“Off balance sheet” vs “On balance sheet”

Summary

To understand the difference between off-balance sheet and on-balance sheet crypto custody, you need to know how crypto assets are treated by the platform holding them. Off-balance sheet custody keeps customers’ crypto separate from a company’s finances, meaning it cannot be used, loaned, or claimed by creditors, offering stronger safekeeping. In contrast, on-balance sheet custody records customer assets on the company’s books, exposing them to potential misuse, leverage, or loss if the company fails. For investors, this distinction directly impacts asset security, ownership rights, and risk exposure. iTrustCapital keeps clients assets off-balance sheet, ensuring assets remain segregated and fully owned by the client.

Understanding Off-Balance Sheet vs. On-Balance Sheet

Multiple events in 2022 showed the risk of the crypto industry's common practice of including client assets on the balance sheet. There are multiple examples of companies betting or leveraging positions using client funds and then losing those assets. In many cases, it was the clients who eventually lost assets despite the clients not being the ones directly making those bets.

Holding client assets "off balance sheet" means that assets are not reflected in the company's financial statements and are not used by the company to impact the company's financial ratios or leverage. In other words, client assets are client assets, and the business does not commingle client assets with business activities. This is especially important for companies like iTrustCapital, who are committed to maintaining a favorable financial profile and providing the best possible service to our clients.

On the other hand, assets held on balance sheet are recorded in a company's financial statements and can have an impact on its financial ratios and leverage. The decisions made by the business may also directly impact client assets, as seen in the crypto industry with some businesses leveraging client assets. As mentioned earlier, many large well-known exchanges and platforms still hold client assets ON their balance sheet, creating the potential for additional risk. In the past, the decisions made by several of these companies resulted in their clients losing funds they had invested on these platforms.

Off-Balance Sheet vs. On-Balance Sheet Comparison

Factor	Off-Balance Sheet	On-Balance Sheet
Asset Ownership	Client assets remain fully owned by the client	Client assets may be recorded as company liabilities
Commingling Risk	Assets are never commingled with business operating funds	Assets may be mixed with company operational funds
Leverage Exposure	Assets cannot be leveraged, loaned, or used as collateral	Assets may be leveraged for company profits or operations
Impact During Company Insolvency	Client assets are segregated from company creditors	Client assets may be at risk and subject to creditor claims
Regulatory Transparency	Clear separation supports compliance and audits	May attract greater regulatory scrutiny

Risks of On-Balance Sheet Practices

The events of 2022 demonstrated the significant risks associated with on-balance sheet practices in the crypto industry:

FTX Collapse: FTX allegedly used billions in customer deposits to cover risky investments through its sister hedge fund, Alameda Research. When the company went bankrupt, thousands of users lost access to their funds.
BlockFi and Voyager: These platforms used client funds in ways that led to bankruptcy, resulting in permanent loss of customer assets.
Celsius: Attracted billions in deposits by promising high returns on crypto lending, but took massive, leveraged bets with customers' deposited funds. When markets turned, the platform froze withdrawals.

In each case, clients who believed their assets were safe discovered that on-balance sheet practices had exposed them to risks beyond their control.

How iTrustCapital Secures Client Assets

At iTrustCapital, we understand that securing our clients' assets is of the utmost importance. Our clients' assets are held in custodial accounts with a regulated chartered trust entity and all assets are off balance sheet. With this structure, we're able to provide retirement accounts and ensure that client accounts are never commingled with our business operating funds. This innovative approach provides our clients with peace of mind and the assurance that their assets are well taken care of.

Institutional-Grade Custody Partners

Digital assets held through iTrustCapital are secured by institutional partners including Coinbase Custody, Fireblocks, and Fidelity Digital Assets. These third-party institutional storage providers offer:

Secure, audited, and regularly stress-tested custody environments
Cold storage, MPC (Multi-Party Computation), and HSM (Hardware Security Module) technology
Commercial crime insurance policies

iTrustCapital never takes custody of your assets. We don't borrow or lend against client assets or leverage client assets for profit, and we don't let our custody providers do it either.

Key Takeaway

Off-balance sheet custody secures client assets during company insolvency because the assets are legally segregated, never leveraged, and cannot be claimed by company creditors, ensuring clients retain full ownership regardless of the company's financial health. At iTrustCapital, we believe that our clients' satisfaction is of the utmost importance. By holding client assets off balance sheet, we can provide our clients with the peace of mind that comes with knowing their assets are not commingled with our funds. This is one of the many reasons our clients choose iTrustCapital for a secure, worry-free investment experience.

