Crypto trading platforms and stock brokerages look similar to a user and are structured very differently underneath. The separation of functions that securities markets require is largely absent.
Traditional markets separate the functions
In equities, the exchange matches orders, a broker routes them, a clearing house guarantees settlement and a custodian holds the assets, each as a distinct regulated entity.
The separation limits conflicts of interest and means the failure of one participant does not automatically compromise customer assets held elsewhere.
Customer securities are also required to be segregated from the firm's own assets, so they are identifiable if the firm fails.
Crypto platforms combine those roles
A single crypto exchange commonly operates the order book, takes customer orders, holds the assets and in some cases trades on its own account.
Trades between customers are often recorded in the platform's internal database rather than settled on a blockchain, so no external record exists.
The customer's holding is therefore an entry in the operator's ledger, and its reliability depends on that operator's controls and honesty.
Settlement finality works differently
Equity trades settle through a central counterparty on a defined cycle, with the clearing house standing between buyer and seller.
Internal crypto trades settle instantly in the platform's records but involve no independent party guaranteeing the other side.
Withdrawals to a personal wallet are what convert the internal entry into an on-chain holding, which is the point at which the claim becomes an asset.
Protection schemes do not extend to crypto
Brokerage customers are generally covered by schemes protecting against the loss of assets when a broker fails, subject to limits.
Those schemes cover securities and cash, and they do not extend to crypto holdings even when the same firm offers both.
Some platforms carry commercial insurance against theft from their systems, which is narrower than a statutory scheme and depends on the policy's terms.
Proof of reserves addresses only one side
Some exchanges publish cryptographic proofs demonstrating that they hold assets matching customer balances at a point in time.
These generally prove assets without proving liabilities, so an exchange with undisclosed borrowings can pass while remaining insolvent.
Regulatory treatment of these platforms is developing across jurisdictions and differs substantially between them, so protections available to a customer depend on where the operator is licensed.