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What is a CEX?
A CEX (centralized exchange) is a company that lets you buy, sell and trade crypto, often with ordinary money. While your coins sit in your exchange account, the company holds them for you; they are only in your control once you withdraw them to your own wallet.
What it means for you
Coins left on an exchange depend on that company: it can freeze withdrawals, be hacked, or fail, and a regulator warns there may be no recourse if crypto is stolen. Before depositing, check whether you can withdraw that coin to your own wallet, on which network, and what the withdrawal fee is.
A common mistake: “My exchange publishes proof of reserves, so my coins are covered.”
In fact: The SEC notes a proof of reserves is a voluntary point-in-time snapshot of certain wallets. It may not show liabilities, what happened between snapshots, or assets moved right afterwards, and it is not an audit.
How it works
When you buy on an exchange, the company holds custody of the coins until you send them to a wallet you control. The SEC notes that such platforms can combine roles that regulated securities markets keep in separate firms — exchange, broker and custodian — and that combining them creates conflicts of interest. Registered US broker-dealers must keep customer assets separate from their own; a crypto platform outside those rules may not be bound to. If a platform fails, customers can have to stand in line behind other creditors.
Sources: ethereum.org: Get ETH (centralized and decentralized exchanges), CFTC: Understand the Risks of Virtual Currency Trading, Investor.gov (SEC): Exercise Caution with Crypto Asset Securities · checked 4 October 2026
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Educational content, not financial advice. Written by hand and checked against the source named above. Something wrong? Tell us and we reply within two business days.