1 Type II, SOC 2 Type II and ISO/IEC 27001 — provide external validation of custody controls and are commonly cited by regulated exchanges.
Proof-of-Reserves cadence
Proof-of-Reserves is the industry's leading transparency mechanism for centralized exchanges. Binance, OKX, Gate.io, Kraken, HTX, Bitget and others publish PoR on schedules ranging from monthly to bi-annually.
Reviewing PoR is a valuable educational exercise for anyone studying exchange transparency, even if they never trade on the venue in question.