Frequently Asked Questions

What does off-balance sheet mean for crypto investors?

Off-balance sheet means your crypto assets are not recorded on a company’s financial statements and are legally separated from its business operations. This prevents the company from lending, leveraging, or using your assets for its own activities. As a result, your holdings remain fully yours and are not exposed to the company’s financial risks. Platforms like iTrustCapital use off-balance sheet custody with regulated third-party banks and custodians to help ensure client assets remain secured and segregated.

What happens to my assets if a company holding them on-balance sheet goes bankrupt?

If assets are held on-balance sheet, they may be treated as part of the company’s liabilities during bankruptcy proceedings. This means creditors could potentially claim those assets, putting client funds at risk. Events like those at FTX, Celsius, and Voyager demonstrated how customers can lose access to their assets in these situations. Choosing a platform like iTrustCapital, which holds clients assets off-balance sheet, can help mitigate this risk by keeping assets legally separate from the company.

Why does off-balance sheet matter for crypto investors?

Off-balance sheet custody provides a critical layer of security by ensuring your assets are not tied to a company’s financial health. Because assets are segregated, they cannot be used for speculative investments, lending, or operational expenses. This significantly reduces counterparty risk and improves transparency. iTrustCapital’s structure is designed around this model, helping investors maintain control and ownership of their assets.

How do I know if a crypto platform holds assets on or off-balance sheet?

You can determine this by reviewing the platform’s custody disclosures and terms of service. Reputable providers clearly state whether client assets are segregated and held with third-party custodians. If this information is unclear or missing, it may be a red flag. iTrustCapital explicitly states that all client assets are held off-balance sheet with institutional custody partners, providing greater transparency and confidence.

What is the difference between a crypto exchange and a Crypto IRA in terms of asset security?

Many traditional crypto exchanges operate using on-balance sheet custody, where client assets may be tied to the company’s operations. This structure can introduce additional risk, especially during market downturns or financial stress. In contrast, Crypto IRA platforms like iTrustCapital hold assets off-balance sheet with regulated custodians, adding a layer of oversight. This approach helps ensure that client assets remain separate and are not exposed to company liabilities.

Does iTrustCapital use client assets for lending or leverage?

No, iTrustCapital does not use client assets for lending, leverage, or any business operations. All assets are held 1:1 and remain fully owned by the client at all times. This eliminates the risk of assets being used for speculative ventures or company profit. Additionally, iTrustCapital does not allow its custody partners to lend or leverage client assets, reinforcing a security-first approach.

What institutional storage providers does iTrustCapital utilize?

iTrustCapital works with institutional-grade custody providers such as Coinbase Custody, Fireblocks, and Fidelity Digital Assets. These providers offer secure storage solutions, including cold storage, MPC technology, and robust security infrastructure. USD deposits are held with established U.S. banks and custodians.

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DISCLAIMER

This article is for informational purposes only and is not intended to constitute investment advice in any way or constitute an offer to buy or sell any cryptocurrency, digital asset or security or to participate in any investment strategy.

iTrustCapital is a fintech software platform for alternative assets. iTrustCapital is not an exchange, funding portal, custodian, trust company, licensed broker, dealer, broker-dealer, investment advisor, investment manager, or adviser in the United States or elsewhere. iTrustCapital is not affiliated with and does not endorse any particular digital asset, precious metal or investment strategy.

Investing in any digital asset or cryptocurrency (including meme coins) carries significant risks due to their speculative and highly volatile nature. Past performance is not an indication of future results. No investment is completely risk-free, and every investment carries the potential for losing some or all of the principal amount invested. Cryptocurrency is not legal tender backed by the United States government, nor is it subject to Federal Deposit Insurance Corporation (“FDIC”) insurance or protections. Digital asset (Cryptocurrency) deposits held with institutional storage providers are never FDIC insured and may lose value. Clients do not receive a choice of custody partner.

Investors assume the risk of all purchase and sale decisions. iTrustCapital makes no guarantee or representation regarding investors’ ability to profit from any transaction or the tax implications of any transaction. iTrustCapital does not provide legal, investment or tax advice. Conduct your own research and consult with a qualified legal, investment, or tax professional to assess your own risk tolerance prior to investing.

iTrustCapital makes no representation or warranty as to the accuracy or completeness of this information and does not have any liability for any representations (expressed or implied) or omissions from the information contained herein. iTrustCapital disclaims any and all liability to any party for any direct, indirect, implied, punitive, special, incidental or other consequential damages arising directly or indirectly from any use of this information, which is provided as is, without warranties.