What is the hot wallet ratio?
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 4 min
In short
The hot wallet ratio is the share of customer assets held under internet-connected keys. A lower ratio limits the damage from a breach, but it trades off against how quickly withdrawals can be processed. The actual figures and policies differ by operator, so check their own disclosures.
Key points
- The share of assets under network-connected keys
- A lower share caps the damage from a breach
- It trades off against withdrawal speed
- Levels differ from operator to operator
Definition
The proportion of an exchange's custodied assets that sits in hot wallets, with the remainder held in cold storage or other offline arrangements.
No exchange can hold everything in cold storage. If every withdrawal required a manual procedure, processing would never keep up. So operators keep roughly what daily withdrawals need in hot wallets and push the rest to cold.
The hot wallet ratio puts a number on that split. The lower it is, the less can be lost if the hot side is breached. Push it too low, though, and withdrawals queue up, which shows as delays during busy periods.
The right level depends on user numbers, trading volume and the mix of assets, so there is no universal 'safe percentage'. In practice it is more useful to read how an operator explains its own policy and to observe how steadily withdrawals actually clear.
Watch out for
- · A low ratio limits exposure; it does not guarantee safety
- · Published figures are point-in-time and can change
- · Do not judge an exchange on this number alone