When investors take legal action against U.S.-based cryptocurrency exchanges, one of the biggest obstacles they face is the liability waiver in the platform’s user agreement. These clauses are designed to protect the exchange from responsibility, often making recovery appear impossible. But while liability waivers create challenges, they are not absolute. In the right circumstances, they can be challenged.
If you’ve experienced losses due to crypto fraud on a trading platform, explore your legal options—our team at Meyer Wilson Werning can talk you through the steps of your case and help those who have been wronged. Reach out today to discuss your next steps with us.
How Liability Waivers Work in Crypto Exchange Agreements
Opening a crypto exchange account requires accepting the platform’s user agreement, which acts as a binding contract. These agreements typically include sweeping disclaimers that shift risk onto the customer.
Common examples of liability disclaimers include:
- Exchanges offering their services strictly “as is,” with no guarantees of performance, uptime, or security.
- Placing full responsibility on customers for protecting their login credentials, even in cases of theft or unauthorized access.
- Disclaiming responsibility for hacks or breaches, sometimes even when the exchange itself is compromised.
- Shifting blame for vulnerabilities in third-party software used by the platform.
In arbitration, these clauses are usually the exchange’s first line of defense. Their argument is simple: customers agreed to assume the risks when they signed (or checkmarked “I Agree” on) the agreement.
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Why Liability Waivers Are Not the End of the Story
Although exchanges rely heavily on waivers, they do not eliminate regulatory duties. U.S.-based crypto exchanges are considered financial institutions and must comply with certain federal and state requirements. These obligations create opportunities to hold exchanges accountable.
Key regulatory standards include:
- Federal registration: Most major exchanges register with the Financial Crimes Enforcement Network (FinCEN) as money service businesses.
- State licensing: Exchanges are often licensed as money transmitters in multiple states, which comes with compliance responsibilities.
- Cybersecurity requirements: States like New York impose detailed standards through regulations such as 23 NYCRR Part 500, requiring multi-factor authentication, written policies, breach notifications, and strong internal controls.
If an exchange ignores red flags, fails to warn users of known breaches, or lacks basic safeguards, those failures may outweigh contractual waiver language. Whether an investor can challenge the waiver successfully depends on the facts of the case and how those facts are presented in arbitration.
Why Arbitration Outcomes Can Differ
Every arbitration is unique, and outcomes often hinge on both the evidence presented and the arbitrator’s interpretation of waiver clauses. Some arbitrators apply user agreements very strictly, while others give more weight to regulatory duties.
For investors, this means:
- The selection of the arbitrator is a critical decision.
- Evidence of regulatory violations or security lapses can be central to a case.
- Legal arguments must be carefully crafted, since appeals of arbitration decisions are rare.
Because arbitration rulings are final, investors typically get just one chance to make their case. This makes working with an attorney who understands both crypto law and arbitration strategy essential.
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How Meyer Wilson Werning Helps Crypto Investors
Liability waivers are not always as impenetrable as they seem. If a crypto exchange failed to meet its legal or regulatory obligations, it may still be held accountable. At Meyer Wilson Werning, we help investors navigate arbitration, challenge overreaching waiver language, and pursue recovery when exchanges fail to protect their customers. Contact us today to discuss your situation and explore your path forward.
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Frequently Asked Questions
What is a liability waiver in a crypto exchange user agreement?
A liability waiver is language in the user agreement that shifts responsibility for risks and losses onto the customer. Exchanges often use these clauses to disclaim responsibility for hacks, breaches, or unauthorized account activity.
Do liability waivers mean investors can never recover losses?
Not always. While waivers create obstacles, exchanges still have regulatory obligations under federal and state law. If they fail to meet cybersecurity or compliance requirements, those failures can override contractual disclaimers in arbitration.
What regulations apply to U.S.-based crypto exchanges?
Exchanges are typically registered with FinCEN as money service businesses, licensed as money transmitters in multiple states, and subject to state cybersecurity rules. These rules require safeguards such as multi-factor authentication and breach notifications.
How do arbitrators treat liability waivers?
Outcomes vary. Some arbitrators apply waivers strictly, while others weigh evidence of regulatory violations or security failures more heavily. Success often depends on the arbitrator selected and how the case is argued.
Why is legal representation important in these cases?
Because arbitration rulings are final and appeals are rare, investors usually have one chance to present their case. An attorney experienced in crypto law and arbitration strategy can challenge waiver language and highlight regulatory breaches to strengthen an investor’s claim.
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