# kaal:claim:3936876-013

**Claim.** Centralized cryptocurrency exchanges require users to hand over their assets and then act as custodian, issuing what are essentially IOUs for users to trade with on the platform.

**Type.** mechanism  **Support.** asserted

**Holds when.**

- centralized exchanges, as distinct from decentralized exchanges

**Source quote.**

> These centralized cryptocurrency exchanges require users to hand over their assets to the exchange, who then acts as a custodian and essentially issues IOUs for users to trade with on the platform.

**From.** Wulf A. Kaal, Hayley Howe, *Custody of Digital Assets* (2021), II.2.a Hot Storage, page 16

**Cite as.** Wulf A. Kaal, Hayley Howe, Custody of Digital Assets (2021). SSRN: https://ssrn.com/abstract=3936876

**Verify.** sha256 of source PDF `9bc0903d01910460298e754c451f027df4324367359800a98ee8e638d94aff55` at https://raw.githubusercontent.com/wulfkaal/Academic-Papers/main/papers/pdf/Kaal%20and%20Howe%20-%202021%20-%20Custody%20of%20Digital%20Assets.pdf

**Failure mode.** exchange IOU substitution for asset ownership  (family: custody-and-key-loss)

**Topics.** decentralization, defi, risk-and-incentives

**Keywords.** centralized-exchanges, custody, iou, counterparty-risk

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