FOLLOW THE MECHANISM
- 1Deposit
- 2Trade
- 3Withdraw
The operator must release assets to the requested network address.
A conceptual sequence. Real implementations can add steps, intermediaries, and conditions.
Two ledgers, two kinds of settlement
A centralized exchange typically receives assets into addresses it controls and credits an account in its internal database. Buying or selling can then change that database without a blockchain transaction for each trade. An exchange balance is therefore different from an asset controlled by your own signing key. A later withdrawal requires the operator to authorize and broadcast an onchain transfer. Trading availability, withdrawal availability and the solvency of the custodian are separate questions.
What the matching engine does
Many venues match buy and sell orders in an order book. Coinbase Exchange documents price-time priority: better prices are matched first, then earlier orders at the same price. That is one venue’s rule, not a universal rule for every crypto market. Traders supply the opposing orders; the exchange supplies matching, accounting and access. A displayed last-trade price records an earlier transaction. It does not promise that a new order of any size can execute at that price.
Where fees and obligations go
A customer who deposits ten simulated units increases the operator’s assets under custody and its obligation to that customer by ten units, before fees. A trade exchanges one customer claim for another. Trading fees reduce customer balances and become revenue for the venue under its terms. Lending, margin or yield features add further contracts and exposures; they should not be inferred from the exchange function alone. A venue can be a trading platform and a lender, but those are economically different activities.
A visible balance is not a solvency proof
Operational outages can prevent withdrawal even when assets exist. Insolvency means assets are insufficient to meet obligations. Theft, misuse of custody assets or losses elsewhere in a corporate group can create a shortfall. A snapshot of some onchain reserves cannot by itself establish complete liabilities, ownership, encumbrances or future access. Evaluating a custodian therefore requires more than checking an address. The useful mental model is a service with a balance sheet and control permissions, rather than a wallet interface alone.
MAKE IT CONCRETE
An illustrative interruption
A customer holds a 100-unit exchange balance. Withdrawals pause during maintenance. The balance still records a claim, but immediate spendability is absent; the pause alone does not establish insolvency.
FAILURE PATHS & COMMON MISREADINGS
Where the model can break
- A custodial balance is not proof that you control an onchain key.
- Proof of assets without complete liabilities is not proof of solvency.
KEEP EXPLORING