Framework
Distributed vs Centralized Storage
TL;DR
A decision framework for choosing between spreading reserves across multiple locations/accounts (distributed) versus concentrating in a single defended location (centralized).
A decision framework for choosing between spreading reserves across multiple locations/accounts (distributed) versus concentrating in a single defended location (centralized).
When to Use Distributed vs Centralized Storage
When structuring how reserves are held after deciding to store. Applies to bank accounts, currencies, asset classes, inventory locations, and data storage.
How to Apply
1
Assess Single-Point Failure Risk
Evaluate vulnerability of centralized storage
Questions to Ask
- What is the probability of total loss from centralized storage?
- Are there institutional protections (FDIC, insurance)?
- Is regulatory seizure or platform risk significant?
Outputs
- Single-point failure risk level: Low/Medium/High
2
Evaluate Coordination Costs
Assess operational burden of distributed storage
Questions to Ask
- How many accounts/locations would be required?
- What is the reconciliation and management overhead?
- Are there compliance/tax implications?
Outputs
- Coordination cost level: Low/Medium/High
3
Compare Benefits
Weigh risk reduction against operational costs
Questions to Ask
- Does geographic diversification reduce risk significantly?
- Does asset class diversification reduce correlation?
- Do scale advantages favor centralization?
Outputs
- Decision: DISTRIBUTED, CENTRALIZED, or HYBRID