I’ve been thinking a lot about exchange “protection funds” lately. You see a big number plastered on their websites, hundreds of millions supposedly set aside for user safety, but when things actually hit the fan, how many of these funds have really done anything?

We’ve seen exchanges collapse overnight, and despite all their claims of having security reserves, users still get wrecked. Some of these funds exist purely for optics, held in illiquid assets or, worse, their own native tokens, which become worthless in a real crisis. Others don’t even disclose how the money is managed, which makes me wonder… is the whole concept just smoke and mirrors?

That said, a few platforms actually back it up, keeping funds in BTC, USDT, and USDC, ensuring real liquidity. But even then, the question is: Would they actually use it to cover users if something went wrong? Or is it just another bullet point on their marketing deck?

What do you guys think? do protection funds really mean anything, or are they just another tool for exchanges to gain user trust without real accountability