On June 13, Bitladon’s new terms and conditions will come into effect. The conditions will change because Bitladon has established a foundation for clients' funds. The foundation will take over the management of customer funds from Bitladon. This means that in the unlikely event of bankruptcy, your assets will not be accessible to Bitladon’s creditors in this way.
What is a foundation for clients' funds?
A foundation for clients' funds or also known as third party funds was established so that the money of the customers is separated from the money of the company. The greatest benefit for this is the enhanced security for customer’s funds.
Because custodially held crypto assets may be considered to be the property of the company it could pose a risk in the unlikely event of a bankruptcy. In the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings and customers could be treated as our general unsecured creditors. Which would mean that customer’s funds are at risk. With the establishment of the foundation we neutralize that specific risk.
The risk of not separating the funds
Not separating the funds of the clients and the company poses a great risk for the customers. This is however the case with several brokers and exchanges. For example, Coinbase's 10-q form reads the following passage:
Moreover, because custodially held crypto assets may be considered to be the property of a bankruptcy estate, in the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings and such customers could be treated as our general unsecured creditors.
This passage seems to indicate that creditors at Coinbase can seize the financial resources of customers. In response, Coinbase CEO Brian Armstrong said customers should not worry. “Your money is safe with Coinbase, just as it always has been,” the Coinbase CEO wrote on Twitter.
In the new situation, the foundation keeps clients' funds (both fiat and crypto) of customers separate from the funds of Bitladon. In the unlikely event that Bitladon would have to deal with creditors, creditors will not be able to access customer funds in any way. Although a clients’ funds foundation is not mandatory for Dutch crypto providers, Bitladon has opted for this to limit the risk for customers.